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King Report: Despite central banking's price-suppression schemes, gold revolts

Section: Daily Dispatches

From The King Report
Burr Ridge, Illinois
Friday, June 21, 2019

Central banks can get away with promiscuous monetary schemes until gold and then bonds revolt.

Gold is now in revolution against central banks. Historically bonds eventually align with gold. But central banks and governments have cornered the bond market. Gold might have to carry the pitchforks and torches by itself for quite some time.

Gold is telling the world that a critical mass of investors is allocating central bank liquidity to gold because the liquidity is unlikely to be economically effective. This means financial assets, including currencies, are overvalued and too risky.

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As in any bull market, psychology and momentum build and become self-reinforcing. George Soros calls it "reflexivity." Bullishness begets more bullishness ad infinitum and alters psychology about fundamental issues. As the trend builds, humans manufacture reasons to be bullish and eventually irrationally exuberant (excess global savings, Mexico turning the corner, dot-com mania, yada, yada, yada).

When gold is in a robust rally, pundits and the financial media have to produce fundamental reasons for the move. Inevitably with gold it is lack of confidence in -- take your pick -- forex, bonds, central banks, politicians, the world, or all of the above. The Street and media will create the self-reinforcing loop.

Central banks and Keynesian politicians have always detested gold because it can usurp their scams. It is also why central banks and sovereigns have engaged in gold rigging schemes to the downside for decades. They will do it again in the coming weeks and months -- because they have no choice.

For years Street denizens have asked the question: What is the end game for central banks after 10 years of record promiscuity? The Fed and (probably) the People's Bank of China tried to exit the quantitative easing roach motel. They were unable to do so. Gold and possibly bonds will be the major factors in the end game.

It is far too early to guess if or when bonds will join gold in the revolt. The longer that central banks maintain their bond corner, the higher gold should go and the worse the end game should be.

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