Last week was a wild roller coaster ride on Wall Street. When the dust settled and the cars came to a stop on Friday, gold was the last safe haven standing.
In this week's Money Metals' Midweek Memo podcast, host Mike Maharrey examines gold's performance and contrasts it with other havens, including the Treasuries and the U.S. dollar.
He also puts recent market and economic volatility driven by the trade war into a broader context—the bubble economy. Mike notes that the mainstream can't even ignore the bubble anymore, but they still seem relatively clueless about what caused it and why it will ultimately pop.
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"So, was last week wild enough for you? It was a wild roller coaster ride. And when the cars finally came to a stop on Friday after whipsawing through a storm of volatility and uncertainty, gold was the last safe haven standing."
Mike highlights gold's movements when stocks sold off last week as the trade war turned hot. The yellow metal initially fell, along with virtually everything else.
"It’s not unusual for gold to fall sharply in the early stages of a stock market selloff. Because of its liquidity, traders often cash in gold to cover short positions in equities."
But gold quickly rebounded, gaining strength even as a mid-week stock rally after Trump announced a 90-day pause on reciprocal tariffs petered out. By Friday, gold was once again at record levels.
"Other safe-haven assets didn’t fare as well."
After initially rallying, both U.S. Treasuries and the U.S. dollar sold off.
"This was not business as usual during a time of stock market weakness and general market instability. As CNBC noted, 'Treasuries and the dollar typically benefit from flight-to-safety environments, a function of the U.S.′ historical financial strength.' That happened early in the trade war, but it quickly unraveled. It's also very unusual for gold to rally when bond yields are rising. This underscores the fundamental strength of the yellow metal in the current market environment. "
Mike reinforces his point with commentary from some mainstream analysts and points out that most mainstream commentary centers around the trade war.
"If you listen to the mainstream analysis, you’d think that everything is about the tariffs.
"It’s not.
"I mean, the tariffs are certainly at center stage right now, but they are really minor characters in a much bigger story.
"Here’s the thing – the tariff situation wouldn’t be nearly as problematic if the economy weren’t a giant bubble.
"The thing about bubbles is that they eventually pop.
"All they need is a pin.
"Tariff policy might be the pin that pops this bubble, but even if it isn’t, there is a pin out there with this bubble's name on it."
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Mike points out that he's been calling this a bubble economy for years.
"This isn’t a term you often hear bandied about in the mainstream media. So, I was surprised to run across a Reuters article last week headlined, 'There’s no easy escape from the U.S. bubble economy.'”
Mike uses this mainstream article as a jumping off point to explain what a bubble economy is to highlight the extent of the problem.
The mainstream has taken notice. Mike points out that over 60 percent of CEOs in a recent survey said they expect a recession in the next six months.
"The Reuters report did a good job of explaining the bubble economy and why it’s a problem, but it didn’t answer a key question: How did the bubble inflate to begin with?"
Answer -- the Federal Reserve.
"The central bank pumps air into the bubble economy in the form of easy money. Simply put, without money creation, there is no bubble."
Mike notes that bubbles aren't an anomaly; they are the norm in a fiat money system run by a central bank.
"This isn’t the first time the Fed has gotten into the bubble-blowing business. It pumped up the dot-com bubble in the 90s. It pumped up a real estate bubble in the early '00s. What happened to those bubbles? They popped. In the wake of the 2008 Financial Crisis, the Fed went to work reinflating the bubble yet again. ...
"Here we are today with a massive bubble economy that not even Reuters can ignore. And there’s no reason to think this one won’t pop, too."
That leads to a call to action. Mike reminds listeners that they want to have real money during a time of economic turmoil. They want a safe haven that will hold up.
"That's what now is the time to call 800-800-1865 and talk with a Money Metals' precious metals specialist."
Articles Mentioned in the Show
U.S. Government Runs Second-Largest Half-Year Deficit on Record
Why It Isn't Too Late to Buy Gold
The Dow-to-Gold Ratio: Is the Bubble About to Pop?
About the Author
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
