He CALLED $3,500 Gold: Now $4,000 Is Next | Dr. Komal Sri-Kumar
Summary
Gold Market Surge: Gold prices have surged to nearly $3,600, driven by a flight from currencies and economic uncertainties, with predictions of reaching $4,000 soon.
Economic Drivers: Key factors influencing gold include Federal Reserve policies, tariff uncertainties, and stagflation concerns, which are causing a global impact on currency values.
Tariff Implications: The imposition of tariffs is seen as market intervention, leading to inflationary pressures and potential stagflation, reminiscent of economic conditions from the 1970s.
Federal Reserve Dynamics: The Fed faces a dilemma with rising inflation and weak job growth, complicating interest rate decisions amidst internal dissent and political pressures.
Stagflation Risks: The potential for stagflation—a rare combination of recession and inflation—poses a significant challenge, requiring tough measures similar to those in the early 1980s.
Investment Strategies: In the current climate, short-dated treasuries, globally diversified real estate, and gold are recommended as safe havens to mitigate risks associated with market volatility.
Federal Reserve Politicization: The increasing politicization of the Fed could lead to instability in interest rate policies, affecting long-term yields and market confidence.
Transcript
Gold has broken out. Gold has moved to almost $3,600 in the spot market. December futures already way over $3,600 gold. And we need to discuss why did that breakout happen? What has been driving the gold price as of late. It's been an absolute historic move. And I've invited a guest who's actually called it. I've interviewed him in February and he said by July we'll be at $3,500. He missed by a day or two, but let's not be too uh too too crass with him here. and uh he's been absolutely spot on cuz we talked about what's going on at the Fed, what are some of the other underlying economic indicators that are pushing gold in the direction that we're in right now. Uh lots to discuss here, of course. So, but before I switch over to my guest, before I bring him on, please hit that like and subscribe button. It helps us out tremendously. And now I'm looking forward to the conversation with Dr. Sriel Kumar. Really looking forward to this. Thank you so much for joining us, >> Kai. Very good to be with you again. I think it's a very eventful time in global financial markets, especially in the United States with what is happening with, as you said, with gold, Federal Reserve, interest rates, tariffs, all coming together. So, it's a very interesting time indeed to talk about various events. >> Yeah, it feels like the summer was fairly slow and we saved everything for like the last week before everybody got back to school and now we're just in the middle of a whirlwind economic activity. We're getting lots of economic data this week as well. Um I mentioned like we need to talk of course about the gold price but before we talk about maybe also outlook of the gold price let's sort of dissect what has been driving gold personally I've marked like three topics I want to discuss with you that is one of course the Fed uh just polit just uncertainty from that front uh the tariff uncertainty meaning court rulings saying well the tariffs are not legal we need to revamp this and then of course stackflation stackflationary scenarios I'll let you choose the first topic here um where should we start like what is maybe the most important one to you right now? >> I'm happy to go with the same sequence that you mentioned Kai. Let's begin with gold. I began the year by saying gold price is likely to go up but the dollar is also likely to weaken if you have the Trump tariffs actually imposed and many of the Trump tariffs are now reality in respect. Now we are waiting to see what the courts say but from the president's point of view and the country's points of view they are paying the higher tariffs and even the appeals court has said that until the decision is made in October uh the president can continue to levy tariffs and collect the revenues. So that is on uh but the first part is gold. Uh the imposition of the tariffs also the various attempts at trying to restrict foreign trade caused the dollar to weaken. But what happened is we are now in the second stage and that is what I anticipated when I said the gold price will go up. You have reached a stage where all currencies are being debased. If you don't like the US dollar, what do you do? You can go get your refuge in euros, British pound sterling or the Japanese yen. What if you don't like any of those currencies? You have to go to gold. So what is happening in the United States is having a global impact and the higher bond yields that I think we are going to see in the United States are going to have an impact on foreign countries as well. And so there is a flight from currency and that is what I would say is prompting the move into gold and I would look now having talked about 3500 roughly at a year beginning of middle of the year I would look for 4,000 within the next few months because there is nothing here to stop the gold from going up further. That's one. Second you mentioned tariffs and again I don't believe in tariffs at all. I am again a student of economics, student of international trade and I believe in free trade in terms of doing it that is best for the consumers. It is also best for producers. If you produce most efficiently, you should be able to sell wherever you can and if you do not produce efficiently then you deserve to go bankrupt. Both of those are managed by the market. Imposition of tariffs is an intervention in the market mechanism. It creates distortions and that is what I think we are going to go through and even more important for us in the United States it is going to push up the inflation rate. I don't believe as governor Fed Governor Christopher Walker has said that it is going to be a oneshot deal. I think it is going to be more longlasting unless they are removed or cancelled. If not, you're going to have a continued increase in the inflation rate and you're going to have a cut off, a reduction in total demand. That brings us to the third topic that you raised, stagflation. Normally when inflation is high you also have economic growth doing very well and when there is a recession the prices do not increase very much because the aggregate demand has fallen off. Stagflation is a very very rare occurrence. We last had it had it 50 years ago. And in a stagflation you have both a recession as well as an increase in prices at a very rapid rate. How does that happen? It happened in the 1970s when one commodity which was called oil went up substantially in price and there were no substitutes. There was no solar energy. There was no electrical energy to substitute for it. Today, even though you don't have one single uh unit or commodity being attacked, you have a whole range of commodities that are affected by tariffs. So, it is not as if the consumer can turn from one direction to the other to avoid tariffs. He or she is going to face tariffs in every direction. And that I think is what is going to cause stagflation. We already see that with the weakening of the labor market in various numbers this week and I think you're going to see the prices have started to move up. Next week we are going to have the consumer price and producer price index and that will also show an acceleration in inflation. So all these factors are actually closely related and I would expect the gold price, tariffs and stagflation all to be intimately related during the months to come. >> No, very great overview. Of course, I have lots of questions to follow up and maybe we'll start with the Fed actually a topic you haven't touched on too much, which is good because now now I'm allowed to follow up with it. Uh we we get we're getting a lot of data in the coming days. Actually, unfortunately, unfortunately, timing wise, we're recording this on Thursday ahead of uh getting the jobs report out, but we need to take that into account when we talk about the Fed and policy decisions here, interest rate decisions. What is your expectations? What what should the Fed do? You're you're saying you're expecting higher inflation, so that's of course contra counterproductive to a Fed cut. We're expecting higher employment, which is pushing for a rate cut. What What's the balance here? Uh first of all uh every report that we have seen on the jobs front uh the ADP report on private sector employment was very poor. Initial jobless claims have risen significantly. So everything says to me that tomorrow Friday's jobs number is going to be a poor one. The last one we had was 73,000 jobs in uh July. I the expectation is around 75,000 meaning about the same as what we had before which would be weak job creation perhaps an increase in the unemployment rate. So as you said if the Fed were to counter that with a rate cut they have to deal with also higher consumer prices and producer prices which are going to come up next week. So what do you do? That's the quandry you face in a in a stagflation. Stagflation is a situation when both of them happen. A weak economy and a rapid rise in prices. And the only way to cure it is as we did during 1981, 1982 to ring inflation out of the system by essentially putting the economy through a ringer. And that's some that means push putting the economy through a very severe recession and that's the only way you can get out of stagflation. You can't do it by cutting rates or increasing rates because whatever you do you help the inflation side then you're going to hurt employment and vice versa. >> When you say putting the economy into recession like what's what's the best way to do that? So it's so people would actually accept it and not start you know marching in the streets here and I'm exaggerating of course a little bit but sort of what is the best way to to generate that cleansing effect. >> Uh that's a very good question Kai the reason being people will not accept the solution they did not accept the solution when Paul Vulkar as Federal Reserve chairman did in the early 80s. uh the farmers sent their tractors to the Federal Reserve building to circulate because they said they can't do anything there. Construction industry people sent bricks over to the Federal Reserve building because there was no construction with those extremely high interest rates. So if you are looking for a popularity contest, you're not going to win it by solving stagflation. You're going to stop solve stagflation by taking very tough unpleasant measures. What's that going to be? Once you have reached stagflation, the way to do it would be to put interest rates at a much higher level and thereby you put the economy into a very severe recession until eventually the price increases slow down. And that's what we found from the 1980s. So my guess is that that's what we would need to do again in order to do it and that's why it's a very serious proposition as to how you get out of it. The point being you never want to get into a stagflation because once you get into it the solution is going to be very harsh. >> How do we factor in the HR mess over at the Fed? Lisa Cook, Steven Mirren, um dissident during a Fed votes um or Fed governors being dissident when it comes to voting. Like how do we take that into account as well? Chris Waller even calling for a jumbo cut going a bit of a different direction from from Jerome Powell who's still very cautious about it also. How do we take that mess into account? >> I think the the Federal Reserve has already been severely politicized. It is happening with uh the res with the resignation of one governor who is being replaced by Steven Miran who is going to take probably going to vote in the September this month's uh federal open market committee meeting. He's going to vote for a cut in the interest rates. If the other two dissenting governors from July also descent, you're going to have three descents against Jerome Powell. The last time we had three descents was 1987, not since then. And when that happened, Paul Bulkar was outvoted by the other members of the Federal Reserve and he quickly resigned because he couldn't implement policy because the majority was opposed to the Fed chairman. If you have that today in the circumstances where the capital markets are much more aligned, much more connected, you're going to find there is going to be a flight from a lot of risk assets, lot of volatility and the effect on the effect on the market. So that is one thing. Second, how do you uh what is the influence of the politicization of the Federal Reserve? I have been saying and writing for a while, the yield curve is going to steepen. The Federal Reserve can cut short-term interest rates, but they cannot affect the long-term interest rates, which are going to be set by the market. If the 10-year yield and 30-year yield rise significantly when the 2-year yield is cut because of the federal funds rate going down, then your mortgages are going to get more expensive. the US Treasury's debt is going to become much more expensive to service which is the opposite of what the president wants to achieve. Under those circumstances, the economy is going to suffer. So you have to think about what politicization of the Fed means and you're not going to get any benefit out of it over the long term. So that is that's where I come out. >> Yeah. No, it's appreciate the very clear words cuz it feels like the general public is just not aware of that a Fed cut doesn't necessarily mean disinflation, cheaper house prices or at least availability, cheaper mortgage rates cuz last September we've seen it. The Fed cut by 50 basis points and the mortgage rate went up. >> So, why why do they think it's different this time? Why is this is a very dangerous term to use, of course, this time is different. like why do they think that is like is it just because the media is reporting like a Fed cut is good for us uh it'll push us in the right direction? Great question. Again, I I think historically the Fed uh rate cut has taken place when the economy is weakening or when the inflation is coming down, the Fed reacts by cutting interest rates. And so therefore the public including the investors think that the Fed knows best. If they are cutting interest rate, it must mean that things are actually require a lower federal funds rate. But in reality, when you have a Fed which is politicized and is trying to meet the political objectives of the president in power, that's not what happens. The rate cut takes place when it is unwarranted and therefore the long yield goes up when the short rate goes down. So the answer to your question is people look for the two rates to move in the same direction because most of the time historically that's what has happened. But in reality when they move in opposite directions because the Fed has become political you get a very different result. >> Yeah. I I spoke with Jim Biano last week I believe and we we tried to sort of analyze the word deflation cuz I've been mentioning to him like okay let's assume we only see one one basis or one cut meaning 25 basis points now in September in about 2 weeks time but the messaging is we're looking at more cuts like why would the consumer change behavior or start acting on like let's maybe just buy a house or so cuz in 3 months time the mortgage rate theoretically is lower because we're expecting more cuts. Like it I'm struggling with the word deflation because it feels misplaced, but it's the consumer waiting for something to become even cheaper without actually being cheaper, if that makes sense. Like it's a bit convoluted because I struggle with that word personally. Um what do you make of that? Like it depends a bit on the messaging of course of Jerome Powell in the press conference, but what what do you make of that? >> Uh well, the expectation is that the September cut is going to be a so-called hawkish cut. They cut by a quarter point, but the message that Jerome Powell gives is going to be a very strong anti-inflation one saying, I have done my bit for employment, but now I'm going to give my press conference in a way that I'm going to support the uh the inflation fight. I don't think that is doable. And I'll tell you why. You cannot fight two different battles with one instrument. It's like saying you have an army force and you're going to have your army fight in two different parts of the world against two different enemies when even one enemy is difficult to meet and there is a historical precedent to it. There was a Dutch economist who passed away called Yan Tinberen and it is known he's a Nobel laurate. He is known as having uh proposed something called the tinberen rule and that says when you have one objective you can only meet it with one instrument. That one instrument cannot be used to meet two objectives in this case inflation and employment. The Fed is trying to do that. So I think the Fed is going to fail in its efforts and unless it stays laser focused on just bringing the inflation rate down, we are going to have a fairly ineffective Fed. So what happens after the September meeting? I expect a quarter point cut because the Powell has basically signaled he's going to cut it whether the whether the press conference is anti-inflation or not. uh the cut is going to take place and the market will take its cue from what happens. The president is not going to be happy with a quarter point cut and you may have three people or more dissenting against Powell in future meetings and that is the big risk for the chairman. Keep in mind also that in ne next February very many of the regional uh central regional central bank presidents come up for renomination or removal. And if you have the governors being dominated by Trump appointees, they may decide to change some of the voting regional bank presidents so that by the even before power leaves office, he can have a majority which is voting against him to cut rates by 50 or 75 basis points. Then you don't care what the chairman says because what the chairman says doesn't mean much. That again is going to be very risky for the markets. It's going to make the market behavior highly unstable. >> What would happen if Jerome Pal were to resign tomorrow? Like what what do you think? How will the market react? Um because it's already pricing in a lot of uncertainty here. Um would it drive uncertainty to the max here? >> Uh the market today is assuming he will not resign until May of 2026. Second, it is saying that there is a a gridlock in the Fed with the chairman disagreeing with the president and the two of them have forces which are fighting each other. One force to reduce interest rates, the other force to be not cutting interest rates. If Jerome Powell were to resign tomorrow, you have only one force. It is going to be a Fed which is wholeheartedly trying to cut interest rates. Nobody is there to effectively say that interest rates need to be maintained and that that setup the steepening of the yield curve and the increase in the 10-year bond yield and the 30-year bond yield happens immediately and I have been saying under that setup you could have a 25 30 basis point rise in the 10 year or 30-year yield within just a week and that's not going to be good for the stock market. It is not good for housing and it's not good for the overall economy. >> Let me be a bit egotistical, but I would assume it's great for gold, isn't it? >> Yeah, it would be terrific for gold because you can say that is one instrument no human being can interfere with. It has kept its value over the ages and it becomes particularly important and relevant today. So gold actually flourishes under the setup. >> No abs. Absolutely. No, really, really interesting. Um, Sri, and uh maybe fun question. You you retweeted something that I saw um earlier as a comment that you should run for Fed chair, that you should throw your head in the race and you've retweeted that. >> Would you be interested? Would you be keen? And what would you do different perhaps? >> Um I think the way Jerome Powell is behaving is will not be consistent with the way I would behave. My hero and I have made no secret of that guy. I have written about it, spoken about it. My hero is Paul Walker. I and he was one who said inflation, he behaved as if inflation was his sole objective and he brought it down after a very difficult phase in US economic history. So now I come to the crux of your question. What would I do if I were Fed chairman? I have written and I will increase the interest rate today by at least a quarter point from 4 and a/4 to 4 and a half where we are today on the federal funds rate I will go to 450 to 475 the US equity market will take a dive and I think the bond market on the other hand initially the yields will go up but again you referred to what happened between September and December of last year, Kai, when the Fed cut interest rates by a cumulative 1 percentage point and the 10-year yield went up by 90 basis points. Right now, you will have the opposite of that. The short rate is increased and eventually the long yield will come down, inflationary expectations would be lower. The markets would say here is a guy who is not politicized and who just focuses on inflation and inflation alone. So bonds become a very treasured comm commodity. The gold price goes down and the dollar rises in value because globally people say this is a currency in which I would like to hold my risk assets. >> No, fair enough. you sort of bring trust back to the system a little bit. >> Exactly. You put it very well. >> Yeah. Um I was going to say like you touched on US dollar twice now and I I didn't really script for it but we need to talk about it cuz you said well the US dollar came down. I was just looking at the Dixie that's a comparison against other currencies and it's stabilizing. I expected it with 35 or $3,600 gold that maybe the Dixie is down at 95 and I don't follow it on a daily basis. I look at it a couple of times a week but no we're trading up. We're at 98.2. We're actually trading higher today, which is sort of explains maybe the the gold price coming down and taking a breather a little bit. I don't want to talk intraday here, but um run us a bit through the the dollar. Like, yes, it's come down from 114 down to 98. So, that's a massive move, but it's not as weak as I thought it would be given the gold environment we're in. uh what you're having is that the impact of higher inflationary expectations, the impact of tariffs, it can sh they can show up in two different ways. They can show up in the dollar exchange rate uh in the DXY index that you mentioned or they can show up in the price of gold or both. Right now, gold is dominating it because there is a flight from currencies. If you if you are fleeing the dollar and you're also fleeing the euro, the yen and the British pound sterling, where do you go? The DXY doesn't change under that setup. Recall that the exchange rate is a relative price. That's what we call it in economics. A relative price is the price of one commodity in terms of another. It's not like saying how many loaves of bread can I buy for $10. You are instead asking how many loaves of bread do I have to give to get a dozen eggs. So you're exchanging bread for eggs. So compare with that dollar to euro exchange rate is like exchanging bread for eggs. On the other hand, the gold price going up is where you say I need to shell out more dollars to buy a dozen eggs, which is a different setup. So the gold is taking the brunt of the attack today and not the currencies and that's why DXY has remained stable and at the same time the gold price is continuing to surge. >> Oh, fantastic. I appreciate that. >> To me to me that's not surprising at all that I would not forecast with any precision whether it's going to be the hit is going to come on DXY or the gold price. It can be one and then it switches over to the other. No, I appreciate that explanation. That's fantastic. Very lots of clarity in that in that statement there. Sri, um, we we've talked Fed, US dollar, now tariffs. Um, it feels like we're forgetting a topic like what what else are you looking at that's sort of influencing markets right now? Are you looking at corporate earnings at all? Is that something you're tracking as well? >> Corporate earnings I have, but again, I'm not an equity analyst. I don't look at them as carefully as I look at bonds. corporate earnings have been good very well but again the valuation of equities is also historically at extremely high levels. So the point I would make is if the tariffs persist and if you do reach a stagflationary situation that is not good for corporate earnings. So you currently have a divergence between the macroeconomic risk and corporate earnings picture. I think within a few months the both of them are going to coincide and the corporate earnings is going to follow what is going on in the macro economy in a way it hasn't done so far. Shri, like what should Jane and Joe Blow do now? Like let's assume by the until the end of the year like how should they be positioned? And I'm not asking for financial advice. I'm just more like how should we behave like what should we do? >> Yeah. No, I don't provide financial advice because I always mention I'm not an investment advisor. >> But typically what is it that they should be doing? The risk that they have. We talked about risk in uh assets like equities. We also talked in terms of risk that you're holding 10-year treasuries or 30-year treasuries because if the yield goes up substantially, you're going to lose money in it. So what I have been suggesting is that you seek refuge safe haven in shortdated treasuries and shortdated high income in high uh yield instruments namely 6 month 9 month 3 month treasury bills where you can hide without having much of a duration risk. That's one area that you can go into. Second, if you do not have alternative investments, look at globally diversified real estate investments, private equity opportunities with a good manager and then stick with it for the next 5 years. Money that you're not going to need in the meanwhile. That's the second way to do it. Third, uh this is the ultimate rainy day refuge. Put some money in gold. And I I said that when we were at 2600 and 2700. I continue to say that at 3600. Maybe I don't say it as strongly today as I did before, but still it helps to have a little bit of money in gold. >> Fantastic. Awesome. No, really appreciate the conversation s like it's always great to have you on. Very clear, very easy to follow. Um much appreciate your time. Like where can we send our audience to follow more of your work? Uh I am on Twitter as you mentioned and it is @ shriek s r i k global and I also write on substack every Saturday um sub mean it's a uh and so that one again is something that people can follow as well. I have quite a number of followers on substack who do it. >> Fantastic shri thank you so much for joining us. Really appreciate it. And uh everybody else, thanks so much for watching sort financially here during a very exciting week in the gold space. Lots has been happening. Gold is moving has moved over $200 in 5 days. Question is, are you participating in it and where do you think it is going? Leave your comments down below and really looking forward to hearing from you because I read all the comments and uh yeah, subscribe, like, and we'll be back with lots more here on Soore Financially. Thanks so much for tuning in. [Music]
He CALLED $3,500 Gold: Now $4,000 Is Next | Dr. Komal Sri-Kumar
Summary
Transcript
Gold has broken out. Gold has moved to almost $3,600 in the spot market. December futures already way over $3,600 gold. And we need to discuss why did that breakout happen? What has been driving the gold price as of late. It's been an absolute historic move. And I've invited a guest who's actually called it. I've interviewed him in February and he said by July we'll be at $3,500. He missed by a day or two, but let's not be too uh too too crass with him here. and uh he's been absolutely spot on cuz we talked about what's going on at the Fed, what are some of the other underlying economic indicators that are pushing gold in the direction that we're in right now. Uh lots to discuss here, of course. So, but before I switch over to my guest, before I bring him on, please hit that like and subscribe button. It helps us out tremendously. And now I'm looking forward to the conversation with Dr. Sriel Kumar. Really looking forward to this. Thank you so much for joining us, >> Kai. Very good to be with you again. I think it's a very eventful time in global financial markets, especially in the United States with what is happening with, as you said, with gold, Federal Reserve, interest rates, tariffs, all coming together. So, it's a very interesting time indeed to talk about various events. >> Yeah, it feels like the summer was fairly slow and we saved everything for like the last week before everybody got back to school and now we're just in the middle of a whirlwind economic activity. We're getting lots of economic data this week as well. Um I mentioned like we need to talk of course about the gold price but before we talk about maybe also outlook of the gold price let's sort of dissect what has been driving gold personally I've marked like three topics I want to discuss with you that is one of course the Fed uh just polit just uncertainty from that front uh the tariff uncertainty meaning court rulings saying well the tariffs are not legal we need to revamp this and then of course stackflation stackflationary scenarios I'll let you choose the first topic here um where should we start like what is maybe the most important one to you right now? >> I'm happy to go with the same sequence that you mentioned Kai. Let's begin with gold. I began the year by saying gold price is likely to go up but the dollar is also likely to weaken if you have the Trump tariffs actually imposed and many of the Trump tariffs are now reality in respect. Now we are waiting to see what the courts say but from the president's point of view and the country's points of view they are paying the higher tariffs and even the appeals court has said that until the decision is made in October uh the president can continue to levy tariffs and collect the revenues. So that is on uh but the first part is gold. Uh the imposition of the tariffs also the various attempts at trying to restrict foreign trade caused the dollar to weaken. But what happened is we are now in the second stage and that is what I anticipated when I said the gold price will go up. You have reached a stage where all currencies are being debased. If you don't like the US dollar, what do you do? You can go get your refuge in euros, British pound sterling or the Japanese yen. What if you don't like any of those currencies? You have to go to gold. So what is happening in the United States is having a global impact and the higher bond yields that I think we are going to see in the United States are going to have an impact on foreign countries as well. And so there is a flight from currency and that is what I would say is prompting the move into gold and I would look now having talked about 3500 roughly at a year beginning of middle of the year I would look for 4,000 within the next few months because there is nothing here to stop the gold from going up further. That's one. Second you mentioned tariffs and again I don't believe in tariffs at all. I am again a student of economics, student of international trade and I believe in free trade in terms of doing it that is best for the consumers. It is also best for producers. If you produce most efficiently, you should be able to sell wherever you can and if you do not produce efficiently then you deserve to go bankrupt. Both of those are managed by the market. Imposition of tariffs is an intervention in the market mechanism. It creates distortions and that is what I think we are going to go through and even more important for us in the United States it is going to push up the inflation rate. I don't believe as governor Fed Governor Christopher Walker has said that it is going to be a oneshot deal. I think it is going to be more longlasting unless they are removed or cancelled. If not, you're going to have a continued increase in the inflation rate and you're going to have a cut off, a reduction in total demand. That brings us to the third topic that you raised, stagflation. Normally when inflation is high you also have economic growth doing very well and when there is a recession the prices do not increase very much because the aggregate demand has fallen off. Stagflation is a very very rare occurrence. We last had it had it 50 years ago. And in a stagflation you have both a recession as well as an increase in prices at a very rapid rate. How does that happen? It happened in the 1970s when one commodity which was called oil went up substantially in price and there were no substitutes. There was no solar energy. There was no electrical energy to substitute for it. Today, even though you don't have one single uh unit or commodity being attacked, you have a whole range of commodities that are affected by tariffs. So, it is not as if the consumer can turn from one direction to the other to avoid tariffs. He or she is going to face tariffs in every direction. And that I think is what is going to cause stagflation. We already see that with the weakening of the labor market in various numbers this week and I think you're going to see the prices have started to move up. Next week we are going to have the consumer price and producer price index and that will also show an acceleration in inflation. So all these factors are actually closely related and I would expect the gold price, tariffs and stagflation all to be intimately related during the months to come. >> No, very great overview. Of course, I have lots of questions to follow up and maybe we'll start with the Fed actually a topic you haven't touched on too much, which is good because now now I'm allowed to follow up with it. Uh we we get we're getting a lot of data in the coming days. Actually, unfortunately, unfortunately, timing wise, we're recording this on Thursday ahead of uh getting the jobs report out, but we need to take that into account when we talk about the Fed and policy decisions here, interest rate decisions. What is your expectations? What what should the Fed do? You're you're saying you're expecting higher inflation, so that's of course contra counterproductive to a Fed cut. We're expecting higher employment, which is pushing for a rate cut. What What's the balance here? Uh first of all uh every report that we have seen on the jobs front uh the ADP report on private sector employment was very poor. Initial jobless claims have risen significantly. So everything says to me that tomorrow Friday's jobs number is going to be a poor one. The last one we had was 73,000 jobs in uh July. I the expectation is around 75,000 meaning about the same as what we had before which would be weak job creation perhaps an increase in the unemployment rate. So as you said if the Fed were to counter that with a rate cut they have to deal with also higher consumer prices and producer prices which are going to come up next week. So what do you do? That's the quandry you face in a in a stagflation. Stagflation is a situation when both of them happen. A weak economy and a rapid rise in prices. And the only way to cure it is as we did during 1981, 1982 to ring inflation out of the system by essentially putting the economy through a ringer. And that's some that means push putting the economy through a very severe recession and that's the only way you can get out of stagflation. You can't do it by cutting rates or increasing rates because whatever you do you help the inflation side then you're going to hurt employment and vice versa. >> When you say putting the economy into recession like what's what's the best way to do that? So it's so people would actually accept it and not start you know marching in the streets here and I'm exaggerating of course a little bit but sort of what is the best way to to generate that cleansing effect. >> Uh that's a very good question Kai the reason being people will not accept the solution they did not accept the solution when Paul Vulkar as Federal Reserve chairman did in the early 80s. uh the farmers sent their tractors to the Federal Reserve building to circulate because they said they can't do anything there. Construction industry people sent bricks over to the Federal Reserve building because there was no construction with those extremely high interest rates. So if you are looking for a popularity contest, you're not going to win it by solving stagflation. You're going to stop solve stagflation by taking very tough unpleasant measures. What's that going to be? Once you have reached stagflation, the way to do it would be to put interest rates at a much higher level and thereby you put the economy into a very severe recession until eventually the price increases slow down. And that's what we found from the 1980s. So my guess is that that's what we would need to do again in order to do it and that's why it's a very serious proposition as to how you get out of it. The point being you never want to get into a stagflation because once you get into it the solution is going to be very harsh. >> How do we factor in the HR mess over at the Fed? Lisa Cook, Steven Mirren, um dissident during a Fed votes um or Fed governors being dissident when it comes to voting. Like how do we take that into account as well? Chris Waller even calling for a jumbo cut going a bit of a different direction from from Jerome Powell who's still very cautious about it also. How do we take that mess into account? >> I think the the Federal Reserve has already been severely politicized. It is happening with uh the res with the resignation of one governor who is being replaced by Steven Miran who is going to take probably going to vote in the September this month's uh federal open market committee meeting. He's going to vote for a cut in the interest rates. If the other two dissenting governors from July also descent, you're going to have three descents against Jerome Powell. The last time we had three descents was 1987, not since then. And when that happened, Paul Bulkar was outvoted by the other members of the Federal Reserve and he quickly resigned because he couldn't implement policy because the majority was opposed to the Fed chairman. If you have that today in the circumstances where the capital markets are much more aligned, much more connected, you're going to find there is going to be a flight from a lot of risk assets, lot of volatility and the effect on the effect on the market. So that is one thing. Second, how do you uh what is the influence of the politicization of the Federal Reserve? I have been saying and writing for a while, the yield curve is going to steepen. The Federal Reserve can cut short-term interest rates, but they cannot affect the long-term interest rates, which are going to be set by the market. If the 10-year yield and 30-year yield rise significantly when the 2-year yield is cut because of the federal funds rate going down, then your mortgages are going to get more expensive. the US Treasury's debt is going to become much more expensive to service which is the opposite of what the president wants to achieve. Under those circumstances, the economy is going to suffer. So you have to think about what politicization of the Fed means and you're not going to get any benefit out of it over the long term. So that is that's where I come out. >> Yeah. No, it's appreciate the very clear words cuz it feels like the general public is just not aware of that a Fed cut doesn't necessarily mean disinflation, cheaper house prices or at least availability, cheaper mortgage rates cuz last September we've seen it. The Fed cut by 50 basis points and the mortgage rate went up. >> So, why why do they think it's different this time? Why is this is a very dangerous term to use, of course, this time is different. like why do they think that is like is it just because the media is reporting like a Fed cut is good for us uh it'll push us in the right direction? Great question. Again, I I think historically the Fed uh rate cut has taken place when the economy is weakening or when the inflation is coming down, the Fed reacts by cutting interest rates. And so therefore the public including the investors think that the Fed knows best. If they are cutting interest rate, it must mean that things are actually require a lower federal funds rate. But in reality, when you have a Fed which is politicized and is trying to meet the political objectives of the president in power, that's not what happens. The rate cut takes place when it is unwarranted and therefore the long yield goes up when the short rate goes down. So the answer to your question is people look for the two rates to move in the same direction because most of the time historically that's what has happened. But in reality when they move in opposite directions because the Fed has become political you get a very different result. >> Yeah. I I spoke with Jim Biano last week I believe and we we tried to sort of analyze the word deflation cuz I've been mentioning to him like okay let's assume we only see one one basis or one cut meaning 25 basis points now in September in about 2 weeks time but the messaging is we're looking at more cuts like why would the consumer change behavior or start acting on like let's maybe just buy a house or so cuz in 3 months time the mortgage rate theoretically is lower because we're expecting more cuts. Like it I'm struggling with the word deflation because it feels misplaced, but it's the consumer waiting for something to become even cheaper without actually being cheaper, if that makes sense. Like it's a bit convoluted because I struggle with that word personally. Um what do you make of that? Like it depends a bit on the messaging of course of Jerome Powell in the press conference, but what what do you make of that? >> Uh well, the expectation is that the September cut is going to be a so-called hawkish cut. They cut by a quarter point, but the message that Jerome Powell gives is going to be a very strong anti-inflation one saying, I have done my bit for employment, but now I'm going to give my press conference in a way that I'm going to support the uh the inflation fight. I don't think that is doable. And I'll tell you why. You cannot fight two different battles with one instrument. It's like saying you have an army force and you're going to have your army fight in two different parts of the world against two different enemies when even one enemy is difficult to meet and there is a historical precedent to it. There was a Dutch economist who passed away called Yan Tinberen and it is known he's a Nobel laurate. He is known as having uh proposed something called the tinberen rule and that says when you have one objective you can only meet it with one instrument. That one instrument cannot be used to meet two objectives in this case inflation and employment. The Fed is trying to do that. So I think the Fed is going to fail in its efforts and unless it stays laser focused on just bringing the inflation rate down, we are going to have a fairly ineffective Fed. So what happens after the September meeting? I expect a quarter point cut because the Powell has basically signaled he's going to cut it whether the whether the press conference is anti-inflation or not. uh the cut is going to take place and the market will take its cue from what happens. The president is not going to be happy with a quarter point cut and you may have three people or more dissenting against Powell in future meetings and that is the big risk for the chairman. Keep in mind also that in ne next February very many of the regional uh central regional central bank presidents come up for renomination or removal. And if you have the governors being dominated by Trump appointees, they may decide to change some of the voting regional bank presidents so that by the even before power leaves office, he can have a majority which is voting against him to cut rates by 50 or 75 basis points. Then you don't care what the chairman says because what the chairman says doesn't mean much. That again is going to be very risky for the markets. It's going to make the market behavior highly unstable. >> What would happen if Jerome Pal were to resign tomorrow? Like what what do you think? How will the market react? Um because it's already pricing in a lot of uncertainty here. Um would it drive uncertainty to the max here? >> Uh the market today is assuming he will not resign until May of 2026. Second, it is saying that there is a a gridlock in the Fed with the chairman disagreeing with the president and the two of them have forces which are fighting each other. One force to reduce interest rates, the other force to be not cutting interest rates. If Jerome Powell were to resign tomorrow, you have only one force. It is going to be a Fed which is wholeheartedly trying to cut interest rates. Nobody is there to effectively say that interest rates need to be maintained and that that setup the steepening of the yield curve and the increase in the 10-year bond yield and the 30-year bond yield happens immediately and I have been saying under that setup you could have a 25 30 basis point rise in the 10 year or 30-year yield within just a week and that's not going to be good for the stock market. It is not good for housing and it's not good for the overall economy. >> Let me be a bit egotistical, but I would assume it's great for gold, isn't it? >> Yeah, it would be terrific for gold because you can say that is one instrument no human being can interfere with. It has kept its value over the ages and it becomes particularly important and relevant today. So gold actually flourishes under the setup. >> No abs. Absolutely. No, really, really interesting. Um, Sri, and uh maybe fun question. You you retweeted something that I saw um earlier as a comment that you should run for Fed chair, that you should throw your head in the race and you've retweeted that. >> Would you be interested? Would you be keen? And what would you do different perhaps? >> Um I think the way Jerome Powell is behaving is will not be consistent with the way I would behave. My hero and I have made no secret of that guy. I have written about it, spoken about it. My hero is Paul Walker. I and he was one who said inflation, he behaved as if inflation was his sole objective and he brought it down after a very difficult phase in US economic history. So now I come to the crux of your question. What would I do if I were Fed chairman? I have written and I will increase the interest rate today by at least a quarter point from 4 and a/4 to 4 and a half where we are today on the federal funds rate I will go to 450 to 475 the US equity market will take a dive and I think the bond market on the other hand initially the yields will go up but again you referred to what happened between September and December of last year, Kai, when the Fed cut interest rates by a cumulative 1 percentage point and the 10-year yield went up by 90 basis points. Right now, you will have the opposite of that. The short rate is increased and eventually the long yield will come down, inflationary expectations would be lower. The markets would say here is a guy who is not politicized and who just focuses on inflation and inflation alone. So bonds become a very treasured comm commodity. The gold price goes down and the dollar rises in value because globally people say this is a currency in which I would like to hold my risk assets. >> No, fair enough. you sort of bring trust back to the system a little bit. >> Exactly. You put it very well. >> Yeah. Um I was going to say like you touched on US dollar twice now and I I didn't really script for it but we need to talk about it cuz you said well the US dollar came down. I was just looking at the Dixie that's a comparison against other currencies and it's stabilizing. I expected it with 35 or $3,600 gold that maybe the Dixie is down at 95 and I don't follow it on a daily basis. I look at it a couple of times a week but no we're trading up. We're at 98.2. We're actually trading higher today, which is sort of explains maybe the the gold price coming down and taking a breather a little bit. I don't want to talk intraday here, but um run us a bit through the the dollar. Like, yes, it's come down from 114 down to 98. So, that's a massive move, but it's not as weak as I thought it would be given the gold environment we're in. uh what you're having is that the impact of higher inflationary expectations, the impact of tariffs, it can sh they can show up in two different ways. They can show up in the dollar exchange rate uh in the DXY index that you mentioned or they can show up in the price of gold or both. Right now, gold is dominating it because there is a flight from currencies. If you if you are fleeing the dollar and you're also fleeing the euro, the yen and the British pound sterling, where do you go? The DXY doesn't change under that setup. Recall that the exchange rate is a relative price. That's what we call it in economics. A relative price is the price of one commodity in terms of another. It's not like saying how many loaves of bread can I buy for $10. You are instead asking how many loaves of bread do I have to give to get a dozen eggs. So you're exchanging bread for eggs. So compare with that dollar to euro exchange rate is like exchanging bread for eggs. On the other hand, the gold price going up is where you say I need to shell out more dollars to buy a dozen eggs, which is a different setup. So the gold is taking the brunt of the attack today and not the currencies and that's why DXY has remained stable and at the same time the gold price is continuing to surge. >> Oh, fantastic. I appreciate that. >> To me to me that's not surprising at all that I would not forecast with any precision whether it's going to be the hit is going to come on DXY or the gold price. It can be one and then it switches over to the other. No, I appreciate that explanation. That's fantastic. Very lots of clarity in that in that statement there. Sri, um, we we've talked Fed, US dollar, now tariffs. Um, it feels like we're forgetting a topic like what what else are you looking at that's sort of influencing markets right now? Are you looking at corporate earnings at all? Is that something you're tracking as well? >> Corporate earnings I have, but again, I'm not an equity analyst. I don't look at them as carefully as I look at bonds. corporate earnings have been good very well but again the valuation of equities is also historically at extremely high levels. So the point I would make is if the tariffs persist and if you do reach a stagflationary situation that is not good for corporate earnings. So you currently have a divergence between the macroeconomic risk and corporate earnings picture. I think within a few months the both of them are going to coincide and the corporate earnings is going to follow what is going on in the macro economy in a way it hasn't done so far. Shri, like what should Jane and Joe Blow do now? Like let's assume by the until the end of the year like how should they be positioned? And I'm not asking for financial advice. I'm just more like how should we behave like what should we do? >> Yeah. No, I don't provide financial advice because I always mention I'm not an investment advisor. >> But typically what is it that they should be doing? The risk that they have. We talked about risk in uh assets like equities. We also talked in terms of risk that you're holding 10-year treasuries or 30-year treasuries because if the yield goes up substantially, you're going to lose money in it. So what I have been suggesting is that you seek refuge safe haven in shortdated treasuries and shortdated high income in high uh yield instruments namely 6 month 9 month 3 month treasury bills where you can hide without having much of a duration risk. That's one area that you can go into. Second, if you do not have alternative investments, look at globally diversified real estate investments, private equity opportunities with a good manager and then stick with it for the next 5 years. Money that you're not going to need in the meanwhile. That's the second way to do it. Third, uh this is the ultimate rainy day refuge. Put some money in gold. And I I said that when we were at 2600 and 2700. I continue to say that at 3600. Maybe I don't say it as strongly today as I did before, but still it helps to have a little bit of money in gold. >> Fantastic. Awesome. No, really appreciate the conversation s like it's always great to have you on. Very clear, very easy to follow. Um much appreciate your time. Like where can we send our audience to follow more of your work? Uh I am on Twitter as you mentioned and it is @ shriek s r i k global and I also write on substack every Saturday um sub mean it's a uh and so that one again is something that people can follow as well. I have quite a number of followers on substack who do it. >> Fantastic shri thank you so much for joining us. Really appreciate it. And uh everybody else, thanks so much for watching sort financially here during a very exciting week in the gold space. Lots has been happening. Gold is moving has moved over $200 in 5 days. Question is, are you participating in it and where do you think it is going? Leave your comments down below and really looking forward to hearing from you because I read all the comments and uh yeah, subscribe, like, and we'll be back with lots more here on Soore Financially. Thanks so much for tuning in. [Music]