Powell sets the course

Dearshareholders and not shareholders.

One of themain reasons for the robust gains on the stock markets is the extremelyexpansive monetary policy pursued by central banks, which show no signs ofdeviating from their path.

Yesterday,Thursday, Jerome Powell, Chairman of the Federal Reserve, delivered a highlyanticipated speech at the Jackson Hole Virtual Symposium. Powell presented theresults of the Fed's nearly 18-month Strategic Review.

Instead ofan inflation target of just under 2%, the Fed is now setting itself aninflation target of "an average of 2% over a longer period". Inconcrete terms, this means that if the inflation rate measured in the USAremains stubbornly below 2% for an extended period of time, it may then remainabove 2% for a longer period of time. Which basically means that they can dowhat they want.

Over thelast eight years, inflation has "undershot" almost constantly. Inorder to bring the multi-year average to 2%, the Fed would therefore have totolerate a longer "overshoot" in the range of 3 to 4% in the future.

This changeof course comes as no surprise. A form of average or "symmetric"inflation target had been expected for months. However, the market seems onlyslowly to realize what that means.

There weretwo main surprises in Powell's speech:

First,Powell pointed out several times that the "shortfalls of employment"would become the central control parameter for the Fed's monetary policy. Hisremarks were so explicit that it can be said that the Fed has prioritized inits previous dual mandate of price stability and full employment. Now fullemployment is the ultimate goal. Which means that the FED does not care ofhigher inflation as long as it is not a bad inflation affecting the consume ofdaily goods.

Powell wasequally explicit in saying that the Fed is not guided by any concrete formulafor calculating average inflation. In other words, the Fed is completely freeto define the period ("over time") during which the inflation rateshould be 2%. Which in my view means, that they again can do what they want.There are basically no limits based on any kind of calculation. A lot of roomfor interpretation from Fed side.

The Fedunder Powell has thus clearly decided to take a directional decision towards asofter monetary policy. This is also noteworthy because Powell took office inFebruary 2018 with the declared aim of normalizing the Fed's monetary policy.He did so until exactly the end of December 2018 - until he was forced to turnaround by the then slump on the stock market and by Donald Trump. Basicallythis means that the interest will remain at zero for ever (or at least for avery long time!).

It isexciting to note that after Powell's speech, the yield of ten-year TreasuryNotes rose by seven basis points to 0.77%. That is an increase of 25 bp sincethe beginning of August:

If the risein interest rates continues, the Fed could at some point in the coming monthsremove the next instrument from its toolbox: yield curve control. Just to make itclear – yield curve control is the next way to manipulate interest and to tweakeverything to the best for USA. Further QE can be implemented without takingcare of possible side effects (e.g. inflation).

A rise inUS bond yields is, by the way, also the factor that could endanger the gold price.If the yield of ten-year treasury notes continues to rise, the correction inthe gold price is likely to continue - and thus, with greater leverage, also inthe share prices of gold mining companies. Long-term investors should takeadvantage of the weakness to raise gold, silver and mining companies. Thecorrection does not alter the fact that precious metals are in a structuralbull market.

I see the “HighNoon” coming in the next 10 days. Either we break off towards USD/oz 1800 or weclimb above 2000 and move towards 2100.

If we wereto correct to 1800, that would certainly be an entry point for me.

On theother hand, it could very well be that analysts, commentators and experts areslowly but surely realizing that we should not necessarily hold or buy USdollars, because the value will decline. That would mean POG above 2000 in thenext 2 weeks.

Thequestion also arises whether inflation will be kept under control. I say no,that is why the inflation target is being abandoned, so that one is not forcedto raise interest rates (which would crash the stock market and cause theinterest burden on debt to explode).

Myconclusion is that I think the central banks have a general problem and Imaintain that the POG will reach US$/oz 3000 in the coming 2 years - possibly more if the centralbanks - especially the Fed - cannot keep everything under control as desired.

I wish everybody good luck and DYOR.