Is The US Govt Scrambling To Buy Gold? | Michael Pento

Is The US Govt Scrambling To Buy Gold? | Michael Pento

What if the Treasury’s 261 million ounces of gold that they say they have isn’t really there? What if they’re scrambling, what if they, being the United States government now, is scrambling to buy gold to replace what they’ve already loaned out or hypothecated or never had, those 261 million ounces of gold? That makes some sense to me. This is Kaiser Johnson with Liberty in Finance, and these are the Miles Franklin Weekly Specials for February 10th through February 17th, 2025, while supplies last. Backdated silver Austrian Philharmonics at just $2.85 over spot, and pre-65 junk silver dimes and quarters are at the lowest price in years at just $1.49 over spot.

Pre-65 junk half dollars are just $1.69 over spot. To order our specials or any of the many other options we have available, call us at 1-888-81-Liberty. That’s 1-888-815-4237.

We’re available after hours and on weekends, and we look forward to speaking with you. Welcome back to Liberty in Finance. We’re always glad to have this widely followed returning guest.

Michael Pento is the founder of Pento Portfolio Strategies. You can find him at pentoport.com. He’s an active money manager who keeps his clients on the right side of the leading indicators that tell us which way things are heading next. Michael, thank you for joining us on Liberty in Finance this Tuesday, February 18th, 2025.

Always a pleasure to be on with you. I always look forward to what you call your midweek reality checks. I call them midweek sanity checks, and there’s a lot that you share for free with the public in those, and invite them to become your subscribers for deeper insights.

You’ve been tracking this remarkable and changing time. We’ve got a lot of tectonic plates shifting around geopolitically, financially, monetarily, etc., and you talk about the leading indicators that you keep an eye on to stay abreast with your inflation, deflation, economic cycles model of what’s coming next. Can you give us a clue of what key indicators you’re watching right now, and what trends you’re seeing that have your attention? Well, the most important concept to grasp when managing money, in my humble opinion, is the second derivative of inflation in the context of growth.

I believe the $5 trillion that was printed over a COVID disaster, it’s just taking a long, long time to come out of the system. I’ll give you an example of what I’m talking about. We know we talked about the reverse repo facility that was at once $2.5 trillion in the summer of 22.

It’s now down to just a couple of dozen billion dollars, so that’s out of the system. But there’s still about $700 billion in the treasury general account. That’s liquidity out there.

Then I was looking at the reserves in the system, the reserves in the banking system. It’s a tremendous amount of reserves out there. It’s over $3 trillion in reserves.

You think about, put that in context, Mr. Pinto. What does $3 trillion in reserves look like, historically speaking? Well, if you look at prior to the global financial crisis, there was like nothing. There was like $50 billion of reserves in the system, and now there’s over $3 trillion.

So you ask yourself, well, what’s going on in the economy? What’s going on in the markets? Well, what’s going on in the economy is that the lower three quintiles of consumers, so the bottom 60%, are decimated. They’re wiped out. Inflation has crushed them.

That’s why defaults and delinquencies are a five-year high. But then you look at the top two quintiles, especially the top quintile, and they’re doing great. They’ve never been better.

Their houses haven’t gone down yet. So their real estate portfolio is fantastic, and their stock portfolio is doing great. That’s keeping the economy running, moving just nicely.

But as I said, the inflation has wiped out at least the bottom three or four quintiles. This really, really hurt them the most. So you have all this liquidity out there, which is boosting markets and keeping the top 20% healthy and paddling along very vigorously.

So here’s what I think’s going to happen. And let me say parenthetically that I am not yet sure of the market, but the market is so expensive now that even though it’s not going to crash imminently, there’s just not a lot of room for it to go higher. So if you look at things like the total market cap of equities to GDP or the price to sales, the S&P 500, or the median P-E ratio, the Cape Shiller 20-year inflation adjusted P-E ratio, if you look at things like risk premiums, which are negative now, so you take the inverse of the P-E ratio and you subtract something like a treasury from that metric and you say, wait a second, I get paid more to just own T-bills than I do with the earnings yield on stocks.

That’s very, very rare, Dunnigan. So you buy stocks, you own a lot of short-term bonds and you wait. And one of these two things is going to happen.

I don’t know what the level of reserves in the system that causes a panic is going to be this time around. I know last time it was around $2 trillion. And there’s always more reserves that are needed in the system because they’re backing all these assets, all this money that’s been created.

So I think one of these two things is going to happen. The reserves are going to tick down to a level that causes a repo crisis and a money market crisis. That’s one.

Or more likely, we’re going to get a crisis in the long end of the bond market. Now that the RRP is down to basically empty. And you’ll have a spike in long-term interest rates, which causes a problem in the stock market and in the economy in general.

So those are the two things I’m looking at most assiduously. But until then, it’s just like, hey, give me my four and a quarter to four and a half percent on T-bills. I’m going to be long a couple of key sectors like inflation hedges, like gold.

And I’m going to wait. I’m going to wait for my model to signal when the money markets begin to freeze. The money markets always freeze first and then the stock market will crater and then the economy will tank.

That’s what I’m doing. When you mentioned the amount of reserves, excuse me, not reserves, the liquidity in the banking system at 3 trillion. And you said if it gets down to 2 trillion in the past, that’s spelled trouble.

Am I reading you right? Or are those two different metrics you’re looking at there? No, the reserves in the system, so there’s the reverse rebate facility, which is the excess reserves was parked at the Fed. That’s gone. That’s already, that’s went into the treasury complex and that went into the economy.

So when you look at 2019, when we had a repo crisis, that’s when the reserves went to around $2 trillion. And that caused the repo crisis. So that’s when they printed, we went all the way up there.

Okay. So it was the repo crisis, then COVID happened right after that. We were headed for a recession anyway.

They printed trillions, like I said, $5 trillion. And the reserves went up through the roof. I think they went to four, $5 trillion.

Now they’re back. Now they’re down to 3.3. My numbers might be slightly off, but they’re not that, but you get the idea. So we know that the level of reserves can’t go to $2 trillion, but what will Powell allow them to go down to? I don’t know.

But that’s going to be a problem, maybe a year or so from now, maybe two, I don’t know. But before that problem happens, and it will happen, in my opinion, you’re probably most likely to get a problem in the funding of the treasury complex, which is going to cause a spike in long-term yields, which the Fed does not control directly. And that will be the catalyst for the next liquidity crisis.

Yeah. That’s what I wanted to key in on was you said the Fed does not control that directly. What market forces typically determine whether it’s foreign investors in bonds, or what is it that actually tends to be the big drivers of that long end of the curve? No, it’s inflation and solvency, as always.

So you look at the supply and demand of treasuries, which is a tsunami of treasury issuance that’s going to happen, regardless of what Doge does, because they have to tackle Social Security, Medicare, and Medicaid. They’re not doing that. Defense, that’s going to be a tough nut to crack, and interest on the debt.

So you’re going to have $2 trillion deficits, as far as the eye can see. And that’s the good news, Dunnigan. What if we get a recession? Then the deficits go to $6 trillion automatically, because the revenue shrinks and the stabilizers kick in.

So you’re going to go to $6 trillion. Who the heck’s going to buy it all, Dunnigan? And at what price? The price is going to be much lower, and the yield’s got to be a lot higher. So this is a tremendous supply issuance.

And then you have to… So you look at the inflation dynamic, along with the supply imbalance. Well, we have a very hard time getting inflation under control in this country. Dunnigan, the Fed says that they have a 2% inflation target.

Let me ask you a question. You’re a smart guy. I think you’re smarter than most people.

I really do. Do you think that the Fed has reached that 2% target any time in the recent past? Not even close. I mean, when we’ve talked with… How long? How long has it been? I don’t think in most of our memories.

Or it has been four years, just one month now. Isn’t it based on their numbers? Yeah. So they have missed their… They have an average target of 2%.

Could be below, could be above. 2.5 is good if 1.5 is also thrown in there. But it should be around 2%.

The Fed has missed its inflation target to the north by almost four stinking years. By their cookbooks. By their cookbook.

Yeah. By their hedonically and substitutionally massage-manipulated mendacity that they use called the CPI. And even if you look at the PCE, that’s not a 2% either.

And core PCE and super core. You can measure it six ways to Sunday. Listen, the level of prices has already bankrupt the bottom three quintiles of Americans.

So it’s not that people are saying, oh, I’m so grateful, Mr. Powell, that inflation came down from 9% on a rate of change basis to 3.5%. No, it’s rising further and faster away from a level that allows me to support my family, to buy groceries, to own a home, to pay for insurance, to pay taxes. That’s the real issue. So if you have inflation that’s running quasi intractable, and the Fed has a… And here’s the punchline, Dan again.

The Fed has a bias to ease, which I think is hysterical. I think that’s hysterical. They have a bias towards easing.

They were easing. They cut rates already by 100 basis points, but they still have this easing bias. Well, why do they have an easing bias when inflation is four years north of their target, their average target? You get the point.

I don’t want to belabor it. But when you have insolvency and you have inflation, that’s what the long end of the bond market is always concerned with. And that’s why yields are rising.

And that’s why your cost of your home, which is already as a home price to income ratio is at a record high. And when you throw in maintenance and insurance and taxes, it’s out of reach. And then you say, well, wait, now the mortgage rates are going higher.

They’re up 100 basis points since the Fed decided it was a good time to panic in September of 2024 and cut rates by 50 basis points. That’s your answer. So that’s where your real problem could be.

Now, I’m not saying it’s definitely going to happen. I’m not saying when it’s going to happen, but you have those two real risks of when you’re going to have a freezing up of the money markets. And that could cause, not could cause, that will cause the stock market to tumble and that will bring down the whole house of cards.

But until then, you hold your bonds, your short-term bonds, and you could hold your inflation hedges and you can make some money while you wait for the, what I call the grand reconciliation of asset prices to occur. And why do I say that? Because when you look at things like the Buffett indicator, which is the total market cap of equities currently sitting well north of 200%. So when the valuation of equities, the market cap of equities is over two times the level of annual GDP, which is extremely rare.

It’s only, this is a new phenomenon done again. It never happened before in history prior to COVID. It just was never even thought of.

The normal metric here, the normal ratio is south of one. It’s over two. Stocks have to correct dramatically.

Real estate has to correct dramatically. And also bonds. And I’m talking about corporate debt.

There’s a huge bubble in corporate debt. That has to correct. If you think like things like private credit, something that never existed before, this is a new invention by Wall Street.

Hey, the shadow banking system is saying, you’re a business. You can’t get a loan from a bank and you can’t tap the corporate bond market. Well, come to us and we’ll give you a loan.

And there’s $1.5 trillion of that stuff out there. Now, when we have a recession and people are going to call up their friendly financial institution and say, you know that money I gave you for that private credit loan? I want it back. Well, there’s no, we don’t know what that market is and you can’t get it back.

That’s a real problem. There’s a couple of things there I wanted to chime in on. When you mentioned the Fed doing what it can on the short end of the curve to try to reduce borrowing costs.

And then you said, but the long end of the curve, they don’t have control over the market does. And all of the things that they’ve tried to hide, all the ugly parts of the fiscal system that they’ve tried to hide, keep showing up in the reality. There’s your reality check.

The reality check is the market speaking, the voice of the market speaking about the long end of the curve. All of a sudden, I was remembering my mom and dad telling me about listening to the radio when they were kids back in the late twenties, early thirties with Fibber McGee and Molly. And the Fibber McGee had this closet through Fibber McGee’s closet.

And he, whenever Molly told him to keep the house clean, he just shoved everything in the closet, shoved everything in the closet, everything in the closet. And then they would always come in every episode of the radio show, the moment where Molly was going to go open the closet for some innocent and unrelated reason. She was going to go get a coat.

And everybody listening to the show would, they would all tense up and Fibber would say, no, don’t open the closet. And then you’d hear pots and pans and cats and dogs and umbrellas and every sound effect in the studio as everything came tumbling and crashing out of this, this, this pent up sweeping stuff under the rug. It seems that there’s a lot of sweeping under the rug that’s been going on, trying to make, trying to make it look as though the Fed is in control and that it’s, that there isn’t the voice of the market speaking otherwise, but you watch things that are the voice of the market.

You’ve talked about real assets, such as precious metals and other inflation hedges. Can you other, can you talk to us about what are those signs of reality, either coming from bondholders who aren’t, who aren’t buying this or et cetera, literally or other inflation hedges that the world is turning to, to protect themselves from this Fibber-McGee’s closet of lies that the, that the Fed has been. I mean, so, so I, I own an inflation hedge DTF, which has a lot of land in it that produces real assets, not real estate.

So you think about gold mines and agricultural commodities, you think about energy, natural gas, oil, then that’s a wonderful hedge against inflation. But I want to have, if you don’t mind me taking a minute talking about gold, you know, there’s a lot of reasons why gold should not be at record highs. We’re keep bouncing our nose against a $3,000 an ounce.

And you think about it while we’re talking about interest rates, well, interest rates nominal speak, nominally speaking, have stopped going down. They’re now headed higher. The dollar has been extremely strong.

Bitcoin, there’s an obsessive compulsive nature in the media and even in the administration about Bitcoin. I don’t understand it, but that’s stealing a lot of gold’s thunder. Peace is supposedly breaking out all over the world, right? Ukraine, Russia, Gaza.

Well, thank God for that. I hope it’s true. You have the doge, the doge boys are actually, it’s just now one in DC cutting, supposedly cutting out waste and fraud and abuse.

So that’s also very positive for our fiscal agenda going forward. So that should be negative to gold. So what, so it just bothers me a lot that gold just can’t go down.

Have you noticed lately that the dollar goes up, gold goes up, interest rates go up, gold goes up. No matter what happens, peace breaks out in the Middle East and in Russia and Ukraine and gold goes up. But why, why is that? And I have a theory, I don’t know if it’s really, I have a theory that something’s going on.

And I’ve heard stories about a lot of gold coming into this country from, from overseas. Here’s a theory, here’s a theory for you. And it’s not mine.

I didn’t come up with it myself, but I, I, I, I’ve used my 34 years of experience in this business to analyze it. And I kind of believe it might have some credence. What if done again, what if the, the, the treasury’s 261 million ounces of gold that they said they have isn’t really there.

And you have a new sheriff in town who, who’s prone to doing a lot of audits of things like the Fed, maybe even the order of the treasury. What if they’re scrambling, what if they being the United States government now is scrambling to buy gold to replace what they’ve already loaned out or, or hypothecated or never had those 261 million ounces of gold. That makes, that makes some sense to me.

I, I, cause there’s something else going on. It isn’t a recession. It isn’t a crashing dollar.

It isn’t a crashing economy. It isn’t a crashing stock market. It isn’t a falling plunging real interest rates.

What is it? Why is gold where it is? Um, you can explain some of it with the, with, with, um, inflation. Uh, but I think there’s something else going on there. And I, I think what I’ve just mentioned could be a reason.

You keep, uh, on a weekly and daily eye on all of these leading indicators. And if people want to take advantage of that, how should they get connected with you? Well, the best thing to do is open up an account at Penta Portfolio Strategies and join the paradigm inflation, deflation, and economic cycle model. That’s where my portfolio is.

And that’s where my, I have 11 over 1100 accounts here. They’re all modeled, mostly all of them are modeled to that paradigm portfolio. And I have a 20 point model that looks at metrics like the price to gold ratio, a number of banks lending standards that are tightening or contracting.

Um, I look at financial conditions. I look at credit spreads. Uh, it’s 20 point model here.

And it’s, and each component was handpicked by me over the decade, decades to let me know what the second derivative of inflation is doing in the context of economic growth. And I think that is the absolute best way to participate in bull markets when they’re extent and when to be able to protect and profit from bear markets. Cause that’s when the market falls 35 to 50% or more.

And 50% is where I think this market has to fall just to be, just to have some semblance of normalcy. Of course, that assumes that GDP doesn’t go down and the denominator doesn’t fall, which is never again, that’s not going to happen. And you assume you don’t go below that average metric of around 90% total market cap of equities to GDP.

I was going to mention earlier, uh, the value in the type of balance metrics that the self balancing metrics that you have enumerated, you went through a list of about seven different metrics, all of which aren’t skewed by, see, most people just watch the headline, uh, like the Dow, they look at the Dow Jones index and they say, Oh, look, it’s going up. It’s going, it’s going, but that’s completely unbalanced because every time they devalue the dollar boom, it automatically drives that. And frankly, drives the nominal value of everybody’s assets up.

They’re going to get taxed for capital gains, uh, which is just theft, uh, capital gains tax. We’ll get into that another time. But the point I was getting to is the metrics that you enumerated, maybe perhaps you can kind of reiterate them here for people so that they realize what they should be watching, because these are, these are balanced metrics.

They are saying, you’re, you’re looking at ratios that would be basically pretty well neutral to the, the, uh, being misled by nominal distraction of, of currency destruction, but because it’s looking at the ratio of different aspects of the markets and the economy, et cetera. So you want me to say, I mean, yeah, there’s 20 of them. I’ll give you a few of the copper, copper gold ratio.

I look at financial condition conditions. I look at credit spreads. I look at the net percentage of banks, tightening lending standards.

I look at the liquidity in the reverse repo facility, TGA treasury general account, and look at the reserves in the system. I’m there’s 20 points. It’s when I don’t want to give away my entire model, but I look at them and it tells me when the liquidity in the system is either contracting or is expanding on a, on a second derivative basis, because that’s all that matters.

It’s not, it’s not the absolute change in inflation. For example, I don’t care if inflation is 3%. I want to know what it was in the prior three months rolling average.

And then I’ll compare that to the next metric. And I’ll say, oh, look, it went from nine to three. That’s disinflation.

That’s what’s important. So, um, it, when you, this is, let me just reiterate this again. I, I think this is one of the most dangerous times to be a buy and hold 60, 40 target date fund participant through the decades that’s been inculcated over and over and over again to investors.

Hey, the market never really goes down for very long because you have the fed and the treasury at your back. They have your back. That’s true.

That’s been true since 87, really. Um, and that dynamic has been intensified through the years. But what happens when the fed and treasury can’t save you because all they could really do is borrow print and spend, which is the very things that the long end of the bond market is most concerned about.

So if you, let’s just say we have a recession and real estate crashes and the, when the stock market crashes and the money markets freeze, you can’t float commercial paper. The repo market is dysfunctional. Um, and they come out with this program.

They being the treasury and the fed, they said, we are going to, we are going to expand our balance sheet to $20 trillion and we’re going to send out the helicopter. We’re going to rev up the helicopter fleet and send out, you know, helicopter dumps of money again. What do you think is going to happen to the rate of inflation? And how does the long end of the bond market respond? Don’t forget, we haven’t had a problem with inflation since the early eighties was the seventies and early eighties.

That’s when, you know, Volcker took it to the fed funds rate to 20%. Um, that’s 1980 is a long time ago, right? A very, very long time ago. I’m sorry to say every long time ago, who is, who, who has been managing money or even participating in the market? What percentage of people can remember those days? But what they really remember is what happened in the throughout the eighties and the nineties is like, we can’t get to 2% inflation.

What are we going to do? Inflation is impossible. We can’t get to it. Well, we figured out, they finally figured out how to get to, I knew it all the time.

I said, you know, all you do is print a bunch of money and then tell people they can’t go to work and make anything. And they didn’t just print money and hand it to the banking system. So the banks could just buy assets and put bonds and real estate and stocks into a, into a, a bubble.

They handed it out directly to people. So they, the government just ran massive deficits, handing money directly to people, which was monetized by the central bank, printing money, handing it to the banking system. The banking system then bought these bonds.

That’s how they do it. They can’t, the Fed can’t directly participate in auctions, but they do, they use the banking system. The primary dealers as a conduit, but the conduit was to the people.

So the people had money. So you had huge expansions in the broader monetary aggregates and one M2 and M3. They don’t count that anymore, but I do.

So that’s how they get inflation and they’re going to do it again. And where do you think inflation is going to go? And when does it stop at nine? No, I think, I think you can run intractable. And then if you have, if you have inflation in the double digits, where does the long end of the bond market go? And what, how much does it, how much does it cost to take a mortgage out? So what I’m trying to say is it may not be as easy.

It should not be as easy as it was in the past when deflation was the big problem. That’s all I’m saying. Well, nothing seems to be easy for the ordinary people anymore.

And I think you pointed that out quite eloquently in the beginning. I’m, I’m thinking back to the quote, either it was Lenin or Stalin saying, well, grind the middle class between the millstones of inflation and taxation. Most people are feeling that absolutely.

And many to the extent that they’re, they’re greatly demoralized in terms of how much hard work they’ve put towards trying to get just, just to get ahead in life, just to provide for their, for themselves, for their household, for their family, and have something to leave to their children and grandchildren. And it seems that unless they enlist experts who can help them through this mysterious and, and hostile environment that we find ourselves in, almost feel like we’re behind enemy lines to try to have a future at all economically and be made whole. That’s where you come in.

And we’re grateful for your presence. First of all, here on Liberty and Finance with all of our viewers and subscribers able to take advantage of your nuggets of wisdom that you, that you let us know about. And then also your free weekly updates that you send out and then your additional active money management services that you can provide.

And folks, if you don’t want to miss a single episode with Michael Pento from Pento Portfolio Strategies, or any of our other guests, make sure you’re on our free mailing list. Just go to our website, libertyandfinance.com. That’s libertyandfinance.com. Put in your email address, click submit. You’ll get a confirming email.

You got to opt in with that confirming email, and then you’ll get one email per day in your inbox. We don’t share your email with anyone, and you’ll see all the interviews with Michael and all of our other guests in our weekly specials as well. Michael Pento, thank you for joining us here again on Liberty and Finance.

Again, my pleasure. This is Kaiser Johnson with Liberty and Finance, and these are the Miles Franklin Weekly Specials for February 10th through February 17th, 2025, while supplies last. Backdated silver Austrian Philharmonics at just $2.85 over spot.

And pre-65 junk silver dimes and quarters are at the lowest price in years at just $1.49 over spot. Pre-65 junk half dollars are just $1.69 over spot. To order our specials or any of the many other options we have available, call us at 1-888-81-LIBERTY.

That’s 1-888-815-4237. We’re available after hours and on weekends, and we look forward to speaking with you.