Fed’s Plan is Failing(Uncut) 02-12-2025

GOLD to $3,500 by July? Fed’s Plan is Failing | Dr. Sri-Kumar

Jerome Powell is actually President Trump’s appointee. He nominated him in his first term and then, of course, by the time the 2020 elections came, he got sick of it because he would not cut interest rates fast enough for the president’s liking. But you said, what is it that I dislike about Powell? I am an admirer of Paul Volcker.

Again, I had finished my studentship. I had started my career in the early 80s and I could see this Fed chairman who was just unifocal presence on inflation and bringing inflation down because he thought that was the Fed’s objective. Hello and welcome to Soar Financially, a channel where we discuss the macro to understand the micro.

My name is Kai Hoffman. I’m the mining guy over on X and, of course, your host of this channel. I’m looking forward to welcoming yet again a first-time guest on the program, Dr. Komal Srikumar.

I’m really looking forward to chatting with him. He’s a regular on CNBC and commenting on the Fed, but we just caught up a little bit before hitting the record button and we’ll discuss macro. What’s the state of the economy? Srikumar is really an expert on gold as well.

He wrote his thesis on gold, so we have to talk about the price developments of gold. What’s moving markets right now and how does it all fit together with what we’re seeing in the markets these days? So, bear with us while I remind you to hit that like and subscribe button. That helps us out tremendously and it’s a free way to support our channel.

So, thank you so much for doing that and now it is my pleasure to welcome Dr. Srikumar. I really appreciate your time. Thank you so much for joining us.

Kai, very good to be here with you and I look forward to the discussion to come. It should be interesting and timely. Oh, absolutely.

Yeah, I know we got so many topics to discuss that we’ll need to like really rush through the conversation almost because there’s so much going on, right? But Sree, since you’re a first-time guest on the program, I have to ask you like what is your general assessment of the economy and the financial markets these days? The economy continues to be very strong in the United States, Kai, and that is in contrast to what is going on in the Eurozone. It is in contrast to what is going on in the UK as well as in Japan. You have stagnation in Germany, political crisis in both Germany and France and here in the United States, the last quarter of 2024, we had 2.3% growth, slowing down from only 3% growth before.

The problem here is that I think the growth is on a very, very slippery footing. We have lots of uncertainties with respect to tariffs, which I’m sure we’ll talk about and I am not impressed with the work that the Federal Reserve has done, as you would have guessed, and both of those could put the economy on a path toward a recession. So, even though the economy is very strong, going from strong growth to a recession is not a long way.

It is probably something that would go down very quickly. The second point I would make is that even though inflation has come down from 40-year high levels in 2021, we are still above target and it is turning up. The Fed, on the other hand, cannot wait to cut interest rates, just as Trump wants it to be cut, the Fed also wants to cut rates.

The question is, how are they going to manage to do that when inflation is not cooperating? Do you just declare victory and then cut rates? That’s, I think, the dilemma for the Fed and let me say that and stop there, Kai, and turn it back to you. Yeah, no, I appreciate that. Again, so much to follow up on, but maybe we’ll stay on the inflation debate first and then we can, you know, dissect what the Fed has been doing in Fed action.

You said perhaps just declare victory on inflation. I think they’ve done that before, like where they sort of like climbed that hill and said, okay, put the flag down and said we beat inflation. It’s coming down, but now it’s creeping back up.

I think we need to dissect that. What is driving inflation higher? Last three months, the inflation rate has been ticking up. We’re at 2.9 percent again, up from 2.4. So like I wouldn’t say anything too crazy, but there is a trend visible.

So I’m curious what your thoughts are here. Exactly. No, those are all great questions.

The problem with inflation is when you start from extremely high levels and three years ago, four years ago, we were at 40-year high levels, approaching double-digit inflation and we were bringing it down and the Fed said our target is 2 percent. The way inflation behaves, and I will give you one lesson from history soon, the way inflation behaves is it comes down very sharply from a very high level. But once it reaches a moderate level, it refuses to go down any further.

It remains stubbornly at that level and can even turn upward. The temptation when the inflation comes down sharply is for the Federal Reserve to say, hey, we have declared victory, it’s coming down, and that’s what the Fed members said. In a weekend report I put out every Saturday, I said three years ago, the Fed simply doesn’t understand what is happening to inflation.

It’s almost a lack of understanding of monetary policy and inflation is a requirement for you to be nominated to the Federal Reserve. They declared victory and found inflation started to turn up again. On the other hand, Jerome Powell, the chairman of the Federal Reserve, started the interest rate cut this cycle in September with a 50 basis point cut, not 25, but 50.

And then he has cut interest rates two more times, 25 basis points each. Where is the hurry? Why are you cutting it? And the reason he said was the job picture needs my help. Inflation does not need my help anymore.

That’s a summary of his position. What he finds is that inflation has started to turn up and the job picture continues to remain very strong. Why did inflation turn upward, Kai? And that is where there is a key understanding that we need to make regarding inflation and its behaviour.

Inflation turned up because when interest rates go down and there is a rally in the equity market and the bond yields come down, it puts more money into the wallets of consumers. They spend more. And in several recent months, the retail spending in the United States has remained very strong.

Under those circumstances, you are forced to tighten again. And that is known from the 1970s as a stop and go policy. President Richard Nixon in 1971-72 wanted the Federal Reserve Chairman Arthur Burns to follow an easy monetary policy.

And the reason had nothing to do with inflation or the economy. It was his wanting to be reelected in 1972. The Fed chairman was bullied.

He would then cut interest rates in time for inflation to come. Despite inflation remaining elevated and the people would be happy, Nixon won re-election and then he had to hike up interest rates again. And this went on back and forth during the 1970s, pushed up inflation to extremely high levels.

And in the early 1980s, it required a different Fed chairman and extremely tight policy mortgage rate of 18 percent before inflation could be conquered. So inflation tells you that if you take it easy, when it comes down a little bit, you’re not going to have success. You need to stick with it.

And that is, I think, Jerome Powell’s problem today. Yeah, no, he’s got not just inflation going against him, but also bond yields are telling him that he actually should be hiking rates instead of cutting rates because the unemployment market seems to be steady. We’ll get a revision here later this month on the BIS official numbers.

We’ll have to find out. Some commentators are obviously speculating that they will be highly revised downward. So we’ll have to see.

But the bond market is another topic there that is pushing the Fed to at least keep the rates steady and not cut any further. Are you observing that as well? What’s the role of the bond vigilante? And who are the bond vigilantes there, Sri? Yeah, I wrote about the relationship between the Federal Reserve and the 10-year Treasury in my most recent write-up, which went out to subscribers on Saturday. And my point here is that the Fed can cut interest rates and the markets typically assume that that means the bond yield will come down.

But the 10-year yield, on the other hand, has two components. One is the real rate of return and the second is an expected inflation component. If the Fed cuts interest rates prematurely, as I think it did in September, I had been writing that instead of a 50 basis point cut, the Fed should not cut at all.

And even today, I think they should have maintained interest rates. If they had done that, the 10-year yield would have come down because the inflation component would have come down significantly without affecting the real side. So that’s the difference between the two.

History suggests that there is only one way and the disastrous way at that, that you can use the central bank to control the 10-year yield. It was done during 1942 to 1951 in the United States when the requirements of the Second World War and then the Korean War required the United States to be maintaining low interest rates to service the federal debt. So the Fed and the Treasury cooperated and the Fed decided to buy bonds, any amount of bonds that was necessary to fix the interest rate.

For your listeners, it’s important to point out this is different from quantitative easing. In quantitative easing, the Fed decides how much bonds to buy and how much liquidity to create. It does not decide on the interest rate.

In what is called yield curve control that was practiced in 1942 to 1951, the Fed actively entered and said, I will fix the long bond yield at this level. If it goes above it, I will buy bonds. If it goes below it, I’ll sell bonds.

So when that happened, the Fed started accumulating a lot of bonds. But on the other hand, it lost its independence. It could not do what it wanted to do because its only job was maintaining interest rates to satisfy the US Treasury.

So what happened in 1951 was that they gave up supporting the interest rate and the bond market went to hell in a handbasket. The yields went up and people who trusted the US Treasury and bought long bonds, they lost out because the yields rose so much. That’s the problem with trying to control the 10-year yield.

You really have to manage a well disciplined policy at the short end so that the long end would cooperate and remain at the low level. Maybe turn around yet again. What are your thoughts on this and should we really be worried about a recession here? First of all, the bottom line, you should be worried about it because not just about the yield curve, but all of the uncertainties that are going on on the international trade side today.

And there can be policy mistakes. The United States can assume that the European Union will not retaliate very much or China will not retaliate very much to the tariffs, but they could. And when that happens, the result is going to be a failure of the whole process and we fall into recession because we made a wrong assumption.

That’s one major reason to be concerned about a recession fear. Second, in terms of what the yield curve is suggesting, if you look at 2006-2007, ahead of the 2008 financial crisis, the yield curve went in and out of inversion two or three times in late 2006 and during the year 2007. If you go back and check those years, you will see that it is about minus five basis points, plus 10 basis points and comes up and down again.

The comparison with it, which you referred to again, that it is moving toward inversion worries me very much regarding what history is telling us about the danger looking out into the future. And that’s why in your asset allocation, you also need some way to protect yourself from a recession should it happen. It’s not a certainty, it is something that you need to protect yourself and that’s what the yield curve is telling you.

Absolutely. No, it’s really interesting and I’m trying to navigate the conversation a little bit because there’s so many topics that sort of attach to our Fed discussion and I don’t want to get too far away from the Fed because we have to keep coming back from it. Seems quite vital.

And I want to play a quick video clip from the press conference. Maybe we’ll start there because I want to ask you about how much is the Fed in control? And we can attack that topic or that question from different angles, but let me add this to the stage here real quick. At a event in Davos, or from to Davos anyway, the president said he’ll demand that interest rates drop immediately.

So I guess I have a three part question. Has the president done this to you as he made that demand? Secondly, what is your response to that? And third, what effect, if any, does a president making these kind of remarks have on policy? Thank you. Three questions.

I’m seeing it really as one question though, so I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so. The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that’s how we best serve the public.

Can you just comment on whether he’s physically communicating this demand to you? I’ve had no contact. Yeah, I love that last part because he almost seemed passive aggressive. He actually took an aggressive stance on the podium responding to that question.

So I’m really curious, Sree, what are your thoughts? How much is the Fed in control? And maybe we’ll start from the political side here. I think that he just protests too much and that concerns me. When you are not accused of doing anything, but you keep on repeating that you didn’t do it, you are not at fault, then I wonder why is he being so defensive? I didn’t accuse him of anything.

And he tries desperately to tell you again and again, not just an answer to these questions, but in previous press conferences to say that the Fed is an apolitical entity. It does not take politics into account, but that just doesn’t make any sense. Take the case of the last Fed meeting in December and the minutes of the meeting show that the various members were concerned about whether tariff increases will come into effect, which countries and which sectors will be affected and how that’s going to affect overall inflation.

That to me makes sense. You have to take those into account when you determine monetary policy. On the other hand, Jerome Powell has said in past press conferences as well that he will not take politics into account.

He will not also take into account fiscal policy measures. He says, my job is monetary policy. I will not consider it.

That again makes absolutely no sense at all to me to say that you’re going to ignore the impact of fiscal policy in terms of actual implementation of monetary measures. And the reason for that is that the two have an impact on each other. And I think the reason for his behaviour in 2020-2021 during COVID and deciding that he was going to double the balance sheet of the Federal Reserve from $4 trillion in early 2020 to a level of almost $9 trillion in early 2022 and cutting interest rates down to zero was because he ignored the concomitant increase in fiscal spending and fiscal deficit that happened at the same time.

The joint impact of the two, as we know, looking back, was disastrous for prices. If he had said fiscal policy is very expansionary, therefore, monetary policy can be more austere, more stringent, we would not have been in the problem that we had in 2021. And so he keeps repeating that he is not political, but being that it either shows ignorance or secondarily that he simply wants to protest so much and say that he’s independent.

One reason for that, Kai, I want your listeners to know, he is the first Federal Reserve chairman since a gentleman called G. William Miller in 1978-79 who does not have formal training in economics. And G. William Miller, who was President Jimmy Carter’s Fed chairman, lasted for all of one year on the job. You can’t fire a Fed chairman, so what do you do? The President shifted him and made him Secretary of Treasury.

So basically, he was kicked upstairs and he left the Fed and we came up with Paul Volcker for whom it was left to interest rates sky-high level, put the economy through a recession and we came out of it and inflation was conquered. And that’s the risk of taking a policy position similar to what Powell has been taking. Yeah, it’s a really interesting topic.

President Trump has been calling for immediate rate cuts. And of course, we just saw the answer there that it’s quite defensive, as you said. But the aggressive stance, he’s almost fed up with the questions as well.

It’s an interesting dynamic. But the question is, what are the implications of that potential dispute here between President Trump and Chairman Powell? I doubt he’ll kick Powell upstairs or one level higher because he just hired Scott Besant to do the job, who seems really competent at first glance. I don’t know.

Personally, we haven’t seen a lot of policies implemented just yet, but it seems that that role is taken for now. So my question is, what other implications could that dispute have? Could it make the Fed like a sitting duck or just a lame duck is the term I’m looking for? What are the implications, Sree? The implication is mainly, we are now in February of 2025 and we have to tolerate Powell at least through May of 2026. That’s when his chairmanship ends.

And we have found out that the President has also agreed that he cannot fire Powell before May of 2026. So for the next 15 months or so, the President and Chairman are going to be at loggerheads, expect to see more such debates at press conferences where Powell is asked about the presidential policy and then he in turn says that he doesn’t have any comment on it. But the markets are going to be affected.

You said what is going to be the main impact? You’re going to add to the volatility, the uncertainty in markets and keep in mind that as recently as October 2024, when Scott Besant was mentioned as a top official in a new government, in case Powell won the election in November, Scott Besant said he would like a shadow Fed chair. That means you put somebody else who you say is going to become the Fed chair in May of 2026. Until then, he or she is going to be on the sidelines commenting on Fed policy, which will add to more uncertainty in the markets if that person were going to do that.

So those are all the possibilities here. And that, I think, simply worsens the uncertainty in the outlook for investors when they already have different issues that cannot make sense out of. Yeah, you used an interesting word at the beginning of your answer.

And now I need to follow up on that. And that word was tolerate. And we have to tolerate Jerome Powell until 2026.

So I’m going to ask you directly, what are your thoughts on Jerome Powell? Like you hinted at the Fed is doing a piss poor job, like, pardon my French, summarising here, at managing the current situation. So when you say tolerate, should we get, should Jerome Powell perhaps just step down, make way for somebody else? Like where is the discrepancy? Like where could the Fed maybe even do better? Let’s start out at the very beginning. Jerome Powell is actually President Trump’s appointee.

He nominated him in his first term. And then, of course, by the time the 2020 elections came, he got sick of it because he would not cut interest rates fast enough for the President’s liking. But you said, what is it that I dislike about Powell? I am an admirer of Paul Volcker.

Again, I had finished my studentship. I had started my career in the early 80s. And I could see this Fed chairman who was just unifocal presence on inflation and bringing inflation down because he thought that was the Fed’s objective.

He was a career civil servant in the US government. He had an economics degree. He was, in fact, I have seen him at conferences and he would be in what you may call shabby looking business suit and a tie which is askew.

And essentially, because he was a person who didn’t care for any of those, he had a single objective. And once he left the government, it was not as if he was going to go back to a multi-million dollar career. He essentially settled down to a very normal way of living subsequently.

What does that mean? That means that he can afford to be totally unbiased and balanced with respect to his policy. Jerome Powell, on the other hand, is a lawyer by training. I don’t have anything against lawyers, but he is a lawyer by training.

And then he worked for a private equity firm. And I’m sure that once he leaves the chairmanship next year, he will probably go to a very high paying occupation in the financial sector. What that means, Akai, is that his focus is on keeping markets going, getting a good return to investors, and not necessarily focused on inflation or employment.

Because if you focus on the poor guy at the street corner who is worried about the price of eggs, which is the main concern in the United States today as far as inflation is concerned, if Powell brings down the price of eggs, he’s not going to be rewarded by his patrons in the private sector. On the other hand, if he causes the stock market to go up sharply, they will be very happy with him. And that is the problem with the way in which the Fed structure is.

And now I’m going to finish up the answer to your question, Akai, on what should happen. I have written, I’ve said in public that the Fed chairman should get a single six-year term and he or she should be ineligible for re-nomination. Now, the Fed chair is nominated for four years.

And in the case of Jerome Powell, President Joe Biden re-nominated him for a second four-year term. Now, I would want the next chairman starting May of 2026 to have a single six-year term. Why is that? And you cannot prevent the temptation of wanting to go back to the sector and make millions of dollars there.

But what I can prevent you from doing is to curry favour with the next president. And in terms of policy, just as Arthur Burns did in 1970s with President Nixon, we don’t want that to happen. And a six-year term would reduce the temptation for the chairman to behave in that manner.

That’s a reform I have repeatedly suggested and I would be thrilled if that was taken up. No, I appreciate that. Thanks for, you know, humouring my question here, Sri.

Really, really, really good. I appreciate that. You touched on another topic I want to, you know, dive a little deeper on.

It’s deflation. You said the price of eggs coming down, that was sort of the trigger in my head that we have to talk about it. How worried are you about deflation? And inflation versus deflation is an interesting debate and it sounds like more market commentators are worried about deflation than inflation in general.

So I’m curious what your thoughts are on that matter, Sri. Again, if you look at, China has had deflation in recent years. But if you look at deflation on a global basis, especially in the United States and Europe, we have not had that since the Great Depression.

And there is a reason for that. The reason is that policy officials are oriented toward following policies that push up prices. So the answer to your question is I’m not worried about deflation as a serious risk today.

From my PhD dissertation days, I have thought of the gold, the price of gold as an essential indicator of what’s going on in the economy. And what is happening today is that the central banks of different countries not only the Federal Reserve, but also the European Central Bank, the Bank of England, People’s Bank of China and the Bank of Japan are all competing with each other in terms of debasing their currencies through massive credit expansion. And in the case of the Bank of Japan, even though they have increased interest rate recently, they are still very low by global standards.

What does that mean? That means if I were holding paper currency, my choice cannot be going from the euros to the dollar and thinking I can protect myself. I have to go to a currency that I think will give me ultimate protection. And that is gold.

And look at what is happening to gold today. And the gold price is approaching $3,000. This is a forecast I made several months ago that we’ll hit $3,000.

We are not there yet, but we are at yet another new record today. And my target today, I would say to your listeners, is $3,500. And we may be there in the next five to seven months.

And that to me is the ultimate currency. And the price of gold rising says to me that people are afraid of inflation in holding paper currency. Really, really interesting statements.

I want to dive a little deeper on gold in a second. But on that deflation topic, usually the currencies or the purchasing power is influenced, but in a positive way. Meaning, let’s take the US dollar, which has been declining in purchasing power since it was decoupled from gold.

Now, there could be an opportunity to bring back some of that purchasing power. And I don’t want to get too positive here because we’re coming from a very low level. So even a 100% increase only means like we’re back to 2%.

And I’m exaggerating my point here a little bit. But do you see that happening? What are the positive impacts of deflation here, Sri? Deflation typically does not have positive attributes. And the reason for that is that deflation generates an expectation of a further price decline.

And what deflation does, and this is something we learned from the 1930s, is that when the price goes down 5% and again, think of it going to a shop and you’re trying to buy a suit, you’re trying to buy a shirt and they tell you that we are unable to sell the shirts and we are giving you a 20% discount. You don’t immediately say, oh, let me go ahead and buy a number of shirts, which means that you will be increasing demand for shirts. But you say, let me come back again.

Maybe the price of shirts will go down another 25%. What I’m trying to say is that deflation generates an expectation of further price decreases. And that’s why it is quite destructive of the economic structure.

And if the prices are likely to go down, that means the investments are not going to stay elevated either. People don’t invest because why should I invest when the prices are going down? And ultimately, deflation leads to a recession or a depression. And that is what we have found in history.

And that’s why people generally say mild level of inflation. As the Fed says, 2% inflation. The European Central Bank also has a 2% inflation rate as the target.

It is much better because if you fail with 2% and you go down to plus 1% inflation, you’re okay. At least you have a safety margin that you will not fall into the negative area, which I think would be much more destructive of the economy than having a low level of inflation. Yeah, it sounds like rising purchasing power of the US dollar during deflationary environment is more of a marketing ploy than anything else.

It sounds more like marketing language, almost, if you think about it. I have to jump around a little bit. I have a few more points I want to touch on with you.

One is the US debt situation and the developments in the US that we’re witnessing right now. Doge is probably the buzzword that we need to discuss. What are your thoughts on Doge? And do they have a chance, maybe throw in that whole spending topic in general, does the US have a chance to get out from under? First of all, you have about two or three parts to your question.

So I’m going to take the first part up. If you’re looking at your GDP, we have all round numbers, you’re looking at 26 trillion US dollars. And you’re looking at the federal debt, it is 36 to 38 trillion US dollars.

So it’s about 120 to 130% of GDP is the debt. When I finished my PhD and started my career in the 1970s, we were taught that 50% debt to equity ratio was the maximum level a country should have before it became very risky on a sovereign risk basis. Think about that 50% was the benchmark.

And now we are going at about 120%. When that happens, debt becomes all consuming. And in the case of the United States, the amount of interest payments that are made on debt is greater than the total defense expenditure.

And this is happening for the first time in history. And it is not going to change anytime soon. The outgoing Treasury Secretary Janet Yellen, what she did was to try to correct the situation by issuing short term paper.

And Scott Besson said, that is not a good way. We really have to find a way to bring the deficit down. But my understanding is he has still not done anything.

The Treasury is still issuing short dated paper. Because if they issue long dated debt, the long yield will go up further. So when you look at the situation, how do you correct it? We have again, Elon Musk, President Trump suggesting that DOJ would be a way to get the things done.

But there are so many cooks, so many chefs cooking the broth, that I will believe that it can be done only when it is done. Because I think there is a lot of temptation now for people to score political points that they may not actually get to move. In order for me to believe that fiscal deficit is going to go down, since the President’s party controls the presidency, the Senate and the House, I would like to see them say that some of the entitlements, social security payment, Medicare payment, which is again considered set obligations, that the President brings forth ways of reducing them by saying, right now, you’re able to collect those benefits at the age of 65.

We are going to tell you that you can only collect starting at the age of 70, because Americans are stronger, the longevity of life has increased. So I’m not going to let you collect at 65. That’s one way to do it.

If those concrete steps are taken, it is more believable that the fiscal deficit will come down, rather than say, I’m going to get rid of whole departments, because what’s that’s going to happen is more inefficiency. And somebody has to closely examine each department and say how many workers you’re going to lay off, and what is the cost of laying them off relative to how much cost you save, and go through it. Right now, the way it is done is with a paintbrush.

For instance, the abolition of the USAID, for instance, it makes a lot of political points. But on the other hand, is that an indication that fiscal deficit will come down? I get no lesson out of it, Kyle. No, it’s an interesting topic.

And we’ll see how this plays out. It’s obviously early days in the whole like term of President Trump here, and of the Doge Committee. So we’ll see.

And if they take the appropriate steps, of course, ripping the bandaid off is always going to come with some pain. We’ll see if we can live with that. You mentioned increasing the retirement age to 70.

If it was France, we’ll see riots in the streets. And I’m curious how that will play out. I’ve heard the term Civil War before.

I don’t want to go there. But if it’s anything like France, we’ll definitely have some farmers dumping manure on the steps of the Capitol probably. So we’ll see where that goes.

But you also mentioned earlier in your comment that I need to follow up on it. I want to be conscious of your time. But you mentioned that Janet Yellen protected the long term interest rate by issuing only short term debt.

The question is, is that coming full circle? I just want to get a little more specific on that because the U.S. has to refinance a lot this year. A. Why did she? Maybe explain that just a tad more. And B. Do you see a coming liquidity crisis this year? Or can that be circumvented? First question was, why did she do it? I think she was doing it because of the pressures of elections.

And again, she was a well respected economist at the University of Berkeley before she went over to the Fed, before she became the Secretary of Treasury. But essentially, in my understanding, once she was Treasury Secretary, she became essentially a person who had to serve Joe Biden’s political interests. And they would not be served by the yield going to very high levels.

And I think I don’t agree with everything the Trump campaign has said. But I think they were correct in saying that the issuance of short dated paper was essentially politically motivated because they didn’t want the long yield to go up. But the correction should be some way to cut the spending, increase taxes.

But in an election year, they were unable to do that. So they tried this gimmick for a while in terms of trying to get the thing done. Now that Trump has just come to office, and it’s going to be a long time before the next elections are there, and he is not eligible to contest again, because it would be the end of two terms.

So hopefully, there will be more of an incentive for them to take real disciplinary steps to do that. But in terms of what Janet Yellen did, I’m disappointed that she did something which is politically expedient, but which her economic training would have told her doesn’t make much sense. Yeah, no, it’s interesting.

It feels like the Democratic Party, when they left office, they drilled a bunch of holes in the boat and just left a sinking ship without anybody really paying attention. So that was an interesting topic there. So I appreciate you humoring my question, Sree.

Let’s get back to gold. Maybe it’s the last topic of conversation here. You already touched on it.

You’re obviously quite positive on it. You wrote your thesis on gold as well. But maybe we’ll need to talk about the drivers behind the gold price move right now, because if I look at the World Gold Council report that just came out for the last year, it was mainly central banks buying.

There was some ETF buying, but it was quite erratic. Europe, for example, has been selling. We’re obviously way worse off economically.

So I’m guessing there’s some covering of daily expenses going on in Europe, potentially. But it wasn’t an overall retail move yet in the gold price. And we’re still hovering or we’re already hovering at $2,900 gold an ounce right now.

So explain those drivers. What is pulling on gold right now? There are two or three things that are pulling on gold. And you started with official holders.

So let’s begin with the official holders. If you look at the Bank of Russia or if you look at the People’s Bank of China, there is an immense incentive to buy gold. Because traditionally, the biggest holdings used to be US dollars.

And the US dollars are held with the Federal Reserve Bank of New York. So that the Japanese Central Bank, Chinese Central Bank, or the Russian Central Bank can withdraw the gold, can withdraw the dollars as and when they need for their spending purposes. But what they found now, and go back and check, that during the Russia-Ukraine conflict, we had a big chunk of Russian holdings which were frozen by the United States.

Now, if you were Chinese and you were thinking about what would happen to your holdings as a part of the tariff fight, it could be that some of the Chinese holdings are frozen and they are not able to pull back. So under those circumstances, the way in which the central banks are going to look for defence, look for protection, is going to be by buying gold. So that way they don’t have to depend on the US dollars.

That is to the detriment of the United States because the paper that we used to issue and have the other countries accept are no longer accepted by the central banks and they want gold instead. So that I think is the main loss which led to the official holders being first in line in terms of buying it. But I think the retail demand is going to come.

Retail demand is going to come because the consumers are going to find that if they were trying to diversify across different currencies, they are all susceptible to being debased and that the gold price is going to go up. The positive for gold is that it reflects the ultimate safe haven. The negative for gold is that it does not pay any interest, but not paying interest becomes less of a burden if the holders or the buyers decide that that’s what they want to be to protect themselves.

Now, it’s an interesting topic. And maybe very last question, Sri, which popped into my head since you said it doesn’t pay any dividend or yield. We touched on that topic at length.

Where is the breaking point or the break even point where the interest from gold to bonds sort of switches? At one point, is the investor will to accept the bond, maybe the duration risk of a 10 year versus buying gold? I’m curious what your thoughts are on that. Again, I used to be in my former life, I used to be the chairman of an asset allocation committee for a large asset management firm. So we had to think about not either or with respect to two asset classes.

We had to think about what and what. So I would say that typically in an investor’s portfolio, both gold and bonds, high quality bonds, should both be part of your portfolio in addition to equities, of course, and private investments. What this does is what is the trade off between the two as the interest payments are artificially controlled by issuing short term debt.

And you start to believe that inflation is not going to be controlled. And what we found a couple of days ago is that in the United States, the University of Michigan Consumer Survey showed that consumers expect one year from now, they expect inflation to be 4.3%, which is one percentage point higher than what they thought just a month ago. Yeah, no, and Sree, that was really appreciative.

Running us through your thought process, how we get to $3,500 golden ounces. Well, it’s a really interesting topic. And I could chat with you for a couple more hours because we haven’t even gotten into the tariff debate.

But we’ll save that because we need to discuss the impacts maybe in three months, four months time. We’ll need to get you back and see what the impacts of the first 100 days are, how effective they were. And we can maybe draw the line and do the total and analyze what’s going on.

So Sree, really appreciate your time. Thank you so much for joining us here on Soar Financially. How do we follow your work? Because you run a substack as well, I believe.

I run a substack and it goes down. It’s reconomics.substack.com. It goes out typically every Saturday morning, California time. And so you can access it that way.

I also put it on Twitter or X as soon as it’s written. So that’s a second way to pick it up. There is no paywall.

So anybody can read it. There’s nothing that stops you from reading the entire piece. Oh, fantastic.

Because usually there’s a paywall everywhere. Right. No, no, we do.

We tremendously appreciate it. We’ll definitely link to it down below as well. So people can find it easily.

Really appreciate every time. We’ll have to have you back very soon. Thank you so much.

All the best. And everybody else. Thank you so much for tuning in here to Soar Financially.

I hope you found this conversation with Sree super educational because I have. It’s really interesting to get different perspectives on the channel and really understand what is happening. How are people motivated? Where’s decision making coming from? Really trying to understand the dynamics.

Hence, we talk about the macro to understand the micro. And I haven’t explained it in a while, but for us, the micro really is the precious metals and the mining stocks. That’s where I come from.

That’s where my background is. Hence, a lot of my questions are geared to understanding what is driving markets, what is driving gold price higher, and how is it reflected? So just to give you a bit of background, since I haven’t explained that in a while. If you haven’t done so, hit that like and subscribe button.

It’s a free way to support us. We tremendously appreciate it. Go check out our guest’s Twitter channel or X channel.

I keep saying Twitter. I can’t get used to X. Really struggling with that. And of course, go check out his sub stack as well.

Thank you so much for tuning in. We’ll be back with lots more. Thank you.