Let’s talk about the sudden setback in precious metals markets.

Metals got hammered on Monday and Tuesday. Gold prices fell back below the $1,800 level and silver is back down under $24. 

Platinum and palladium also got hit hard. Interestingly, though, copper and most other commodities are holding up well. 

The price takedown that was focused on precious metals specifically may have been a knee-jerk reaction to news from the White House.   

On Monday, President Joe Biden announced he would renominate Jay Powell for another term at the helm of the Federal Reserve. Powell’s policies are widely perceived on Wall Street to be good for the stock market.

In any event, it means more of the same – assuming he gets confirmed by the Senate. 

Senator Elizabeth Warren and the socialist wing of the Democratic party are bitter that Biden didn’t opt to replace Powell. They had pushed for a nominee who would more openly pursue Modern Monetary Theory and pay all the government’s bills directly with newly created cash. 

With even more radical currency creation programs apparently being taken off the table for the time being, futures market traders took the opportunity to pounce on the short side of precious metals contracts. 

Of course, most people who own physical gold and silver for the long run aren’t going to second guess their holdings because Powell is staying on at the Fed. The Powell-led Fed is currently responsible for fueling the worst inflation problem in three decades.  And it’s poised to get worse next year.

The bullish case for precious metals doesn’t assume hyperinflation or full-fledged socialism or some other extreme scenario. It simply assumes that the Fed will be unable or unwilling to stop stimulating the economy.

That means even if the central bank begins tapering its asset purchases, it won’t ultimately raise interest rates as high as they need to go to get ahead of the inflation curve. Yes, it would appear a near certainty that negative real rates are here to stay under Chairman Powell.

And let’s not forget, he is the first Fed Chairman to explicitly abandon the mandate to pursue price stability. Powell is openly pursuing high inflation – well above the Fed’s longstanding target of 2% -- and doing nothing to tame it.

The Fed under Powell has been purchasing so much government debt that it is now by far the largest holder of Treasuries. Perhaps that is why he was renominated. He did his job as a great enabler of the Biden administration’s borrowing and spending agenda. 

For an administration obsessed with undoing virtually every policy and position advanced by former President Donald Trump, the one Trump legacy being preserved and extended is Jerome Powell. It’s actually quite predictable.

The one thing both parties find broad agreement on – at least when they are in power – is monetary policy. Trump pushed the Fed to lower interest rates and extend stimulus programs and tapped Powell to serve that function. 

Now Powell is serving the same function for a new political constituency. The twist this time around is that the Fed is now expected to pursue a host of objectives that have nothing to do with its statutory dual mandate. 

Activists both outside of the Fed and within it are pushing Powell to roll out woke diversity and climate change initiatives, among other things. He has been capitulating to their demands. Under his watch, monetary policy is being politicized on multiple fronts.

President Biden will soon have the opportunity to further tilt the Federal Reserve to Democrats’ liking by filling three vacancies on the central bank's seven-member Board of Governors. 

In the meantime, the Federal Reserve Bank of St. Louis has a Thanksgiving message for American families. The St. Louis Fed put out a statement on Twitter touting the potential cost savings of substituting soy protein for turkey at Thanksgiving.

That’s right, the same people responsible for driving up Americans’ food costs want us to believe that soy is a solution. Perhaps the Fed will try to convince us that food inflation really isn’t so bad because we can always substitute vegetable-based protein for our favorite meats – which will also supposedly stop the climate from changing because plants don’t pass gas while grazing.

But most people would find such substitutions to be a dietary downgrade not worth making. The reality is that Thanksgiving will be a lot more expensive this year. According to the American Farm Bureau Federation, turkey prices have increased by 24% over the past year, with the average overall cost of a Thanksgiving meal expected to be higher by 14%. 

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