A Generational Bull
In the Wall Street Journal this week, Bank of France Governor François Villeroy de Galhau warned of “the possibility of a fall in the dollar if the Fed’s independence is challenged.”
Well, Fed independence has been consistently “challenged” since Trump won the presidency in November of 2024. The Trump vs. Powell battle lines were formed on the night of the election, and we’ve heard some notable potshots since. Beyond the numerous personal insults of Jay Powell, Trump has repeatedly applied direct political pressure for lower interest rates, threatened to remove Chair Powell, and made efforts to appoint Fed governors sympathetic to the administration’s agenda.
This week, after the U.S. Department of Justice’s unprecedented move to actually subpoena Jay Powell and threaten a criminal indictment over Powell’s summer congressional testimony about Fed building renovations, HAI is pretty sure the Fed independence “challenge” has turned full-on hot war, and that Fed independence is now under more fire than the Alamo.
And yes, under the circumstances, HAI would agree with Bank of France Governor François Villeroy de Galhau that the “possibility of a fall in the dollar” looms very large.
According to the Wall Street Journal, “Top global central bankers said they stand in ‘full solidarity’ with Federal Reserve Chair Jerome Powell, an unprecedented step that underlines how seriously they view the threat to the independence of the U.S. institution.”
In addition, the WSJ highlighted that an endless list of former Fed chairs, Treasury Secretaries, presidential economic advisors, and renowned economists on Monday rushed to defend Powell and the Fed’s ability to set monetary policy free from political influence, calling the investigation “an unprecedented attempt to use prosecutorial attacks to undermine that independence.”
On Monday, in a “Statement on the Federal Reserve,” the signatories wrote that, “The Federal Reserve’s independence and the public’s perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates. The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence. This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly. It has no place in the United States, whose greatest strength is the rule of law, which is at the foundation of our economic success.”
In HAI‘s view, this week’s dramatic escalation in the war on Powell is likely to only strengthen and accelerate what’s already the most important fundamental factor at dead-center bullseye of the new global macro regime: de-dollarization at the sovereign level, and an emerging mass capital rotation from financial assets into real, hard assets at the global financial market level.
As HAI sees it, since Nixon closed the gold window in 1971, the global gold standard system became the dollar Fed standard system, and now, seemingly conclusively this week, we’re watching in real time as the Fed standard dies. If we’ve been in the monetary regime equivalent of Kansas for the last 50 years, it’s now very important to note: we’re not in Kansas anymore.
In other words, this newly official hot war over Fed independence is very likely to officially end the Fed standard era and force sovereigns and citizens alike toward a new self-imposed gold and hard asset reserve standard. HAI has little doubt that the events of this week will speed the coming capital conversion from “weakening currencies into real resources” described by Russian President Putin in 2022. Furthermore, HAI is confident that history will remember this moment as an “obvious” time to exchange dollar reserves for gold reserves at every level.
In essence, the Trump vs. Fed rumble is happening because both Trump and the Fed now realize that they are trapped by decisions already made in the years and decades past. Reading between the lines, this fight isn’t about Fed independence per se, rather it stems from the fact that both parties realize there is no longer any easy means by which to deal with a U.S. debt and fiscal deficit situation that has gone critical given the ongoing breakdown of the petrodollar system ( a system which, while dominant, structurally ensured rabid global demand for U.S. dollars and U.S. debt). It seems that the fight is to try to force the other side to take the majority of the blame for what is very likely to come next; the monetization of massive U.S. deficits to support the U.S. Treasury market and the resulting large-scale secular devaluing of the U.S. dollar.
In HAI‘s view, it is critical to understand that the Trump vs. Powell battle royale isn’t just more of the same tabloid drama so typical of our modern moment. It is happening because this administration realizes that the U.S. is trapped and needs the Fed to finance U.S. deficits—for as long as it takes to inflate debt/GDP lower.
That means that de-dollarization (or the “debasement trade,” as it has recently been dubbed by the mainstream media) isn’t just a catchy in-vogue investment theme. It’s a structurally strategic imperative for preservation of capital.
The global system has irrevocably changed. The petrodollar and the global dollar Fed standard are both breaking down in real time. This administration isn’t declaring war on Powell and the Fed because it wants to, it’s declaring war on Fed independence—because it must.
Viewed from this prism, the ripping bull market in precious metals makes all the sense in the world. Rather than misunderstood as a fleeting bout of volatile excess, viewed from this prism, the sharp move higher in precious metals can be correctly extrapolated into an ongoing secular trend higher within a new global monetary reality.
Make no mistake, in HAI‘s view, the events of this week were profound. Regardless of what resolve Powell displays over the coming months, Fed independence as we’ve known it is broken going forward. That means the dollar Fed standard is broken. Gold is the ultimate money again. And that means gold must be accumulated, and that its dollar value must rise significantly to recapitalize global balance sheets after a fifty-plus year misadventure with Fed-backed paper promises.
Few it seems, at present, have the imagination for what this precious metals bull market is really about and for what the implications are toward the bull market’s likely ultimate magnitude. Most still compare the ongoing precious metals bull to the two that preceded it in the Fed standard era. That is, after all, the sensible, conservative, thing to do.
But, we are no longer in the Fed standard era, nor are we back to a dollar gold standard era by disciplined decree and fixed price. We are now in a new unofficial gold standard era by default, and the gold price freely floats in all currencies. If HAI is correct that, as of this week, we are officially in a new unofficial gold standard era, how can the bull market for the gold price be anywhere near over when almost no one—yet—understands this new reality, and, as a result, almost no one—yet—owns gold?
In HAI‘s view, the state of this precious metals bull market to date can best be summed up by Churchill’s famous line: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” As the new reality gets increasingly marked to market, expect more fireworks from this generational precious metals bull.
Weekly performance: The S&P 500 was down 0.38%. Gold was up 1.88%, silver surged 12.49%, platinum gained 2.01%, and palladium was off 1.34%. The HUI gold miners index was up 5.10%. The IFRA iShares US Infrastructure ETF gained 3.56%. Energy commodities were volatile and mixed on the week. WTI crude oil was up 0.30%, while natural gas was off 1.98%. The CRB Commodity Index gained 0.19%. Copper was off 0.95%. The Dow Jones US Specialty Real Estate Investment Trust Index was higher by 4.60%. The Vanguard Utilities ETF was up by 2.06%. The dollar index was up 0.25% to close the week at 99.38. The yield on the 10-yr U.S. Treasury was up 5 bps to close the week at 4.23%.
Have a wonderful weekend!
Morgan Lewis
Investment Strategist & Co-Portfolio Manager
MWM LLC
