Since the election of Donald Trump, in terms of the financial markets, most attention has been on stocks.  The Dow has been hitting all-time nominal highs.

The dollar price of gold has taken a big hit, but there is a sense that this won’t last.  Unless we go into a deep recession without the Fed responding with more monetary inflation, then it is hard to imagine that gold will go much lower and stay down.

But while most attention is on stocks, the bond market is really the big story.  Interest rates have been spiking higher.  The 10-year yield, as of this writing, sits just over 2.2%.  While this is still historically very low, it is higher than it has been over the last several months.  Back in July, it was below 1.5%.

What is causing this short-term spike in longer-term interest rates?  And will it continue with Trump taking the presidency?

To quote this Marketwatch article: “Trump’s promise of loosening regulations, cutting taxes and boosting spending to repair roads, highways and bridges has led to the higher moves in government bond yields, with traders seeing his proposals as supportive to higher economic growth and inflation, anathema to bond investors because inflation erodes the value of interest payments.”

We don’t really know if this is the reason for the higher yields.  Perhaps it is a contributing reason.  Still, I wonder if it is more speculation about what will happen with the Fed.

Trump is really all over the place on so many issues, and that includes monetary policy.  He has said he is a low interest rate guy, but he was probably referring to his preference as a businessman.  He has also been quite critical of the Fed and Janet Yellen.  It is unlikely Yellen would be renominated as chair.

Trump does have some relatively hard money guys in his camp.  He doesn’t exactly have Ron Paul and David Stockman on his team of advisors, but Trump is probably the closest we have seen to a hard money guy since Reagan.  This doesn’t mean anything significant will actually change, but it adds to the uncertainty.

Even Trump’s VP, Mike Pence, has spoken in favor of gold.  Despite my criticisms of Pence from a libertarian perspective, he is still better on many economic subjects than the average politician.

If Trump appoints inflation “hawks” to the FOMC, this could have an impact on policy.  It would signal that we can expect tighter money, at least relative to what we have seen (2008-2014).  Higher interest rates tend to go hand-in-hand with tighter money.

Of course, we live in bizarre economic times.  The Fed has had a tight money policy for the last two years, yet interest rates have stayed low.  The massive pile of excess reserves has helped to keep rates down with the tight money.

In addition, if we have a recession, we should expect long-term rates to go down again.  There will be a flight to safety, which includes government bonds for many investors, assuming that imminent price inflation does not seem to be a threat.

I don’t think a Trump presidency is going to matter that much, particularly in the short run.  The uncertainty can add to volatility, but it is not likely to significantly change monetary policy any time soon.

From a libertarian perspective, and a growth perspective, we should hope for higher interest rates.  This is the only thing that can ultimately impose limits on government spending.  The only other thing that can impose limits is public opinion, which doesn’t seem to care much right now.

Higher interest rates can ultimately force a reduction in spending in order to limit the new debt issues.  This means that Congress would have to raise taxes or cut spending, and raising taxes is not likely on the table right now.

The economy needs higher interest rates and lower government spending.  The higher rates will encourage more savings, which is needed for economic growth.  A reduction in government spending is needed, as virtually all government spending is a misallocation of resources, as capital is expended on things that are not of the highest priority for consumers.

It is interesting that stock markets are hitting new highs at this time, because higher rates could ultimately hurt stocks.  If there are higher rates, it attracts risk-averse investors searching for yield.  They do not need to gamble in the stock market in search for yield if yields are higher for bonds.

Trump can impact the spending side of things, but he hasn’t really proposed any significant cuts.  The only hope might be for a reduction in war operations in the Middle East.

The biggest factor for the economy in the coming years is Fed policy. Trump can have an impact based on who he appoints to the FOMC open positions.  But even if he appoints inflation hawks, it may not matter that much in the next year or so.

My biggest fear with a Trump presidency is that a major recession hits a couple of years into it.  It is possible there could be a clean sweep of Congress and the presidency by the Democrats in 2020.  This would be at a time when people might be desperate for government solutions to the economic problems.

My hope is that there will be a downturn soon.  Trump can blame Obama, even though he should be blaming Yellen and Bernanke the most.  You can also blame the Congress for allowing the huge spending.

I expect a recession sooner rather than later.  Maybe the spike in interest rates this past week is an early indicator.  I am more bearish on stocks than bonds in the near term though.

Prior to the election, I discussed the possible ramifications on the economy and the financial markets.  I said that if Trump were to win, that the markets would likely resemble what happened in the U.K. after Brexit.

I stated: “The polls suggested that the Brexit vote would fail.  When it actually passed, stocks fell, including outside of Great Britain.  But after the dust settled a bit, stocks recovered.”

I thought it would be the same with a Trump victory.  In a sense, I was correct, but I certainly underestimated the speed at which stocks would recover.

When the results started hinting at a Trump win on Tuesday night, the Dow futures were down over 800 points at one time.  By the next morning, the Dow was nearing new all-time highs.  In the period of about 14 hours, the Dow shifted direction by about 1,000 points.

Fortunately I did not short any stocks in anticipation of a Trump victory.  It could have only been profitable if I had been trading futures in the after-hours.

As fickle as the voters are, apparently investors are even more fickle.  Investors called it wrong on Trump’s victory.  Otherwise, it would have already been mostly priced into the market.  But once a Trump victory was apparent, investors didn’t know which way to go.

In a way, I don’t blame them because Trump really is a wildcard.  We don’t know what we are going to get.

Trump has been more critical of the Federal Reserve than any incoming president, at least within the last few decades.  Is Janet Yellen going to change policies at all because of the election outcome?  I really don’t know, and apparently investors have no idea either.

The 10-year yield spiked up this week, closing at about 2.15%.  But it is hard to say what exactly is driving this.  Are investors preparing for further rate hikes by the Fed that we have all been waiting for?

But bonds weren’t the only loser this week.  Gold prices were crushed.  They initially surged higher on Tuesday night, but then shifted dramatically on Wednesday.  After being over $1,300 per ounce, the price finished at about $1,227 for the week.

The only thing that did worse than gold was gold mining shares.  They were absolutely crushed, especially on Thursday and Friday.

I think it will take a little time for everyone to digest the news of a Trump presidency.  And we really don’t know what we are going to get.  Maybe his cabinet picks will give us a little better sense.

Either way, he is inheriting a mess.  The economy still has a lot of misallocations from the easy Fed policies of 2008 to 2014 when the Fed approximately quintupled the adjusted monetary base.  In addition, the government continues to spend about $4 trillion per year.

If Trump really wants to help the economy, aside from repealing Obamacare, he would find other regulations to repeal and he would cut the federal budget.  I doubt the budget will be cut, but that is really one of the big long-term answers to making things better.

For every dollar the government spends, whether it is through taxes or debt, it is misallocating wealth.  It is spending money on things that were not a top priority for consumers and investors.  It hurts the process of generating new wealth.  Government spending needs to be reduced.

While Yellen and company may be less anxious to help out Trump with a recession, they aren’t going to purposely allow things to fall apart on their watch.  In other words, if we have a deep recession, you should still expect more monetary inflation from the Fed.

Therefore, while gold prices could take a hit in the short run, the main reasons for owning gold are still in place.  Gold is a hedge against a depreciating dollar, courtesy of the Fed.

In fact, if you were looking to get into some gold or gold stocks, I think now is a good entry point.  Again, it could still fall more in the short run, but it is better to buy on the dips.  And it was a massive dip this week for gold stocks.

Unless Trump changes things drastically, it will still ultimately be the Fed that determines the course of the economy and the price of gold.  When you hear talk about QE4, then you can expect the gold price to skyrocket higher.

Trump has won and shocked the political class.  He was not supposed to win, and now everybody is scrambling to figure out what it will mean.

I voted for Darrell Castle on Tuesday, although I had been tempted to vote for Trump on several occasions.  Trump is nothing close to being a libertarian, but he does offer us some hope on foreign policy. In addition, he seems to be mostly honest (a rare characteristic in politics) and the establishment hates him.  Therefore, he can’t be all bad.

Even though I hadn’t voted for Trump, I was cheering for him on Tuesday night (and Wednesday morning).  It was fun to flip through all of the different channels just to watch the media pundits squirm.

Almost all of the worst enemies of liberty were against Trump.  The establishment media, the neoconservatives, the Bushes, Paul Ryan, Mitt Romney, John McCain, Colin Powell, and most of the left.  These are the worst elements of society.  This was reason enough to cheer on Trump.

The betting sites got this completely wrong.  I had previously stated that they are now unreliable because they were essentially outlawed in the United States.  The polls were mostly wrong, but not by as much as people thought.  Clinton is likely to win the popular vote, and some polls showed that Trump had closed the gap to within one percentage point right before the election.

Some will again question the system of the Electoral College.  One argument against a nationwide popular vote comes from this election itself.  Could you imagine recounting over 120 million votes?  Could you imagine the fraud that would be taking place right now?

Of course, the Electoral College was designed when it was more of a confederation of states rather than the giant behemoth of a single nation that we see today.  It was designed as such because each state was supposed to be like an independent little country.  The Electoral College is one of the last remaining remnants of federalism.

But on this note, it was encouraging to see more states somewhat legalize marijuana, whether for recreational use or medical use.  This continues to be an act of defiance against illegitimate federal laws.

There are Clinton supporters today who are absolutely livid.  They hate Donald Trump and they can’t understand how anyone could vote for someone who they have been told is a bigot and a bully.  The people who think this way simply are out of touch with reality.  They don’t understand that half the country knows that Hillary Clinton is a criminal.

But the Trump vote wasn’t just an anti-Hillary vote.  There were plenty of enthusiastic Trump supporters.  But you have to realize that most of these people don’t love every policy proposal by Trump.

I can’t speak for all Trump supporters, but I think a majority of them see him and his movement as a protest vote.  To put it less politely, they saw a vote for Trump as a giant middle finger extended to the establishment.

Hillary Clinton was really the perfect contrast too.  She is a bloodthirsty warmonger who is in the pockets of Goldman Sachs, the Saudi government, and the military-industrial complex.  She is just the worst of the worst.

It’s been fun to see the establishment throw fits over the election results, but we don’t know what we are going to get out of Donald Trump now.

There are hysterical people who think the world is going to end or something.  Some immigrants think they are going to be deported and some women think they are going to be a second-class citizen or something.

You should not expect much change when it comes to social policies or even economic policies.  There will be marginal impacts on the courts, likely for the better (from a libertarian point of view).

In terms of the federal budget, most of it is already spoken for.  It isn’t going to change much unless Trump actually reduces military spending drastically.  And this is one area where Trump could really do some good.  If he scales down (or better yet, ends) the various wars overseas, then I think we can be satisfied.

It would be nice if he would at least audit the Federal Reserve, but again, I don’t think we should get our hopes too high.  Maybe he will surprise us, but probably not.

I think the biggest question is Obamacare, which is an issue he probably didn’t exploit enough, yet it probably put him over the edge.  The middle class is getting hammered right now, and it was his acknowledgement of this fact that drew so much support.

The Republicans have maintained a majority in the House and a slight majority in the Senate.  They can repeal Obamacare.  Do they have the will to do it?  I am doubtful, but I can still hope.

If the Republicans fully repeal Obamacare and don’t put in place some other fascist or socialist program in place, then for once I can say that maybe there is more than a dime’s worth of difference between the two parties.  Let’s see if Trump can make this happen.

For me, the two big issues over the next four years are foreign policy and Obamacare.  I don’t expect Trump to be anything close to a libertarian, but I will consider him a success if he can end the wars, not start new wars, and repeal Obamacare.

I don’t expect much else except for theatrics from all sides.

I am a libertarian and I am not voting for Gary Johnson for president in 2016.  While he is certainly better than the two major candidates on many issues, I do not consider him to be a libertarian.  Johnson is libertarian leaning in some respects.  But even when he does take a libertarian position, he typically does not provide an intelligent defense of it.

Johnson’s choice of Bill Weld as his running mate automatically disqualifies him in my eyes.  I know the Libertarian Party ultimately chooses the VP nominee too, but Weld was Johnson’s choice.

If I vote for anyone on the presidential ballot on Tuesday not named “Write-in”, then it will be Darrell Castle of the Constitution Party.

Between Trump and Clinton, I much prefer Trump.  We already know that Clinton is a war hawk and a criminal on many levels.  She is the complete opposite of libertarianism in almost every way.  Still, while I think Trump has done a great job in trying to point out that Americans are getting the short end of the stick from their so-called leaders, I don’t think he has the right solutions in most cases.  I just can’t bring myself to vote for someone with whom I disagree with on so many issues.

With that said, here are 8 reasons to consider voting for Darrell Castle.  I am not telling you what you should or shouldn’t do, but just making a libertarian case for Castle.

1. Castle may turn off many libertarians with his religious and conservative stances.  But his policy proposals do not necessarily reflect his personal views.  For instance, with his pro-life stance on abortion, Castle says that we should take away the Supreme Court’s jurisdiction on the matter and that he would veto any federal spending for abortion providers.  This is the proper constitutional position.
2. Castle wants to repeal the Federal Reserve Act.  He doesn’t just want to audit the Fed or criticize its policies.  He wants to end the Fed.
3. For federal taxation, he proposes a system of apportionment, where each state pays a proportional amount to its census.  This is the way the original federalist system was designed.  It removes power from Washington DC and back to the states.  This alone would likely reduce taxation and federal spending dramatically.
4. On education, Castle believes it should be done at a local level.  In other words, he doesn’t see it as a responsibility of the federal government.
5. Castle generally takes a non-interventionist stance on foreign policy.  The only other candidate on the ballot that may possibly be as good or better on this topic is Jill Stein.  But Stein is mostly a socialist on other issues.
6. Castle says that the U.S. should immediately withdraw from the United Nations.  This is in the name of sovereignty, because he is not planning on engaging in any wars.
7. Castle has stated that he is opposed to the federal war on drugs.  This is an issue where libertarians have not always been in agreement with the Constitution Party.  From a Constitution standpoint, any drug laws should be left to the states.  Castle takes the correct constitutional and decentralist position on this issue.
8. As you can see, Darrell Castle really does take positions consistent with the Constitution.  Even though some libertarians do not revere the Constitution, they can still cheer on Castle’s positions because most or all of his positions are decentralist in nature.  Being a libertarian isn’t about passing laws to legalize liberty; it is about repealing all of the laws that interfere with our liberties.  It is often about taking a decentralist position.

Those are just some of my reasons on why you should consider voting for Darrell Castle for president if you feel so inclined to vote at all.  Let’s face it; your vote isn’t going to decide anything anyway, even if you live in one of the states that is close.  If it comes down to one vote, then it is going to come down to corruption and the courts.

If you are going to vote, you might as well vote for someone who you feel good about.

With just days to go until the election, I am enjoying the entertainment.  I can’t say that it is at the expense of our liberties, because a lot of those liberties don’t exist anyway.

I will get back to more economics/ investments/ money topics after the election.

Here are some random thoughts about  the election season.  If you are reading this a day later, some of it might be old news (oxymoron?) already, especially with the existence of Wikileaks.

1. Many people keep saying that this is one of the worst choices ever for a presidential election.  Have they not been paying attention for, oh, the last several decades?  Was Romney vs. Obama really great?  And what would make them happier now: Rubio vs. Biden?  Trump is actually something different as compared to the status quo.
2. I think libertarians should take some lessons from Donald Trump about what to do and what not to do.  Rand Paul had a terrible campaign for the nomination.  He let Trump take the position of outsider, while Rand tried to play nice with the establishment.
3. A lot of people voting for Trump don’t necessarily agree with him on a lot of the issues.  He represents a middle finger to the establishment, and there are quite a few people out there who want to see the establishment taken down at least one notch.  We’ll see if there are enough to get him the electoral votes to win.
4. Bill Weld just essentially endorsed Hillary Clinton.  I wonder how this makes Gary Johnson feel.  I wonder how it makes the Libertarians who voted for Weld feel.  Did Johnson know that Weld would disagree with him on so many issues and support the establishment candidate?  Did Johnson know how much of a statist Weld really is?  Is Johnson himself a statist?  Maybe he will open up about it after the election.  Bill Weld will probably be out of the Libertarian Party on November 9.
5. For the first time ever, I have a strong hope that Hillary Clinton is headed for jail.  The reports are saying that the NYPD dug up the dirt on Weiner’s laptop and that they are prepared to go public with the findings on Bill and Hillary’s criminality.
6. Who would have thought that a guy named Weiner would show his…well, you know… and get the Clintons in trouble.  Bill Clinton officiated the marriage between Weiner and Huma Abedin, and it was Weiner’s sex scandals that may bring them down.  If someone  wrote a novel like this, people would say it is impossible.
7. If Hillary Clinton gets elected at this point and actually takes office, she will have very little respect amongst the populace.  She will be practically impotent.  My only fear is that she will start another war.
8. Who are the 60 million or so people who will vote for Hillary Clinton?  They must really have their heads in the sand here.  Do they still think this is all part of some vast right-wing conspiracy?  Do they honestly believe that she made an honest mistake in sending out emails on a private server?  Do they honestly believe that Saudi Arabia and other foreign governments donated to the Clinton Foundation for charitable causes?  Do they even know any of this stuff?
9. Bernie Sanders is a total stooge.  How can the guy go out there and campaign for Hillary knowing that the whole thing was rigged against him?  Wikileaks exposed emails that fed debate questions to the Clinton campaign prior to the debate.  Are we supposed to believe this was a one-time incident?
10. I saw a bumper sticker today that read “I’m ready for Hillary”.  This could really be taken two ways.  Does it mean the person driving that car has guns and ammo ready for the collapse that takes place under Hillary?
11. In 2012, I knew Obama was going to win because of InTrade.  The government essentially outlawed the betting sites and the foreign ones are not going to be as reliable.  So I really have no idea who will win this.  I don’t even know if we will know the final results on Tuesday night or early Wednesday.  This is going to be quite the show.
12. Even if you hate both Trump and Clinton, I think you should absorb this moment in time that will go down in history.  I know every four years we hear that this is the biggest election of our lifetime.  In this case, it might actually be true.  Not that we should get our hopes up for great change if Trump is elected, but at least it would show a major shift in the thinking of the electorate.

Once this is all over, I will give a wrap-up of the events, along with lessons to be learned from the Johnson/ Weld nominations of the Libertarian Party.

The Federal Open Market Committee (FOMC) released its latest statement on monetary policy.  As expected, the committee did not change the federal funds target rate, which is currently between 0.25% and 0.5%.  There were two dissenting votes, as the dissenters favored raising the target rate by a quarter of a percent.

There was almost no chance that the Fed was going to change its target rate, which hasn’t moved since its one hike in December of last year.  With the election happening next week, there was no possibility the Fed was going to rile up the markets this week.

When you read the statement, things sound rosy overall.  But if things are rosy, then why isn’t the Fed hiking its target rate?  Its only excuse right now is that growth was a little weaker than expected in the first half of the year and inflation (by its definition) is running below its 2 percent target.

The Fed is in no hurry to hike its target rate, which at this point, is really just the interest rate the Fed pays on bank reserves.  Since the banks have massive excess reserves built up from QE1, QE2, and QE3, they have little need for overnight borrowing.

The Fed is not about to sell off trillions of dollars in assets in order to drain its balance sheet in order to hike rates.  This would send the economy into a deep depression.

When the Fed hiked its target rate by one quarter of a percent last December, stocks had a terrible January.  I think Fed officials are scared of what might happen with the next one.  Maybe we will find out in December, but that is far from certain.

In a free society, there would be no central bank with monopoly powers over the money supply.  But given our current-day realities, the Fed is the biggest driver of the U.S. economy.  Money makes up half of virtually every transaction in the economy.  When the Fed tampers with the money supply and interest rates, it has a great impact.

Meanwhile, it is elections, especially presidential elections, that get all of the coverage.  The president really doesn’t have that much of an impact on the stock market, or even that much on the economy.  The president could have a great impact if he vetoed spending bills and drastically scaled back the military adventures overseas.  If government spending were to actually decrease significantly, this would have a positive long-term impact on the economy.

But if you look back at 2012, it really wouldn’t have made much difference if Mitt Romney had been elected instead of Obama.  The budget today would likely be about the same.

This month may be an exception to the general rule.  I think the election will have a bigger short-term impact on stocks and other financial markets than what we got out of the Fed.  I don’t know how much difference it will make in the long term, but there are likely to be some short-term gyrations in the markets based on the election results.

The FOMC will release its next policy statement on December 14.  That will be a bigger event than its November meeting.

Prior to that though, there is another important vote that may stir up the markets.  On December 4, Italians will vote on a constitutional referendum.  It is not clear, but this could potentially have a great impact on the banking system, especially with Italian banks showing major signs of distress.

The rest of 2016 will not lack excitement both politically and financially.  I am looking for gold to benefit in the short term due to the uncertainty.

When the FBI announced on Friday that it will reopen the case involving Hillary Clinton’s email scandal due to new evidence that has emerged, the stock market initially took a downturn.  Does this mean that stock investors want Hillary Clinton to be elected president?

After the initial downturn, stocks did somewhat recover.  This could be a foreshadowing of what is to come.

Stock investors like certainty.  Uncertainty can lead to falling stock prices.  But if it isn’t justified, then stocks will inevitably turn back up.

I think Hillary Clinton is the safe choice for Wall Street, especially since Clinton has benefitted so much from Wall Street despite any rhetoric otherwise.

Donald Trump is a complete wildcard who is hated by the establishment.  He is the epitome of uncertainty.  In addition, he has been somewhat critical of the Fed, which could be bearish for stocks.

If Trump pulls off a stunner and wins, I think it will resemble Brexit quite a bit.  The polls suggested that the Brexit vote would fail.  When it actually passed, stocks fell, including outside of Great Britain.  But after the dust settled a bit, stocks recovered.

There are a lot of parallels between Trump in the U.S. and Brexit in the U.K.  Although one is an individual and one is something of a secessionist movement, they are similar in their messages.  And those supporting them are similar.

If Trump wins, I would not be at all surprised if stocks tumble.  And if there is a major overreaction by the markets, it will probably be a good short-term speculation to actually buy and watch stocks recover from the overreaction.

Almost immediately after Brexit passed, the Bank of England loosened its monetary policy.  If Trump wins, does that mean that the Federal Reserve will loosen its policy?

We really can’t be certain, but it would be hard to imagine Janet Yellen and company going out of their way to help out Trump with some short-term stimulus.  Although a tight monetary policy is what we need for the long run, it can also serve to expose the previous malinvestments.

If Hillary Clinton wins the election, maybe stocks will hold steady or even rally the next day.  But don’t expect it to last.  Half of the country thinks Clinton is a criminal who belongs in jail.  She could be the equivalent of a lame duck president on the day she takes office.

In terms of liberty, this is positive.  The less respect that people have for the president – especially her – the better it is for liberty.

I think the next president, whomever it is, is going to have to deal with a bad economy.  The national debt will soon be over $20 trillion and more baby boomers are collecting Medicare and Social Security with each passing day.  Meanwhile, the malinvestments from 6 years of so-called quantitative easing (2008-2014) are going to catch up with us and be exposed.

If we hit a deep recession, it is possible we could be better off with Hillary Clinton, who will have trouble passing the blame on to Bush and the Republicans.  Maybe she can try to blame the Republican Congress, but most Americans blame the president.

Most of the blame should go to the Fed, but Yellen is an Obama appointee.  Again, it will be hard for Hillary to pass the buck.

I don’t think a Clinton victory is inevitable at this point.  She has been badly damaged and there may be more to come out in the next week.  Either way, I think you should be financially prepared for the day after the election.

I don’t recommend being heavy in stocks right now anyway, except as part of the permanent portfolio.   But I especially wouldn’t want to be heavy in stocks on November 9, 2016.

There was a recent article by Egon von Greyerz stating that gold is nearing its 2011 highs.  The article was linked to by LewRockwell.com.

Near the beginning of the article, the author states, “So to talk about a strong dollar is totally ridiculous.”

But towards the end of the article, the author states, “It is possible that we will see dollar strength for a while still but thereafter the world’s reserve currency will join the race to the bottom in earnest.”

So which is it?  Is calling the dollar strong totally ridiculous, or do we have a strong dollar?

The author contradicts his own words within the same article, unless he thinks of himself as totally ridiculous.  Still, I understand the point that he is trying to get at.

The U.S. dollar is strong right now against the other major currencies of the world, particularly the euro and the pound.  It is strong in relative terms as compared to many of the other fiat currencies.

To the author’s point, gold’s been stronger than any currencies if you take the last 15 or so years.  Of course, if you count most of the 1980s and 1990s, this wouldn’t be true.

Gold is very volatile, but it is important to recognize that its volatility is largely due to our monetary system.  There are certainly changes in supply and demand of the metal, but the supply and demand for money is the bigger driver of volatility in the gold price.

Gold has not been a good investment over the last 5 years if you are an American.  It is down over 30% from its highs in 2011.

The article itself is titled “Gold is Near the 2011 Highs”.  This is in reference to other currencies aside from the U.S. dollar.  For example, in the United Kingdom where the pound has lost significant value compared to the dollar, the gold price is only off 8% from its 2011 high.

This is an important point, as gold has not been as weak as what many perceive.  It has been weak in terms of U.S. dollars.  Since the dollar has been so strong over the last several years, it has hurt the gold price in dollar terms.

It might be more accurate to say that the other major currencies – especially the euro – have been really weak.  The dollar just looks strong in comparison.

But it is true that investors will seek out a relatively strong currency and make it stronger.  If you have your wealth in euros and you want to protect it, the U.S. dollar provides a good option for a liquid investment that can easily be converted back to euros.

The Federal Reserve has had a tight monetary policy for two years now.  QE3 ended in October 2014.  This has helped push up the dollar in relation to some of the other currencies.

The dollar strength (relatively speaking) may continue for a while, especially with the other major central banks engaging in massive monetary inflation.  The dollar ends up being one of the least bad and most liquid forms of money in our world dominated by central banking and fiat money.

However, this doesn’t stop Europeans, Japanese, Chinese, and others from buying into gold.  If things get bad enough in these places, some people may start turning to gold instead of other currencies.  I’m not saying it will happen, but just that it is certainly possible.

In that case, it doesn’t matter if the U.S. dollar remains strong.  If the demand for gold surges, the price will go up, even in dollar terms.

Gold is actually fairly stagnant these days.  It is not really in a bear market.  If anything, it is probably a lull in a greater bull market.

If the U.S. dollar does significantly weaken against other major currencies in the future, then gold could really skyrocket.  But it can still go up even with a relatively strong dollar.

Going forward, the economy and Federal Reserve policy will drive gold prices more than the U.S. dollar’s relative strength against other currencies.

There is little doubt that the Federal Reserve is a highly political organization.  The Fed Chair is nominated by the president and confirmed by the U.S. Senate.

Those who are critical of the Fed probably overestimate the degree to which the Fed tries to influence elections, particularly the presidential election.  There have been several times in history where the Fed has seemingly ignored presidential politics.

The best example is in 1979/ 1980, where Fed Chairman Paul Volcker allowed interest rates to rise and slammed on the monetary brakes.  I don’t know if it cost Jimmy Carter the election, but it almost certainly guaranteed his loss.  And Ronald Reagan was no favorite of the establishment.

The establishment came to accept Reagan, as he did not enact radical free market policies to reflect his rhetoric.  He did cut marginal income tax rates substantially, but he also hiked payroll taxes.  Spending continued to grow under his watch, and the debt spiked higher due to the spending (and not due to the tax cuts as some would have it).

Still, Volcker – who was appointed by Carter – enacted a tight monetary policy that led to recession.  Volcker and the Fed were not playing politics.  Their primary concern was saving the U.S. dollar, as price inflation was well into double digits at that time.

In 2006 through 2008, Ben Bernanke kept a relatively tight monetary policy until the major fall of 2008.  If he had kept monetary policy looser, it might have been enough to hold off the recession until after the 2008 election.  Of course, there is no way to know, and there is no way that Bernanke could have known the financial crisis would hit so hard.

We can doubt that McCain would have defeated Obama anyway, but the bad economy almost guaranteed an Obama victory.  Bernanke was appointed by Bush, but he did him no favors prior to the fall of 2008.  In fact, Bernanke did himself no favors, as Obama eventually replaced him with Yellen.

I think this election may really be different.  I don’t know if it has impacted the committee’s decisions not to hike rates since December 2015, but it would not be surprising.  Virtually the entire establishment is against Trump and they want to ensure a Hillary Clinton victory.  Any rate hike that could lead to a possible downturn in stocks would be bad news for Clinton, who is the status quo candidate.

The Fed has actually had a tight monetary policy for two years now.  It ended QE3 in October 2014.  In this sense, the federal funds rate does not mean as much as it has in the past.  Still, it is somewhat symbolic at this point.  The Fed stopped creating new money before Trump was even a serious candidate.  They couldn’t easily start up QE again, politically speaking.  They can, however, come up with excuses to hold off on hiking the target rate.

The FOMC’s next meeting and policy announcement is on November 2, less than a week before the election.  It is almost a certainty that the Fed will not touch anything or make any dramatic statements.

The big question at this point is the December 14th meeting.  If Trump is elected, then it seems more certain that the Fed will hike rates, not caring as much about what happens.  However, if they were really political, you would think they might wait until he actually takes office.

If Clinton is elected, I don’t think it is going to have a major impact on policy at that point.  She will be there for four years if she survives her bad health.  Either way, a Democrat will be in office for another 4 years.  The Fed can’t keep its policy the same forever in order to try to prevent a recession.

It is almost a guarantee that there will be a recession within the next 4 years.  The so-called recovery since 2009 has been weak, while the Fed pumped in massive amounts of money until 2014.  In the meantime, the debt has continued to grow at a staggering pace.

If Clinton is elected, she is going to have a tough time blaming a bad economy on Bush or even the Republican Congress.  Congress should be blamed to a certain degree, but the public tends to blame the president.  Actually, it is the Fed that should be blamed the most. The major malinvestments happened on Bernanke’s watch when he instituted QE1, QE2, and QE3.

At this point, I have no idea if the Fed will raise its target rate in December.  I am not even sure if it matters much, except perhaps symbolically.  But I don’t think a Clinton victory is going to change its decision one way or another.

If the economy shows signs of tanking in the next couple of months, then the Fed will delay hiking again.  If the downturn is bad enough, then we could see QE4 on the horizon.  That will change everything.

I have been seeing stories about China (the government, that is) selling off its holdings of U.S. Treasuries.  The problem is that I have seen these stories in the past without the data supporting them.

The U.S. Treasury puts out a monthly report on the major foreign holders of U.S. Treasury securities.  China and Japan have been the top two holders for a long time, and by a wide margin.

Japan and China each hold over $1.1 trillion in U.S. government debt.  The next closest is under $300 billion.

The latest report was released on October 18, 2016.  It shows China’s holdings in August 2016 at $1.185 trillion.  This is down from the month before at $1.219 trillion.  In one month, the holdings have been reduced by about $34 billion.

This isn’t insignificant, but it isn’t earth shattering either.  It certainly isn’t a massive selloff.  The Chinese, as with anyone, can just let their debt mature and not roll it over.  You can reduce your holdings without actually selling.

October 1st marked the beginning of the Chinese yuan being included in the IMF’s basket of currencies called the Special Drawing Rights, or SDRs.  The Chinese government is trying to be a major player on the world stage.

I don’t buy the speculation that the yuan is going to replace the U.S. dollar as the world’s reserve currency.  The yuan is not even a freely floating currency, not to mention that the economy in China is very shaky.

The dollar is not going to be replaced by anything, unless it is gold.  The dollar may slowly lose its status as the reserve currency of the world, but nothing but gold is likely to take its place.

In our digital world today, there really isn’t a need for a currency to serve as a reserve currency for the world.  Countries can trade their own currencies.  If the Russians wants to buy from the Chinese, there is no need for them to use dollars as a middleman, as long as there are foreign exchange markets.  This is why it is inevitable that the yuan will eventually be freely floating and openly traded.

In terms of central bank policy right now, the Federal Reserve is better than all of the other major central banks.  The Fed has had a tight money policy (despite the low interest rates) for about two years now.  The central banks of China, Japan, and Europe are all creating money out of thin air at a rather staggering pace.

This is one of the main reasons that the dollar is strong.  It is also a reason that the dollar will not be replaced on the world stage.

I usually don’t recommend that you buy foreign currencies (for Americans) unless you really know what you are doing.  In our current environment, I wouldn’t recommend it at all unless you are looking for pure speculation in smaller regions.

The U.S. dollar will likely remain strong as long as the Fed keeps its monetary policy tight.  Of course, this could change rather quickly with a downturn in the economy.

A strong dollar will make it difficult for gold to run a lot higher.  Gold has been down in recent weeks.  I am still bullish in the long run on gold, but we shouldn’t expect a major run at this time because of the strength of the U.S. dollar.