by Jim Rickards, Daily Reckoning:

The Federal Reserve would like to continue “normalizing” interest rates. But the most recent economic data simply does not justify it.

On Sept. 29, the August core PCE year-over-year (YoY) inflation figure was released. And the data came in exactly as I expected. YoY inflation for August was just 1.3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, down 0.6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from the January reading of 1.9{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. That marked eight consecutive months of flat or lower readings.

Needless to say, the Fed is miles away from their 2.0{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} target. They’re actually moving consistently in the wrong direction.

Second, the September employment report came out the Friday before last. A Reuters survey of economists had expected the economy to add 90,000 jobs in September.

How many did it really add?

Not zero, but less than zero. The economy shed 33,000 jobs last month. This was the first time in seven years that the U.S. economy lost jobs.

Now, that may be partly due to the recent hurricanes that struck Texas and Florida. But coming on top of the weak inflation data that also came out, it will certainly give the Fed more than enough reason to hit the “pause” button on a December rate hike.

But incredibly, right now markets are giving a nearly 90{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} chance of a rate hike in December based on CME Fed Funds futures. That rate will drop significantly by December 13 when the FOMC meets again with a press conference. (There’s another meeting on November 1, but no one expects any policy changes then).

Once the market wakes up to the real state of play, probably in late November or early December, the current trends will suddenly reverse. You’ll see the dollar down and gold, euros and bond prices up.

On that score, one of the largest and most conservative wealth managers in the world, Pictet Group, based in Geneva, Switzerland, offers a very constructive view on gold.

Pictet’s strategist, Luc Luyet, says that the Fed will be on hold for the rest of 2017 and most of 2018 because of U.S. disinflation and the failure of President Trump to deliver on his growth agenda. I agree.

With the Fed in easing mode, the dollar will weaken and the dollar price of gold will remain strong. This is a fundamental case for gold that does not take into account other positive vectors such as geopolitical shocks from North Korea or outright assaults on the dollar from Russia and China (see below for more on these).

When a conservative institution like Pictet Group has a kind word for gold, you know the rest of the institutional world will not be far behind.

This all makes the next few weeks an excellent entry point for gold and gold mining stocks. You have a chance to take advantage of weakness and position ahead of the rally to come when reality sets in.

Another tailwind for gold is the continuing nuclear standoff with North Korea, as I hinted at above.

There is no doubt that North Korea and the U.S. are on a collision course and headed for war unless North Korea relents, which seems unlikely, or the U.S. acquiesces to North Korean possession of nuclear weapons, which is also unlikely.

At this point, it’s almost certainly too late for negotiation or diplomacy.

The U.S. only has two choices now. The first is to do nothing and learn to live with nuclear blackmail from North Korea. As I said, that is unlikely. The second option is to attack, probably within the next six months, to destroy the Kim regime and its weapons programs.

Trump will go for the attack option.

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