Former Fed Advisor Raises Alarm: Sharp Decline in Gold Prices Sends Major ‘Distress Signal’!
A former insider of the Federal Reserve has sounded the alarm, pointing out that a systemic “liquidity crisis” has already erupted, which will force the Fed to abandon its fight against inflation—not because of victory, but because the financial system itself is deteriorating.
On Tuesday, a former Federal Reserve advisor issued a stern warning, asserting that a systemic “liquidity crisis” is already underway. She pointed out that this development will force the Fed to abandon its fight against inflation—not because of victory, but because the financial system itself is fracturing.
This warning emerged during a period of pronounced market contradictions. On Tuesday, driven by robust earnings from companies such as General Motors and Coca-Cola, the Dow Jones Industrial Average rose more than 200 points, pushing the S&P 500 index close to its historical high. This optimism starkly contrasted with mounting pressures seen in fixed-income and commodities markets.
Danielle DiMartino Booth considers this divergence unsustainable. She served as an advisor to Richard Fisher, former president of the Dallas Federal Reserve, from 2006 to 2015. Currently the CEO of macroeconomic research firm QI Research, Booth has been a persistent critic of the Fed’s policies, arguing that the central bank’s actions have created deep-seated vulnerabilities.
“It appears that the system is indeed running out of sufficient liquidity,” Booth said in an interview with Kitco News. “And the Federal Reserve will be forced to step aside.”
Her assertion refers to the Fed’s ongoing implementation of “quantitative tightening.” The program withdraws liquidity from the financial system by allowing up to $95 billion worth of Treasury bonds and mortgage-backed securities to mature off its balance sheet each month.
“A repeat of the March 2020 scenario.”
Booth made these remarks as gold experienced one of its sharpest single-day declines in five years. After hitting an all-time high above $4,380 per ounce the previous day, gold prices plummeted by more than 5% on Tuesday to near $4,125. She argued that this was not a fundamental rejection of gold by the market but rather a sign of forced selling due to a widespread “dash for cash,” a dynamic last seen during the severe market dislocation at the onset of the COVID-19 pandemic.
“I think this is what we’re witnessing right now. I believe we are seeing a replay of what happened in March 2020,” she stated. In such an environment, investors who receive margin calls or need to quickly raise cash often find themselves forced to liquidate their most profitable and liquid assets.
“If you get a margin call, if liquidity becomes an issue, people tend to sell the assets they’ve made money on,” Booth explained. She warned that the resulting volatility is not a healthy sign for the asset. “You never want to see gold behave like a meme stock.”
The ‘Cockroaches’ of the Credit Market
Booth’s warning focuses on the private credit market. The sector has grown explosively to exceed $1.7 trillion and operates under less regulatory oversight compared to traditional banking. She argues that relaxed underwriting standards, which persisted during an era of near-zero interest rates, pose significant contagion risks.
Her analysis validates recent concerns expressed by global financial leaders. On Tuesday morning, Bank of England Governor Bailey, while testifying before Parliament, directly compared recent blow-ups in the U.S. private credit market to the subprime crisis of 2007. Both the Federal Reserve and the International Monetary Fund’s financial stability reports have highlighted the rapid growth of this opaque market as a potential systemic risk.
“If we start seeing these blow-ups in the private credit markets… they are more indicative of banks not necessarily doing proper due diligence or maintaining sufficiently robust underwriting standards when liquidity was abundant,” Booth said.
She views these issues not as isolated incidents but as systemic problems, echoing recent warnings from JPMorgan CEO Jamie Dimon about discovering ‘cockroaches’ within the financial system.
“If lending standards have remained… looser than they should have been, then as Jamie Dimon implied, we will find more cockroaches,” she stated. She added that this risk extends across the entire consumer lending landscape.
According to the latest data from the New York Fed, U.S. household debt has reached a record $18.4 trillion, with delinquency rates on credit cards and auto loans steadily rising and surpassing pre-pandemic levels.
The Final Warning Signs
Despite the market’s apparent optimism, Booth pointed out underlying data indicating mounting pressure on consumers.
Recent reports from Vanguard and Ampower noted that hardship withdrawal rates for 401(k) plans are at a two-year high, partly due to the recent resumption of student loan repayments. She insists that the weakness in the real economy exceeds what data such as the Atlanta Fed’s 4% GDPNow forecast for Q3 suggests.
When asked what definitive signal would confirm that a hidden credit crisis is spreading into public view, Booth pointed to the collateralized loan obligation (CLO) market.
“If I start seeing CLO spreads, meaning the spreads on collateralized loan obligations beginning to widen… that will tell you that whatever is happening in the private sector, that credit event is spilling over into the public domain,” she concluded. “That will grab the market’s attention.”
Collateralized loan obligations are complex financial instruments that package leveraged loans issued to companies and sell them. As of October 2025, the spreads for the highest-rated tranches of CLOs remained relatively tight, but higher-risk, lower-rated tranches have begun to show signs of stress.
A significant widening of spreads across all tranches would indicate that investors are demanding a higher premium to hold corporate debt, signaling heightened fears of defaults and a broader loss of confidence.
