Gold, silver and stocks surged overnight and today after the Fed maintained their ultra dovish monetary policy stance. The risk to markets of an early hike in U.S. interest rates eased leading to a fall in the dollar after the release of minutes of the last Federal Reserve policy meeting.
‘Helicopter Janet’
World stock markets roared their approval of reassurances that the U.S. Federal Reserve will not raise interest rates any time soon. Capital came flooding back into almost every asset class and the dollar fell sharply.
Gold jumped over 1% to $1,224.30 - at a two-week high, while silver surged 2% on the Fed minutes.
The dollar, jolted lower, while gold, silver and oil and commodity prices rose. The other precious metals also caught the updraft. Silver surged 2% to $17.646 an ounce, platinum was up 0.5% at $1,283.20 an ounce, and palladium was up 0.4% at $803.75 an ounce.
Gold in U.S. Dollars, 5 Days (Thomson Reuters)
There were big gains on Wall Street and for Asia stocks, and European shares duly followed suit as Britain's FTSE 100, Germany's DAX and France's CAC 40 rose 0.7%, 1.2% and 0.8% respectively in early trading.
Market participants have interpreted the tone of the FOMC minutes as suggesting that U.S. interest rates could remain lower for longer than most expected, causing the dollar to weaken.
Observers had been worried that the minutes from Chair Janet Yellen's Fed could lead to market volatility and further sharp stock market falls. ‘Helicopter Janet’ is confirming the belief of some market participants that she will continue the ultra loose monetary policies of her predecessor ‘Helicopter Ben’ and of course Alan Greenspan before them.
Bond yields throughout the world, which have plunged during years of cheap funding from the Fed and the world's other major central banks, hit new record lows.
Ireland’s bond yield hit a record low of 1.63%, despite Ireland still having important structural issues that have yet to be addressed and significant debt challenges.
The minutes showed Fed officials were wary about the dual threats of a stronger dollar and recent wobbles in the world economy as they desperately seek an eventual exit from record low rates.
Currency debasement continues in the U.S. and with other central banks - banks, and indeed markets appear hooked on the cocaine of ultra loose monetary policies and cheap money.
A rise in U.S. interest rates will be bearish for stocks, bonds, property and the already struggling U.S economy. Stocks already appear overvalued and ripe for a serious correction.
The U.S. recovery is exaggerated and the health of U.S. consumers and the fundamentals of the U.S. economy remain weak. An economy that has over 55 million or nearly 20% of the population on food stamps is by its nature very weak and vulnerable.
S&P 500 - Jan 1985 to Oct 8, 2014 (Thomson Reuters)
For more than 5 years now the Fed has been ‘jawboning’ markets and threatening to rise interest rates and return to more normal monetary policies. We have consistently warned that it is important to watch what central banks do, rather than what they say - as they frequently conflict.
Indeed, even what they say can conflict and it is often dissembling and some would say designed to confuse and mislead market participants.
Copious amounts of monetary whiskey have been downed in the global economy and yet the recovery remains weak at best. The mother of all monetary hangovers awaits us all and will likely manifest in stagflation and sharply higher inflation.
This underlines the vital importance of having an allocation to gold in a diversified portfolio.
Gold will maintain its purchasing power in the coming years, as it has always done throughout history.
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GOLDCORE MARKET UPDATE
Today’s AM fix was USD 1,227.50, EUR 961.99 and GBP 757.67 per ounce.
Yesterday’s AM fix was USD 1,220.00, EUR 963.51 and GBP 758.38 per ounce.
Gold climbed $11.90 or 0.98% to $1,222.50 per ounce and silver rose $0.21 or 1.22% to $17.40 per ounce yesterday.
Gold in Singapore eked out small gains from $1,223/oz to , before shaving gains to trade down 0.2 percent at $1,219.30 by 0036 GMT.
Silver in U.S. Dollars, 5 Days (Thomson Reuters)
Yesterday, the U.S. Fed released minutes of the Sept. 16-17 meeting, that highlighted fears that a rising dollar could impact the fragile U.S. recovery and noted the economic turmoil in Europe and Asia (see above).
More signs of the very difficult economic situation in Europe came out of Germany today where German exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009, as the sanctions and tensions with Russia took their toll.
It is yet another sign that Europe's largest economy is faltering amid broader euro zone weakness and crises abroad.
The Bank of England kept interest rates at a record low 0.5% today and kept printing money for bond purchases to the tune of £375 billion a year.
The risk of a new recession in the euro zone and caution from the US Federal Reserve suggested a first increase in UK borrowing costs might be delayed.
The bank's Monetary Policy Committee left its bank rate at 0.5%, the level at which it has sat since the worst of the financial crisis over five years ago.
Record low interest rates in the UK and globally remain positive for gold.
