Gold, silver bounce back after meaningless Fed statement
Posted on 26 June 2008 with no comments from readers
The predictable holding of US interest rates at two per cent yesterday and a lackluster statement from Fed chairman Ben Bernanke saw gold and silver recover quickly from a brief dip after the announcement.
The now familiar refrain from commentators is that the Fed is stuck between a rock and a hard place on rate levels. It can not cut more because of inflation. It can not move rates higher because of the recession.
Remarks by the Fed that the economy showed some signs of improvements brought the only ripple of controversy with commentators immediately pointing to job cuts, gas price rises and food inflation as making this highly doubtful.
And that is really the problem, the Fed is trying to bluff the dollar higher but it lacks the ammunition necessary in the form of a strengthening economy. Meanwhile, across Asia interest rates are going up and the ECB is expected to raise rates next month.
This leaves the relative value of the dollar falling as money flows to where it will earn the best return or is at least protected against inflation. Yesterday I had lunch with Nicholas Thornton, ANZ’s new man in Dubai where the bank is opening again after a poorly timed exit in 2001, and noted the bank’s prediction that the Australian dollar will rise to $1.04 from 95 cents.
The closeness to my own $2 euro forecast is clear. And this will be the pattern going forward, a weakening US dollar and with its inverse correlation to precious metal prices well established, higher prices for gold and silver, alongside oil. But this will occur against the background of much rougher waters ahead for global capital markets.
no Comments posted by readers:
i agree with u on the subject of $2 for 1€ and many other.there is another subject i would like to discuss with u; i’m a big fan of precious metals and to be fair, all commodities in these times/markets. I’m waiting for the seasonality of summer to pass but recently one thing started bothering me. Media, big investors,etc are hyping commodities and the qusteion that comes to mind is: is it possible that this autumn and forward will not play out as we expect them or to be more specific: could commodities pull back in the approx. 12month time span meaning they get a break and we get to the mania phase of the cycle 6+ years from now or will we get to the mania phase in the next let’s say 36months?
Nice blog,best regards
Vran
Timing is always a problem which is why I dislike futures. However, I think we are at the stage where you have to be seriously concerned about missing the boat. For example, I almost bought precious metals last summer but became convinced that perhaps there would be a downleg. Instead I had to wait for the March peak to break and then got a chance, albeit still at a $200 an ounce premium. This summer you might get an Israeli attack on Iran or another financial crunch, and RBS thinks we will have a credit or stock crash within three months. I think it is better to be in the market and wait rather than stay out and hope to catch the next upleg just right. The worse that can happen is that you are kept waiting – the result is not in doubt.
hi, i agree with u on the subject $2 for 1 euro and many others as well. i’d like to take this chance to ask of your opinion on another specific subject.
Personally i’m extremely bullish on precious metals, to be fair on all commodities in the current time/markets. I just can’t wait for the seasonality of summer to pass as i have big expectations for commodities/especially precious metal prices in autumn and from than onwards. What bothers me is that media, big/institutional investors (the average working class people around me, here in europe, complain about the rise of costs but are still bewildered when i suggest buying a few gold coins or investing in commodities)switched from hot emerging markets to hot commodities and this seems to be THE thing of the moment.I’m aware of supply vs. demand factors, % of printing money etc. what i’d like to discuss is:
Could commodities as a group fail to bring us another rise in prices as they did after last summer, further,… could they pull back in the let’s say 12month period and later continue the super cycle of commodities that would bring the final mania phase in about 6+ years from now (judged by average length of cycles) or will we see the whole thing unfold in let’s say for sake of discussion in the next 36 months?
nice blog
best regards
Vran
If gold can compete with an economy backed by nearly a quadrillion dollars in investment for value….
I just can’t understand why President Bush won’t stop non-market forces from pushing up the price of oil and driving down the value of Amrica. It makes no sense. It only makes sense if he, like President Harding was, is the tool of a small group of individuals who see this as their big profit opportunity.
May God have mercy on America, the stock market, and the rest of the world….
First off great blog. Makes for a very nice in between point from the doomsdayers (myself included) and the squawk boxes trying desperately to save face. I just wanted to comment on the ridiculousness of the Fed and how anyone can possible believe that anything perpetrating from their ivory tower is for the benefit of anyone but the Wall Street Firms. They have smashed the American people by eroding everything this country stands for sending our hard earned dollars into the dumpster. Our only defense is through a very bullish stand on physical bullion because as we will soon see everything else is little more than a smoke screen hiding the true burden of the Feds cheap money policy for the last 25yrs.
Hordac T R, you speak a true word. It extends beyond the shrub.