Gold Up 1.5% And Silver Surges 3% As Yellen Stays Ultra-Loose At 0.25%

Gold was up 1.5% and silver surged 3.1% yesterday after Janet Yellen again failed to raise rates from record lows at 0.25%. The Fed maintained ultra-loose monetary policies which are again creating stock and bond market bubbles in the US and other countries.

Fed’s Yellen To Engage In QE Again?

Global stocks and commodities also rose on continuing relief that the Fed continues ZIRP and remains ultra-loose along with the BoJ, BOE and ECB whose policies are even looser. The BoJ also maintained ultra-loose monetary policies at negative 0.1 percent rate and said it would continue buying government bonds at the current pace for the time being.

Spot gold prices hit a two-week high of $1,336.8 an ounce after the Fed said that it would keep rates at record lows. Silver rose to as high as $19.86 and both precious metals have consolidated on those gains in Asian and European trading.

Euro gold rose to €1,194/oz and sterling gold to £1,024/oz.

The Federal Reserve signaled once again that zero interest rate policies (ZIRP) will continue.  It suggested once again that it might raise rates by 0.25% to 0.5% by the end of this year – but only if the labour market improved.

Yellen found herself forced to defend the Fed against Donald Trump’s claims that political pressure and bias is influencing monetary policy – possibly favouring the Democratic incumbents.

The BoJ dropped its explicit target of increasing base money, the amount of money it prints, by an annual whopping 80 trillion yen ($788 billion). Analysts said was a tacit admission its aggressive asset-buying was becoming unsustainable and was not having the desired effect.

Years of massive money printing have completely failed to jolt the economy out of decades-long stagnation. Indeed, it can now be argued that the massive QE programmes of the Fed, BOE and indeed the ECB have failed to ignite robust and sustainable growth in the major economies.

Employment in the euro zone is rising faster than expected but research released by the European Central Bank yesterday suggests that this may continue, but at a cost to productivity and potentially to long-term economic growth.

Since the 2008 crash, the Federal Reserve has created more than $4.3 trillion to bailout banks and in an attempt to stimulate growth in the economy. While the Fed finished its bond buying programme in 2014, its balance sheet is now very poor and it may be unable to sell the bonds bought for fear of interest rates moving higher again.

The US economic recovery is weak and there is the strong possibility of a recession. The massive levels of debt at all levels of US and indeed western society make any meaningful recovery highly unlikely.

The US, and much of the western world, is now dangerously addicted to cheap money and the attendant debasement of the dollar and all fiat currencies. Yellen will continue pushing the drug of cheap money, much of which ends up on Wall Street and in increasingly bubble like global stock and bond markets.

Gold in USD – 10 Years

We continue to disagree with the consensus that the U.S. will increase interest rates in any meaningful way. Indeed, we think it quite possible that the very poorly state of the U.S. economy will be acknowledged in the coming weeks. Likely soon after the U.S. election.

Then the narrative regarding rising interest rates will quickly change. Rather than raising interest rates, there is the real possibility that they actually go lower. Renewed QE is quite likely and negative interest rates are quite possible.

This type of monetary backdrop, in conjunction with the very real global macroeconomic, geo-political and systemic risks of today, means that the outlook for gold and silver has arguably never been better.