Asian Metals Market Update: Fed Speeds Up The Drawdown

Federal Reserve Chairman U turn on inflation this year was politically motivated just to get a Re-nomination. Inflation and worries over price rise has resulted in Biden’s approval rating hitting lowest in his presidency. Inflation is the headline in every media in USA. Next year there is the US Senate elections. (In November 2022). Inflation stance from “Transitory” to “Enemy No.1” is pure politics and nothing else. Inflation cannot be controlled in one day. It will take atleast three months to control inflation.

THE FOMC STATEMENT

In an abrupt policy pivot, the Fed sped up the drawdown of its asset-purchase program and laid out a road map for a series of interest-rate increases over coming years, started with three hikes in 2022. Powell also raised the possibility that the U.S. central bank might begin to withdraw liquidity from the financial system before too long by reducing its massive balance sheet.

“One of the two big threats to getting back to maximum employment is actually high inflation,” Powell said during a press briefing, adding that the pandemic was the other. “What we need is another long expansion, like the ones we have been having over the last 40 years.”

(The above is copied from Bloomberg news)

IMPACT AFTER FOMC (our view)

There will be a gradual reduction in global liquidity next year. World will see more murmurs (after Federal Reserve chairman making inflation as enemy No.1. ) on inflation control measures very frequently in the first quarter. Hedge funds and long term investors will start portfolio reallocation now. The pace of rise of industrial metals will slowdown. 2021 has been an exceptional year where all asset classes performed brilliantly (except gold, silver and platinum). All assets cannot rise at the same time. Some asset classes and some sectors will fall if and when moneys supply starts reducing. In short get ready for high volatility in stocks and crypto currencies till end January. Just trade in the technical in gold and silver.

Stock markets will not bust. Central bank chiefs and economist’s will ensure a gradual fall. Key crypto currencies are a buy on crashes. Silver is a buy on crashes strategy. I will not comment much on gold as it continues to trade in $1660-$1900 wider range. Crude oil price is being manipulated as Opec does not want a lower price.

Spot Gold

• Spot gold has to trade over $1768.10 to rise to $1796.10 and $1806.10.
• Gold will crash only if it trades below $1768.10 to $1739.20.

Spot Silver: Spot silver has to trade over $21.37 rise to $22.59.  Silver will crash only if it trades below $21.37. Silver will also crash if $22.46 is not broken today.

*********