April's Fed Comments and Precious Metals

June 27, 2018

April's Fed Comments and Precious Metals

The Big Question: what do the Fed Notes say about the possibility of a Bull Market for Precious Metals?

The short answer: a mixed message, and we honestly don't know. The long answer:

Precious metals have served as stores of value for millennia. In modern times, as no exception, goldsilver, platinum, and palladium, have all found their way into large and small portfolios. While the past few years have seen both stability at times and volatility at others, and while many have profited, the recurring question to-date is what next? Recently (May 2nd), gold hit $1306, and silver $18.06. By May 23rd, they hit $1251.30, and $16.45, respectively. Have a look at the Federal Open Market's Committee's comments below, and you will notice what may have set off the US dollar and pushed down metal markets.

The Committee's notes can be found below. In short:

1. The Fed left interest rates unchanged (at 0.50%) on required and excess balances.

2. Effective the 28th of April, the FOMC authorized its NY Open Market Desk to execute transactions in the System Open Market Account in accordance with a directive "...to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent..." These include rolling over maturing securities at auction, and reinvesting principal payments in agency mortgage-backed securities.

3. No action was taken on the discount (primary credit rate) of 1.00%.

  While they seem to be sending mixed messages on where interest rates are going, and by extension quite preplexing advice for investors looking at precious metals as alternatives to equities or bonds, it would be odd to imagine anything but the most conservative changes given global financial and political uncertainty. This reflects the fact that there has been only one interest rate hike in 2016, as opposed to the proposed few that might have already been expected to have taken place.   The US federal government seems to have been trying for a long time to bring up interest rates. Precious metals tend to decrease in value as this is done. The challanging thing about going so long under a conservative policy of very gradually moving things forward is that there might be deeper unresolved economic problems. The Fed's policy might also reflect concerns over the upcoming US electiona nd European political turmoil. Given the amount of stimulus and incentive being pumepd into the US and global economies, there might be reason to fear "the appearence" of healthy markets is being placed in priority over, well, healthy markets themselves.

Market Reactions:

On May 18th - when these documents were released - gold traded at ; by May 23rd, it hit $1251.30. Silver, respectivly, went from to $16.45. You can find more data on our Charts & Feeds Page, but do have a look at:

1 Year of Gold to May 23rd 

Graph of 1 Year of Gold to May 23rd 

1 Year of Silver to May 23rd 

Graph of 1 Year of Gold to May 23rd 

 

 

 

 

What's the word on the street, then? Should you be buying or selling? Some might suggest a good strategy would be to watch money markets over the next couple weeks. Other might say wait until the next set of notes come out in late June or early July. In any case, I look forward to updating you on the next release from the FOMC!

DisclaimerThe opinions expressed in this article are solely those of the author. These opinions should not be taken as endorsed by or affiliated with Global Bullion Suppliers, especially as investment advice. Global Bullion Suppliers advocates a "don't get high off your own supply " policy, and does not seek to profit from trading in precious metals and/or bullion markets. It hopes that the ideas expressed above might positively inform your opinions but cautions you strongly against taking them for what they are not, i.e. investment advice.


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