Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will the Worst of Times for Central Bankers Lead to the Best of Times for Precious Metals?

Commodities / Gold & Silver 2020 Mar 05, 2020 - 03:55 PM GMT

By: MoneyMetals

Commodities

During turbulent times like these, markets can be melting down one day… and zooming higher the next. Gold may serve as a fantastic safe-haven asset one day… but get hammered by futures traders the next.

The news cycle can be just as volatile. One report may show the coronavirus is receding in China, while another may raise alarms about its spread in other parts of the world.

One poll may show a socialist candidate for President on the rise, while another may show Americans overwhelmingly approve of President Donald Trump’s handling of the economy.



We have a record-low unemployment rate (at least officially), but financial markets have become more unstable than at any time since the 2008 financial crisis.

To quote Charles Dickens, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…” (A Tale of Two Cities, 1859).

Long-term investors shouldn’t despair over volatile market conditions. Drawdowns create value opportunities – though not always in the most obvious places.

Liquidation events also trigger reactions from central bankers, which in turn create new market distortions and risks – as well as new opportunities.

Last week’s global stock market mini-crash drew a massive response from concerned central bankers around the world:
  • The People’s Bank of China sought to prop up Chinese equities with direct interventions.
  • The European Central Bank announced that it “stands ready to adjust all its instruments, as appropriate.”
  • The Bank of Japan, said it would “strive to provide ample liquidity.”
  • The U.S. Federal Reserve vowed to “use our tools and act as appropriate to support the economy.”

Meanwhile, the World Bank and International Monetary Fund pledged to provide assistance to countries that need it.

Last Tuesday morning, Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell joined finance ministers and central bank heads from G7 countries to hold emergency talks and give carefully crafted reassurances over the coronavirus pandemic.

“The only medicine central bankers know how to administer is interest rate cuts and stimulus injections.”

Tweet This 

“There will be coordinated action,” said French Finance Minister Bruno Le Maire.

Of course, these economic central planners know next to nothing about how to fight a virus. The only medicine they know how to administer is interest rate cuts and stimulus injections.

The Dow Jones Industrials surged a record 1,293 points Monday as investors anticipated a globally coordinated plunge protection response. The 10-year Treasury note yield also traded down to a record low – well below the current Fed funds target rate of 1.50%-1.75%. The U.S. Dollar Index also slid on the day.

In effect, financial markets were reacting as if the Fed had already cut its benchmark rate.  And then the Fed followed through with an "emergency cut" of 50 basis points the next morning.

Goldman Sachs economists are now forecasting that Jerome Powell and company will slash rates another 50 basis points later this year.

That would effectively reinstate ZIRP (Zero Interest Rate Policy), leaving the Fed with a very limited conventional toolkit to fight the next financial crisis or recession.

Powell would have to face the prospect of pursuing negative interest rates or initiating direct “helicopter drops” of stimulus into the financial system.

When Europe and Japan began pursuing negative interest rate policies, they did little to stimulate moribund economies. Instead, they drove capital into higher-yielding U.S. assets, including Treasuries, and helped boost the U.S. dollar.

When the U.S. goes to zero or negative on interest rates, there will be no place in the world left to go for decent yields – or at least, no place big enough and safe enough to absorb trillions of dollars in global capital flight.

That leaves gold and other hard assets as potentially the prime beneficiaries of a global race to debase. If cash has no yield, then gold looks even better than ever in comparison.

Gold had surged to a 7-year high of $1,680 in late February before getting smashed last Friday. Whether the selling was due to margin calls, forced liquidation carrying over from the stock market, or a “coordinated action” by bankers, it stands in contrast to the strong buying of physical gold and silver seen by bullion dealers in recent days.

Now that fear has returned to financial markets and central bank monetary spigots have been turned open, we would expect investment demand for bullion to continue gaining strength.

A major increase in retail precious metals demand won’t necessarily have an immediate impact on spot prices, which are set by futures traders. But over time an increase in physical buying will put pressure on the very limited global supply of precious metals.

When it’s the worst of times for markets that central bankers are trying to prop up, the best of times may follow in months and years ahead for gold and silver markets.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in