Gold Jumps As FOMC Signals What’s To Come

[GoldCore]

All eyes were on the FOMC yesterday as they met for the final time in 2023. In the weeks running up to the meeting Fed officials stuck to the brief of sounding flexible when it came to questions asked about the direction of rates. For the last few months, FOMC members have repeatedly been asked if they have finally reached the ‘terminal’ rate after a long and onerous task of trying to take down inflation. 

Well, it seems they now all feel they have reached it, as Fed Chair Jay Powell said yesterday that the current rate of 5.5% is “likely at or near its peak for this tightening cycle”. 

17 of the 19 members indicated that they expect rates to be lower by the end of 2024. A cut of up to 0.75% across multiple meetings is expected. Markets are pricing in a near 60% chance that the first of those cuts will come in March 2024. 

In response to the FOMC announcement, gold climbed over 1% and silver by 2.5%, global stocks also soared whilst bonds fell. Markets will also be looking out for announcements from both the Bank of England and European Central Banks, later today. 

Are we there yet?

For what has felt like months, traders have been keen to know if the FOMC is finished with their rate hikes. It was expected that this was the peak of rates as inflation and other economic indicators increased convictions that the FOMC had arrived at where they felt they needed to be. 

Chris Vermeulen on Gold: This Is A Super Cycle At Play

 

However, while there is still officially inflation in the economy, is now the right time to entertain the idea of upcoming rate cuts? One could argue that the Fed will now have made its inflation fight even harder as looser conditions could see a further wave of unbridled spending and borrowing from businesses and consumers, thus starting the whole cycle again. 

Of course, we all know that the current fight on inflation isn’t really fighting inflation. It’s more like a small battle in a very long, drawn out and damaging war. The Fed may well have brought down headline inflation, but they are yet to confront the real firepower that is sticky core inflation brought about by years of QE and low rates. 

More to come…

The FOMC isn’t the only one tidying things up before the end of the year. Both the Bank of England’s MPC and the European Central Bank are set to hold their respective rate setting meetings. 

The Bank Of England is fighting a battle against a very stubborn inflation issue. Few expect them to start cutting rates as soon as their peers do. Currently there is little evidence that the economy is ready for rates to be cut. 

The ECB meanwhile is seeing some progress, with inflation at a two-year low. Investors expect to see rate cuts coming soon. 

Policy by stealth?

So if (the majority) of major central banks are feeling punchy about their inflation victory what does this mean for gold? As we’ve seen this year, gold has become less sensitive to rate  hikes, instead choosing to play its own tune. Whilst it did react to the FOMC news last night, it has been holding its own throughout the year. We will watch with some interest to see how it will respond to monetary policy in 2024. Of course, low rates are traditionally good for gold, but this year the inverse has been the case. We think we are starting to see a slight decoupling of the long-term relationship between rates and the price of gold, watch this space. 

 

 

As we head to the new year it is worth noting one of the major trends of 2023 – central bank gold buying. For many gold bugs there will come a day when gold is central to the international monetary system. For decades the bulk of goldbugs have suggested this will come about as a result of a collapse in the US dollar i.e. the global monetary system. 

Instead what we are starting to see is a change in the international monetary system by stealth, rather than by policy. We’re talking about the increase in gold reserves by a number of central banks. Central bankers have been net buyers of gold for some time now, without feeling the need to make any announcements. 

Changes in the geopolitical state of play has clearly prompted central bankers (as well as individuals) to question the status quo when it comes to managing their international finances. As a result, they’re turning to the ultimate insurance – physical gold. 

With very little set to improve in the coming years, whether it  is money supply, the MIddle East, the Russia-Ukraine war and even climate change, we think 2024 will prove to be another pivotal one for gold, with or without monetary policy announcements. 

[sixgun]

QE to infinity and ZERP returns. The industrial base was exported and all that is left is last year's fidget spinners and pavements covered with human faeces.

For anyone who can read the room this was coming. There is so much debt it had to come and the Fed claim it's b/c the economy is strong. What a pack of Jokers.

[pmbug]

Edited December 14, 2023 by pmbug

[pmbug]

2 hours ago, sixgun said:

QE to infinity ...

The Fed has been engaged in QT for over a year now (shrinking it's balance sheet).  JPow was asked about the Fed ending QT and he said no - QT will continue:

https://wolfstreet.com/2023/12/13/what-powell-said-about-continuing-qt-amid-rate-cuts-rrps-going-to-zero-and-reserves-dropping-to-a-magic-line-in-the-sand/

 

[sixgun]

10 minutes ago, pmbug said:

The Fed has been engaged in QT for over a year now (shrinking it's balance sheet).  JPow was asked about the Fed ending QT and he said no - QT will continue:

https://wolfstreet.com/2023/12/13/what-powell-said-about-continuing-qt-amid-rate-cuts-rrps-going-to-zero-and-reserves-dropping-to-a-magic-line-in-the-sand/

 

There are $trillions off balance sheet. QE started years before they admitted it had and never stopped. No-one is buying Treasuries - so the Fed and ESF do it and stuff the bonds into offshore accounts out of the way.

[HonestMoneyGoldSilver]

2 hours ago, sixgun said:

There are $trillions off balance sheet. QE started years before they admitted it had and never stopped. No-one is buying Treasuries - so the Fed and ESF do it and stuff the bonds into offshore accounts out of the way.

Treasuries went nuts yesterday with yields plummeting so demand is currently higher than it was in the recent past. Some analysts are predicting the 10-year will drop next year to 3% (it's currently at 3.93% down from 4.55% this time last month and down from 4.98% in the middle of October)

As yields arguably represent future expectations of growth and inflation, these drops in yield are indicative of a recession, perhaps even deflation

There were other recession warning signs flashing recently such as large dips in oil and silver, with oil dipping below $70 for the first time since late June/early July. Silver dropped >11% in USD 1st-13th December with a large bounce back in the last 24 hours

Historically when the Fed has cut rates in the presence of yield curve inversions, when rates are cut and the curves revert this has indicated recession 100% of the time

The BoE and ECB are expected to be tighter than the Fed in the near term so we could see more upwards momentum in XAUUSD than in GBP. The pound seems to be strengthening lately vs USD and Euro and arguably there's more room for GBP to appreciate vs USD back to 1.3-1.4 (currently 1.275)

[sixgun]

20 minutes ago, HonestMoneyGoldSilver said:

Treasuries went nuts yesterday with yields plummeting so demand is currently higher than it was in the recent past. Some analysts are predicting the 10-year will drop next year to 3% (it's currently at 3.93% down from 4.55% this time last month and down from 4.98% in the middle of October)

As yields arguably represent future expectations of growth and inflation, these drops in yield are indicative of a recession, perhaps even deflation

There were other recession warning signs flashing recently such as large dips in oil and silver, with oil dipping below $70 for the first time since late June/early July. Silver dropped >11% in USD 1st-13th December with a large bounce back in the last 24 hours

Historically when the Fed has cut rates in the presence of yield curve inversions, when rates are cut and the curves revert this has indicated recession 100% of the time

The BoE and ECB are expected to be tighter than the Fed in the near term so we could see more upwards momentum in XAUUSD than in GBP. The pound seems to be strengthening lately vs USD and Euro and arguably there's more room for GBP to appreciate vs USD back to 1.3-1.4 (currently 1.275)

The Fed has $trillions off balance sheet. The Fed and the ESF are buying the bonds - this in itself is QE++. The US went begging to China several times in recent months to buy US bonds and the Chinese said no. If there was actually a strong market in US government bonds they wouldn't have to go cap in hand to the Chinese authorities - literally begging. The market is fake. There are $trillions in debts that need refinancing. It is operation panic stations and the innevitable Fed pivot happened.

Demand for actual physical gold and silver is very strong - India and China are syphoning up silver. Falls in price are paper prices. A central bank came into the spot market on 3rd December and the gold price exploded up. If there were plenty of real physical gold available to deliver why did the price shoot up to an all time high in a matter of minutes?

The markets are fake and the financial journalists repeat the lies. When Jay Powell came out babbling he was talking about inflation under control, a strong lablour market, a strong US economy, strong GDP. Tame journalists ask tame questions. It is an utter joke. There is no productive US economy, that was boxed up and sent to China years ago. The US consumer is running on debt. Powell said something about the US consumer and that maybe they had got enough stuff - an embarrassed laugh came from the room. Mr Powell should have said the consumer is tapped out and skint and can't afford any stuff. i see Shadow Stats has it that cosumer inflation is 8%. i see videos on Twitter with young US people saying they can't afford to live. Powell is telling lies about a bubble world he inhabits. We had the crew on Bloomberg coming in their pants - rate cuts - more cash in the market - happy days. The prices of zombie companies going higher and higher. The gravy train continues. We are in a recession and have been since 2008. Remember they talked about the recovery - the ongoing recovery. They were talking about that for years. There never was a recovery or else the economy would have recovered. US GDP is mostly made up of government debt spending and someone else's GDP. This is why there are so many people dossing and shíttíng on the streets of every America city. 

As rates decline there will be cash coming out of the money markets looking for a home. That's about the only sure thing.