Nervous Fed to Give Precious Metals Markets a Boost / Commodities / Gold and Silver 2021
TheFed’s Open Markets Committee met last week and left policy unchanged – at leastfor the moment.
Noone expected central banking officials to make rate adjustments last week withequity prices rubbing up against all-time highs and the economic recoverynarrative still dominant.
Centralbankers are likely getting nervous, however. Treasury yields are surging, andit is only a matter of time before stimulus addicted markets throw anothertantrum.
Infact, the S&P 500 index fell after Wednesday’s announcement and each of thefollowing two days.
Risingyields are also creating headwinds for precious metals, at least in the futuresmarkets. Prices are having trouble getting anything going to the upside inrecent weeks.
But,they aren’t falling either. That’s saying something.
TheUS dollar index has been getting stronger in addition to rising rates. Thosetwo things usually represent a double whammy for gold and silver prices.Perhaps the Wall Street creatures running the machine trading no longer findthat any reason is a good reason to sell metal.
Nowcertainly seems like a good time for naked short sellers to think twice beforeshorting more metal. For starters, there are many longs standing for deliveryof the metal. A short squeeze isn’t off the table – especially in silver.
Risingyields are telegraphing higher inflation. So are rising commodity prices. AndCongress has now jumped on the stimulus bandwagon with the Fed. It’s not a goodtime to be shorting the “go to” inflation hedges, such as gold and silver.
TheUS dollar may be stronger relative to other paper currencies, but itspurchasing power is in sharp decline. This reality appears to be dawning onWall Street.
TheFed has been obsessed with stock prices and so far stocks have held up well inthe face of rising interest rates. Equities have been a primary beneficiary ofthe Fed’s inflationary policy, thus far.
Lastweek, Jerome Powell disappointed stimulus-addicted markets because he didn’troll out an initiative to control the spike in bond yields. That willapparently have to wait until the equity markets start puking.
WhenYield Curve Control, or whatever Powell decides to call it, is launched, amajor headwind for metals prices will turn into a tailwind.
Everyonemust know, by now, it is only a matter of time before the Fed implements thenext program to control rates. Perhaps that is why there has not yet been morecarnage in the equity markets.
Ithas not paid to bet against stock prices. The Fed has severely punished stockmarket bears.
Metalsinvestors are still waiting for the next leg higher in prices, but things couldbe a whole lot worse. Overwhelming demand is putting pressure on the bullionbanks.
Theywould undoubtedly like to see lower prices slowing the influx of investmentdemand.
Risinginterest rates and a stronger dollar are providing good cover for a raid onprices, but the metals have been resilient. In the months ahead, the Fed willagain attempt to control interest rates and investors will become fully awareof price inflation.
Bythen, it may be too late to unwind a big short position in metals, at least notwithout a lot of pain.
By Clint Siegner
Clint Siegner is a Director at MoneyMetals Exchange,perhaps the nation's fastest-growing dealer of low-premium precious metalscoins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon,puts his experience in business management along with his passion for personalliberty, limited government, and honest money into the development of MoneyMetals' brand and reach. This includes writing extensively on the bullionmarkets and their intersection with policy and world affairs.
© 2021 Clint Siegner - All Rights Reserved
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