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Gold Surges – Fed Loses “Patience” and Signals Loose Monetary Policies to Continue

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Gold Surges – Fed Loses “Patience” and Signals Loose Monetary Policies to Continue

  • Gold rose over 2% – Fed signals ultra loose monetary policies to continue
  • Fed dampens expectation of a rate hike in June
  • Yellen no longer “patient” – notes weakness in recent US economic data
  • Fed knows that fragile, debt laden U.S. economy cannot handle higher rates
  • Despite recent dollar strength, dollar vulnerable in long term
  • Sole reserve currency status threatened in currency wars

Gold rose sharply following yesterday’s Fed announcement in which it was indicated that the Fed are unlikely to raise rates in June – although the possibility was not ruled out – due to the poorer economic data that has been emerging this year.

‘Helicopter Janet’

‘Helicopter Janet’

Gold rose after Fed Chair Yellen said that economic growth had “moderated somewhat” which means that ultra loose monetary policies look set to continue. The Federal Reserve dropped the word “patience” from its policy statement, stoking expectations for a mid-year rise in U.S. interest rates.

Many analysts regard this as further evidence that the Fed is caught in a bind. It needs to tighten monetary policy in order to rein in the developing bubbles in stock, bond and certain property markets. Stocks are seeing “irrational exuberance” once again and valuations surging despite declining earnings and dividends. Earnings and dividends are not likely to be improved given the weak economic data emerging from the U.S..

On the other hand, raising rates could cause the dollar to surge even higher in the short term, further undermining U.S. exports and the jobs market with a knock on effect on consumer confidence.

What is yet to be appreciated by most analysts is that it is unlikely that the massively over-leveraged and debt saturated financial system can weather increases in interest rates.

Global debt has ballooned since the 2008 crisis – itself a product of gargantuan debt. If consumers, investors, banks and other financial institutions are forced to service their debts at higher interest rates it will likely cause a new debt crisis and contagion.

Most likely the Fed will continue suggesting an imminent rate hike while plodding along as long as it can. But at some point rates will rise or the Fed will be overwhelmed when it finally becomes clear that they are reacting to events and are no longer in control of monetary policy.

goldcore_chart3_19-03-15

Meanwhile, the dollar’s status as the world’s reserve currency continues to be undermined. Now, even its UK and European allies are beginning to adapt a more international approach to monetary affairs and not slavishly following Washington’s diktats.

Britain recently joined China in establishing a new infrastructure bank – the Asian Infrastructure Investment Bank (AIIB) – and is now being joined by France, Germany and Italy.

This new bank – which along with the BRICS bank will rival the U.S. dominated IMF and World Bank system – will not lend exclusively in dollars and will likely undermine the status of the dollar as sole reserve currency.

There has been much negative comment of gold in the financial sphere despite the fact that gold has been protecting investors in the Euro zone and in terms of other currencies gold has seen slight losses or has been thriving.

In dollar terms gold is marginally lower in the past year. Most currencies are lower than the dollar this year. But the undue status of the dollar as safe haven reserve currency is growing more questionable as we move from a uni-polar U.S. dominated world to a multi-polar world with an increasingly powerful China, India and Asia.

A new international currency order is emerging and we believe that certain countries, such as Russia and China, will bring back some form of quasi gold standard, using gold as backing, in order to bolster confidence in fiat currencies.

Gold will almost certainly be a foundation stone in a new international monetary system. Therefore, we expect it to be revalued to much higher levels in the coming years in dollar and all currency terms.

Must Read Guide: Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold

 

MARKET UPDATE

Today’s AM fix was USD 1,164.00, EUR 1,091.52 and GBP 781.10 per ounce.
Yesterday’s AM fix was USD 1,149.00, EUR 1,080.50  and GBP 782.91 per ounce.

Finviz.com

Finviz.com

Gold climbed 1.96% percent or $22.50 and closed at $1,171.00 an ounce yesterday, while silver surged 3.21%  or $0.50 at $16.06 an ounce.

In Singapore, bullion for immediate delivery ticked lower after the sharp gains seen on Wall Street.

Yesterday’s dovish tone of the U.S. Fed policy statement that left out the word “patient” sent precious metals upward and pressurized the U.S. dollar.

The Fed downgraded its economic growth and inflation projections for the first time since 2006, hinting that it is in no rush to push borrowing costs to more normal levels. It also cut its median estimate for the federal funds rate.

It is important to note that the Fed has been suggesting it will raise rates for many years now.

Gold in US Dollars - 1 Week (GoldCore)

Gold in US Dollars – 1 Week (GoldCore)

Chairwoman Janet Yellen also noted that the dollar would be a “notable drag” on exports and may be a downward force on inflation.

The U.S. central bank removed a reference to being “patient” on rates from its policy statement, opening the door for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery.

Of interest is the fact that Fed officials also slashed their median estimate for the federal funds rate – the key overnight lending rate – to 0.625 percent for the end of 2015 from the 1.125 percent estimate in December.

In London’s late morning trading gold is at $1,165.75 or down 0.2 percent. Silver is at $15.88 or off 0.55 percent and platinum is at $1,118.97 or down 0.65 percent.

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Thu, 03/19/2015 - 15:16 | 5907134 MrBoompi
MrBoompi's picture

Loose Policy is just another term for "continue with the hoarding gentlemen" for those at the very top of the food chain.  

Thu, 03/19/2015 - 14:28 | 5906934 83_vf_1100_c
83_vf_1100_c's picture

sub $1k AU is just not happening. I'll buy if proven wrong.

Thu, 03/19/2015 - 13:26 | 5906628 CoastalCowboy
CoastalCowboy's picture

Pink slime at $500/gram is where this is going to end.

Thu, 03/19/2015 - 14:30 | 5906940 daveO
daveO's picture

Never fear. When the EBT cards stop working, the main buyers of pink slime will go out of business. Welfare recipients will have to eat their cats.

Thu, 03/19/2015 - 14:38 | 5906974 10mm
10mm's picture

Eat their pit bulls.

Thu, 03/19/2015 - 12:27 | 5906379 eatthebanksters
eatthebanksters's picture

Yellen's words are lies, she playing everyone to juice the markets...just like Barney Frank did before the shit hit the fan in 2008. They all went to the same school of lying as Max Schaubel. The more she misleads and juices the markets the bigger the disaster will be when the balloon pops.

Thu, 03/19/2015 - 11:45 | 5906203 Chat_noir
Chat_noir's picture

GoldCore is an idiot.

Thu, 03/19/2015 - 11:38 | 5906177 the grateful un...
the grateful unemployed's picture

TIP really exploded yesterday, is that a play on inflation?

Thu, 03/19/2015 - 14:28 | 5906928 daveO
daveO's picture

Dead cat bounce.

Thu, 03/19/2015 - 11:09 | 5906069 jaxville
jaxville's picture

  Gold is not going below $1,000.  Although Western demand is mediocre,  there remains plenty of eager buyers around the world who will add to their purchases should the price weaken. Supplies are already tight with refiners facing more challenges securing the feed to continue production of 99.99 kilobars for the Asian markets.

   The issue will soon manifest itself in actual shortages as central banks stop rolling over leases and demand closure of positions from bullion banks.  That is the ultimate liquidity crisis and it has begun.  The Venezuelan gold hitting the market represents little more than breadcrumbs at a banquet table.

Thu, 03/19/2015 - 14:27 | 5906922 daveO
daveO's picture

Foreign currency revaluation vs the dollar could derail some gold demand.

Thu, 03/19/2015 - 11:01 | 5906031 lunaticfringe
lunaticfringe's picture

i'm not seeing the sub 1000 gold. Mostly for two reasons.

Nothing except print moar can happen. That is all there is left and Nirp. In fact I think nirp might be possible in the US- not just Switzerland and Sweden. Sub 1000 gold means the producers quit producing and supply stops. Gold is a finite resource, we're not going to find a giant layer of it in the shale. We're running out of it- and what little is left- is costing a shit ton to produce.

I think people underestimate the power of lost confidence and dollar strength. Gold is as low as it is largely because of the perceived strength of the dollar. When the dollar begins its giant fade- into the abyss of failed fiat- shit will get interesting fast. I don't know when that will be- I just think the dollar fade will begin before sub 1000 gold.

/that's what I'm talking about.

Thu, 03/19/2015 - 14:25 | 5906915 daveO
daveO's picture

If momentary 'sub' $1000 happens, it'll be between now and July. It will evaporate at that price. Then, the FED most likely panics (QE4) over the high dollar.

Thu, 03/19/2015 - 14:14 | 5906686 mister33
mister33's picture

They had an article up recently about China taking over London gold and by doing so... quite literally being able to set gold's price and this transitition, although it may take a little bit of time, is happening tomorrow March 20th. If the truth of this is how it seems to be then one would think gold below 1000 not sooner than the dollar fades seems very likely. I think all low gold prices have been enormous buying opportunities until this moment ahead. Gold/silver as money represents a new empirical form of honest commerce which no amount of "faith" can for itself establish. If the value is empirical in the process of commerce then the process stays honest. Honesty and safety in treatherous times becomes very attractive. I think it is no coincience the BRIC nations are opening a world bank alternative - it may very well establish a complete rewrite of commercial code. If one way of commerce is in grave peril and there is no alternative way of commerce available then the danger is greater. If another way of commerce grows alongside the troubled way of commerce and eventually takes the reigns from the troubled way, then you have a mechanism for shedding the tumult and worry of a decaying system and establishing a clear alternate way of commerce; reinstituting faith and trust and apprenticed value. This type of financial alchemy might be the best chance the world has at attaining global peace and it might relax world powers who feel world war is inevitable. If there are issues with the old product's sincerity and integrity then the new product which everyone desires will be honest, open, and humble. If we will have a future we will have a new monetary system and if that new monetary system must be honest, open, and humble, then it would appear as though any force which wanted to take the place of the old decaying system would seek to contruct itself in honest, open, and humble ways. It seems confidence and transparency in systems of commerce is a new most important metric of valuation. Popular Demand will chose modest safety in a new system of commerce over profit in an old decaying one. It is the natural economic balance the same as a new limb growing from the shoots of an old limb of the tree. The infrustructre and process will begin to come together and it will be bigger than anything ever in known financial history. Of course a lot of people who are used to living on levels of privledge and comfort derived from artificiality and manipulation will have to adjust to real living standards in a world on the brinc, the cushion will be taken away, but in the long run if a central core monetary thesis update of epic proportions transpires most everything can, in theory, heal, get better, and increase living standards to levels previously unimaginable. It's kind of like if you are a new ski-er and you're up on the ski lift and you're coming up to the place where you get off and the whole idea of trying to butt-jump and glide off this awkward bench at precisely the right moment seems like a horror unimaginable and a disaster waiting to happen. But lo and behold you point your skies straight you put your poles down and arms out for balance and you close your eyes just a tiny bit and everything goes about a million times better than you ever imagined.

Thu, 03/19/2015 - 10:58 | 5906017 indygo55
indygo55's picture

All the ESF needs to do to get /GC under $1000 is dump billions of freshly created money from thin air into the said /GC in naked shorts and bingo, it is done. And that means what? That gold is worth $1000? Really? Wait till that bullion platform opens up. Then we will begin to see what gold is really worth.

Thu, 03/19/2015 - 11:53 | 5906233 KnuckleDragger-X
KnuckleDragger-X's picture

An oz of gold is always worth an oz of gold but gold price is determined by paper gold traded by speculators. When the ETF's collapse, then we'll start discovering gold's true value, but until then the gold market is merely another sideshow in the circus.

Thu, 03/19/2015 - 09:39 | 5905588 christiangustafson
christiangustafson's picture

I can't wait to see the posts we get from these mooks when /GC drops back under $1000.

I bet that ornery and irritable fellow from Sprott actually explodes like he's under psionic attack from Michael Ironside in "Scanners".

Thu, 03/19/2015 - 14:20 | 5906892 daveO
daveO's picture

Yea, the charts show it heading down. The best buying opportunity is yet to come.

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