Fed decision day has certainly ignited the gold market.
Fed Language Ignites Gold Market
By Peter Boockvar, author of the Boock Report
March 21 (King World News) – Here is what Peter Boockvar wrote as the world awaits the next round of monetary madness: Bottom line, I expected the FOMC statement to be boring and this certainly qualified as outside of a few changes on the economy where one part was softer while the other expressed confidence in growth picking up this year (along with a hike in GDP forecasts). On the question of 3 or 4 rate hikes this year, it is only March. Why would they put themselves out there with any conviction over what they’ll do in the latter part of the year with rates…
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Fed Gibberish
On the comments on the economy, the FOMC said “economic activity has been rising at a moderate rate” vs the January meeting when they said “economic activity has been rising at a solid rate.” This is in large part to what followed, “growth rates of household spending and business fixed investment have moderated from their strong fourth quarter readings.” They did not seem worried about the “moderate” activity because in the next paragraph they said “The economic outlook has strengthened in recent months.”
The comments on inflation were unchanged with the January statement.
With respect to their forecasts, they still expect 3 hikes this year but 13 of 15 dots expect 3 or more this year vs 10 of 16 in December. The dots are worthless because they can change on a dime. It is only a snapshot in time. They raised their 2018 GDP forecast from 2.5% to 2.7%. It was at 2.1% back last September before the tax bill passed. Their unemployment rate forecast has gone from 4.1% last September to 3.9% in December and down to 3.8% today for 2018. Like magic though, their core PCE inflation forecasts remain unchanged at 1.9%. I would love Jay Powell to square that forecast.
As for the market response, on the non event statement where a definitive 4th hike this year was not tipped off, the 2 yr yield is falling back to 2.32-.33% vs the 2.35% it was at the high of the day and 2.33-.34% just before the announcement. The 10 yr yield though is at the high of the day at 2.92% as a ‘gradual’, still dovish Fed will see long rates hike for the Fed. Also I’m sure there is some curve flattening unwinds.
Soft Landing Or A Crash Landing?
Lastly, whether the Fed hikes 3 or 4 times this year the cost of capital is going up in the context of an overleveraged economy that spent 7 years medicated on zero rates and which created extraordinary asset price inflation that pulled forward a lot of future returns. I hope for a soft landing here but the Fed track record is pretty poor on that.
The Bottom Line
King World News note: The bottom line is that the Fed remains trapped. That’s why they are raising rates quickly so they will be able to lower them as the economy and stock markets both roll over. The gold market is anticipating this and that is why we have started the next leg higher after the mid-cycle correction bottomed at $1,050 at the end of 2015. As the price of gold surges above $1,400, that is when the real fireworks will begin.
For those who missed it, KWN has just released a new audio interview with Keith Neumeyer discussing $8,000 and $10,000 price targets for gold as well as what he expects to see in silver and the mining stocks and you can listen to it by CLICKING HERE.
***Also Just Released This Is What Will Really Move The Markets After Today’s Fed Decision CLICK HERE.
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