Here is a look at this week’s Fed meeting where dovishness should be bullish for gold.
Gymnastics At the “Zero Bound”
By Bill Fleckenstein President Of Fleckenstein Capital
June 18 (King World News) – The market rallied through midday, led by the Nasdaq, which gained 0.75% compared to more modest gains for the S&P and Dow. There was no particular catalyst that I could see. My guess is that folks are trying to position themselves for dovish pronouncements from the Fed on Wednesday. In the afternoon, the indices just drifted sideways to lower and closed with the modest gains you see in the box scores.
Away from stocks, green paper was flat, as was fixed income. Meanwhile, after being both higher and lower overnight, the metals were slightly lower while the miners were nearly all higher…
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Just Winging It
As for the FOMC meeting on Wednesday, it is virtually certain that they will talk dovishly, with a high probability that they will lay out the path for a move to a rate cut. They will blame the fact that we have consistently lagged their “magical” 2% inflation number and, in a perverted twist of logic, that because we are so close to the “zero bound,” they need to be proactive about cutting rates.
Of course, the reason we are so close to the “zero bound” and not getting anywhere is because their policies don’t work. All they succeed in doing is kicking the can down road and promoting speculation and misallocation of capital. But as we all know, that is not how the world sees it yet.
Federal Reserve to Release Its Own Version of Jenga
The point is, the Fed has set up the rationalization for easing rates despite the headline story of low employment and the stock market not far from an all-time high. Historically, the first rate cut doesn’t tend to produce higher stock prices for very long, and it has taken multiple cuts to help the economy recover from negative events. However, over the last 20 years the reason we’ve gone into recession is because of the unwinding of bubbles that the Federal Reserve has blown, and this third go-round won’t be any different.
But there is no point in getting ahead of ourselves. The next event for speculators and algos is what the Fed does Wednesday and how markets respond to it. Fed dovishness ought to be good for gold, but then again, we don’t know what has been priced in thus far. The good news is that we will know soon enough.
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***KWN has now released the timely and informative audio interview with James Turk and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also just released: Peter Schiff On Gold, Plus Wild Prices For Baseball Memorabilia CLICK HERE TO READ.
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