Gold prices were under pressure for most of last week, as investors anxiously wait for the outcome of the US Federal Reserve bank’s important September meeting. The price of the yellow metal fell by almost 1 percent over the week to close at $1310 an ounce.
The insane obsession about a potential interest rate hike continues as all eyes remain focused on the September 21 meeting. Recently, most people seemed to feel a September rate hike was unlikely, but now over the course of a week and a bit of hawkish Fed-talk, many now seem to believe September rate hike may actually be in the cards. I am of the opinion that the Fed will not increase rates at this meeting. The September FOMC that takes on September 20-21, 2016 will show what the Fed has decided regarding interest rate when their decision comes out around 2 p.m. on September 21.
Financial markets across the world have been taking their cues from central banks for years and we know the Federal Reserve wants to at some point begin raising rates. However, the timing of this continues to be uncertain. Even if they decide to increase the Federal Funds Rate, by 25bps or even 50bps over the next six months or so in an attempt to avoid any over reaction in bond markets, such a small increase is unlikely to have a much of an impact on gold prices over the long-term. As I have already pointed out countless times, this is not the only event to influence gold prices.
While the Fed is expected to increase rates at some time in the future, other major central banks are keeping rates low. On Thursday, the Bank of England (BoE) voted unanimously to keep the Bank rate at 0.25% and the asset purchase program at 435 billion pounds.
The Swiss National Bank (SNB) left its monetary policy unchanged in September, keeping the sight deposit rate unchanged at -0.75% and the target for the three-month Libor at between -1.25% and -0.25%. The bank reaffirmed its pledge to ‘remain active in the foreign exchange market, as necessary’.
The European Central Bank (ECB) held the size of the monthly asset purchase at EUR 80 billion and stated that it would continue till the end of March 2017. The main refinancing rate was held at 0.00% and deposit rate at -0.40%.
Overall, the European economy remains so weak that projections suggest that even with massive amounts of monetary stimulus, price inflation will not reach the ECB’s targeted 2 percent any time soon. With its credibility on the line, however, the ECB appears reluctant to cut its deposit rate even further below negative 0.4 percent, or its’ Main Refinancing Operations, (MRO) rate below zero, where it already sits.
The central bank lowered GDP forecast for 2017 to 1.6%, slightly down from 1.7%. Inflation forecast for 2016 was also lowered slightly to 1.2%, from 1.3%.
Also, last week the Royal Bank of Australia (RBA) left the cash rate unchanged at 1.50% as widely expected.
It is clear that our financial and monetary system supported and propped up by unprecedented money-printing and governmental promises, is beginning to crack at its foundations and the central banks are losing control.
The world’s leading experiment in monetary easing is floundering, and its engineers have no idea of what to do try next.
The Bank of Japan (BoJ) has tried radical measures for 3½ years to reflate the country’s sagging economy, resorting this year to negative interest rates. However, growth and inflation still remain elusive.
The BoJ shocked markets in January by cutting rates below zero for the first time in an attempt to weaken the yen, but the yen reaction was only temporary, and it has since gained more than 15 percent against the dollar.
It will be interesting to see what the latest decision of the BoJ is.
Even though the price of gold has slipped since the beginning of the month, the trend remains bullish. In conjunction with this bullish trend, we also know that rates across the globe are exceptionally low which have a positive impact on gold prices.
You have to be a special kind of investor to invest in negative yielding bonds when you can rather buy gold.
Negative interest rates in Europe are crippling the banking sector, squeezing profits and forcing many banks to pass on the costs of the ECB’s policy to their clients. Some of the largest German banks, like DB and Commerzbank, are exploring the possibility of withdrawing their deposits from the ECB and storing them in physical cash, in their own vaults, while the world’s biggest reinsurer, Munich Re, has turned to gold, to avoid paying fees on their deposits.
Quantitative Easing, (central bank jargon for money printing), a policy meant to stimulate economic growth, has failed miserably crushing pension schemes and thereby arguably hurting the weakest the most. But, despite this the lunatics running the asylum, continue with the same failed policies.
The value of negative-yielding bonds has swelled to almost $14 trillion as negative interest rates and central bank bond buying ripple through the debt market. In one of the most disingenuous moves I have ever seen, governments across the world are trying to prevent the flow of cash and thus force individuals to deposit their funds into a bank account so that they can steal a percentage of deposited funds by applying negative interest rates.
Instead of agreeing to their terms, you can choose to preserve your wealth via classical, real money – gold and silver.
It is imperative that you allocate a portion of your investable assets into physical bullion now before these criminals get a hand on your cash.
This article originally appeared on Mountain Vision.