Central Bankers Are “Scared To Death Of Deflation” And None Of Their Stimulus is Working… by Mike Gleason, Money Metals Exchange
Don’t want to listen? Read the podcast below!
Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll hear from Dan Norcini, who joins us to break down the markets like no else one can. Dan discusses some of the wild moves in the markets of late, the thing he focuses on the most when trying to predict what’s ahead for gold and why he does not think the gold price is currently being manipulated. You will not want to miss an incredible interview with Dan Norcini, Trader Dan, coming up after this week’s market update.
Well on Wednesday, Federal Reserve policymakers opted to keep interest rates unchanged. The decision came as no surprise in the wake of the recent disappointment in jobs numbers.
Precious metals markets rallied following the announcement. On Thursday, gold surged above $1,300 per ounce in early morning trading to hit new highs for the year. But by mid day, prices reversed to the downside and closed lower by 1%. But they have moved somewhat higher today.
The wild intra-day swing was widely attributed to events overseas. A pro-European Union member of the British parliament was killed by a mentally ill person, stoking rumors that next week’s Brexit vote would be postponed. Others speculated that if the vote does take place as scheduled, voters would now be more sympathetic to the pro-EU side.
The bizarre series of events has conspiracy theorists wondering whether they’re part of an orchestrated attempt to derail Britain’s exit from the European Union and knock down gold prices just as they appeared to be breaking out on the charts.
One conspiracy fact that can’t be doubted is that powerful globalists in Britain and beyond want to stop the Brexit. They are concerned that if Britain leaves the EU, other countries will follow suit. Globalists are also nervous about Donald Trump and his calls for an “America First” foreign policy that calls into question our ties with NATO and the United Nations.
Meanwhile, as Hillary Clinton tries to blaze a path to the White House, a prominent member of the last Clinton administration is calling on the Fed to provide more stimulus. Former Treasury Secretary Larry Summers specifically criticized the Janet Yellen Fed for setting its inflation sights of 2% too low.
Here’s Steve Liesman of CNBC with more on what Summers is thinking:
Steve Liesman: Summers, who was considered, of course, for the top Fed spot. He warned, “The United States may be on a slow-motion trajectory towards a Japanese chronic low-flationary or even deflationary outcome.” Now, to his prior prescriptions, he urged a surge in government spending. He now says the Fed should stop forecasting rate hikes, allow inflation to run above the 2% target, and aim to get to that inflation target, sooner. That could mean, or it suggests, more stimulus now. The Fed has had to reverse itself repeatedly over the past year. A year ago, the average Fed member had forecasted a funds rate of 1.6% for 2016. That’s dropped. Now it’s below 1% for 2017. It’s fallen from near 3% to now below 2%.
As the Fed continues to backtrack on interest rates, perhaps the higher inflation levels that Summers so badly wants will soon become reality. This year has brought upward pressure on energy prices, healthcare costs, and housing – though not so much on wages. Gold and silver markets seem to be anticipating higher rates of inflation with their strong advances this year.
In the near term, the gold market faces resistance from some very motivated sellers in the futures market just above the $1,300 level. They certainly showed their resolve on Thursday by knocking down prices mid day. As of this Friday morning recording, gold prices come in at $1,290 an ounce, still good for a weekly gain of 1.2%.
The silver market also suffered a sharp reversal on Thursday, with prices closing down 2% on the day. For the week, silver is unchanged now, with prices trading at $17.39 per ounce.
The other white metals, platinum and palladium, haven’t been able to rally much at all this month and are trading lower on the week. Platinum prices currently come in at $971 an ounce, off 2.3% this week, while palladium looks lower by 2.6% to trade at $533.
Looking ahead to next week, investors should brace for more volatility surrounding the Brexit decision. A “yes” vote is likely to boost precious metals, while a “no” vote could be cause for celebration in the equity and euro markets.
As the U.S. election approaches, we could also begin to see some unusual outbreaks of volatility, particularly if the polls show a tight race between Hillary Clinton and Donald Trump. Wall Street and the banking establishment are comfortable with Hillary because she’s very well known to them and very predictable. Trump may be perceived by financial markets as the riskier choice.
However, it’s worth noting that both candidates have gone on record favoring more spending overall and a continuation of the Fed’s interest rate suppression policies. That’s a political recipe for a weaker dollar versus hard assets, including precious metals.
Well now for more on the what’s ahead for the markets amidst all of the chaos, let’s get right to this week’s exclusive interview.
Dan Norcini: Central Bankers Are “Scared To Death Of Deflation” And None Of Their Stimulus is Working…
Mike Gleason: It is my privilege now to welcome in Dan Norcini. Dan is a professional off the floor Commodities Trader bringing more than twenty years of experience in the markets. Dan’s editorial contributions and supporting technical analysis charts cover a broad range of trade-able entities including the precious metals in foreign exchange markets, as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a marketing analyst and can be found as a source in the Wall Street Journal’s commodity section from time to time, as well as CBS’s Market Watch. You can follow his fabulously detailed work at TraderDan.com.
Dan, welcome back it’s great to have you on again, how are you sir?
Dan Norcini: I’m doing well Mike, thanks. It’s always a pleasure to be with you, looking forward to our chat here today.
Mike Gleason: Well we’re seeing some pretty interesting market action here this week, specifically the Fed decision on Wednesday certainly seemed to light a fire under the metals market initially but now we’re seeing them pull back a bit as we’re talking here on Thursday afternoon. So what do you make of the action this week Dan?
Dan Norcini: It reminds me of a scene in the original Planet of the Apes. It’s a madhouse; that’s what I make of the action Mike. We’ve got a very, very high degree of uncertainty now in the markets; a lot of elevated concerns. You’ve got the VIX, the Volatility Index is at elevated levels. The Gold Volatility Index is kicked up. We’re seeing some pretty big price swings in the interest rate market – the long