Loading ...This is all you need to know about interest rates
The market leads, the FED follows…
The dollar follows as well. Short rates are rising, long rates are going nowhere and will eventually turn down again, giving us an inverted rate yield curve….Possibly around the time of the next dollar peak of 110-120, enough to really put the brakes on what little economy we have.
The market leads because it anticipates rate hikes 3-6mo out. The anticipation is based on fed guidance and recent economic data. If the Fed doesnt out-do itself and snuff out the little inflation we have thus far by hiking rates too quickly, then the economy will keep moving along and inflation will grow at a decent clip.
Here’s why I think ANY economic situation is bullish for PMs. My idea of why people havent noticed/prepared yet is because you can ask 10 people what drives PM prices and you’ll get 10 different answers. Plus the fed has been handing out free money, but that’s ending soon. If you think an eventual $120b of bond selling wont put pressure on things, you’re mistaken. That’s upward pressure on rates & downward pressure on the market. Not catastrophic but it will show.
Suppose the fed hikes slower than anticipated, or stops hiking totally. That’s very bearish dollar/bullish gold. That’s scenario 1. Scenario 2 is the fed gets to neutral levels around 2.5-3%. That puts the 10y around 3.5%. The government cant afford the effect even that neutral rate has on the debt load. They have NO choice but to inflate to keep the debt levels steady. 3% fed rates require 5.5% inflation rate, which is devestating to savers and also pushes real rates negative (3% – 5.5%). That’s also rocket fuel for PMs.
I believe 120 is going to be just a quick stopping point to 160+ for the dollar…
Here’s another reason I think PMs have a bullish outlook:
http://news.goldseek.com/GoldSeek/1508523206.php
Armstrong is right. Money is global. Narrow focus on Fed is provincial. As long as others are printing tons, what Fed does matters less. (Aside from Shanghai Accord commitments)
All this printing is sending folks further out on a slender limb.
When it breaks, that won’t be PM bullish (until later).