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Implications for Precious Metal Post Fed Meeting

Jeffery Christian
November 4, 2021
Video Transcript

Jeffrey Christian: Hello! It’s Jeffrey Christian of CPM Group coming to you from Monex. It’s the 3rd of November. We waited until after the Fed FOMC meeting released its minutes and statement. Basically, as expected, the Fed has announced that it is going to begin scaling back its purchases of bonds, treasury bonds and government agency bonds, beginning in December. Specifically, what they said was that they would be going from about $105 billion worth of bond purchases a month to about $90 billion purchases in December, reducing the treasury purchases about $10 billion and the agency purchases about $5 billion. Furthermore, they said that they would continue to scale back their bond purchases about $15 billion a month, as long as the economy didn’t seem to have problems with that. They also said that they would keep interest rates at the low zero to a quarter percent for the Fed funds rate. So, what they’re saying is that they’re going to scale back. They’re looking at an economy that is modestly stronger and is moving in the right direction. They’re looking at inflation indicators, which justify the concept that for the most part the inflationary pressures we’re seeing are transitory and CPM Group has looked at inflation and reached the same conclusion. We’re seeing on a month-to-month basis, we had a surge in inflation in March, April, May, June and that the month-to-month inflation rates have come back down into a level that is representative of what it’s been really since the early 1990’s. So, for 20… 30 years, we’ve seen month-to-month inflation rates of .3%, .4%, which is what we’ve seen over the last couple months. The Feds looking at the same data, they’re saying ok… inflation has been a little bit problematic, but it’s under control, a lot of this looks transitory, interest rates are probably going to keep low for a long period of time, we’re seeing an economy that is expanding, the supply constraints and the supply chain constraints that have caused problems over the last year seem to be dissipating to some extent, although problems remain, and so they’re going to start pulling back on their bonds.

Gold and silver had sold off earlier today, before the FOMC announcement. Since the FOMC announcement, they have been basically about where they were. CPM Group looks at the economy and we look at interest rates staying low, inflation probably coming down and dissipating over the next twelve months, the dollar probably not going to be declining sharply, because the United States’ economy and everything else are in better shape than Europe. So, that you’re not going to see a lot of people saying I’d rather have euros than dollars. Stock market rose sharply after the FOMC announcement and continues to move from strength to strength. So, we’re looking at an environment that for the next quarter, or next several quarters, is relatively sanguine and is not one that is particularly worrisome, sufficient to cause investors to buy a lot of gold and silver. In that kind of environment, we see gold and silver relatively treading water, staying in recent trading ranges. Ultimately, we do think they break out. On longer-term, we’re suggesting to our clients that they invest on the basis of higher prices for gold and silver later, but that later remains a big question. What we see in the financial markets is, yes… there are a lot of people that are very much concerned about the fiscal deficits and the growing debt and the intransigence of the debt and deficit problems, not only in the U.S. governments, but in the governments around the world, and even in the private sector where you have debt levels rising as people start borrowing money and increasing their consumption once again. So, a lot of people in the financial markets have this long-term uncertainty and it’s primarily predicated on fiscal policy disfunction. Monetary policy, in our view, has been relatively proper in trying to deal with an economy that was locked down in an environment of fiscal irresponsibility on the part of the government. So, our expectation is that the precious metals, gold and silver, kind of tread water for the next several quarters, gives investors ample opportunity to continue to accumulate gold and silver at relatively good prices, with the expectation that at some point all of this unwinds and there is another recession, there’s another financial crisis, and people have a perception that they want to have more gold and silver. The difficulty is that you say well, what’s going to cause that? It’s going to be a combination of factors. We’ve talked about this in past videos. One of the things we’re looking for is a debt problem and that debt problem will come about for other reasons. Our view is that the biggest risk right now for economic growth, economic stability, and the biggest opportunity for making money in gold or silver is in the political realm as opposed to the economic realm. We have severe political divisions within the United States, but we also have them in other countries too, including China and Europe. Those political divisions are exceedingly difficult to fix and there doesn’t seem to be a lot of will to fix them on the part of the politicians and government leaders, at least in the United States, and to some extent in Europe. The Chinese leadership seems to be hellbent on trying to make things better there, although they have issues on an international level, and the political problems that we see… and the political risks to economic stability are not only on a national level in these various countries and regions, they’re also on an international level, and those are perhaps even more intractable and more problematic. One of the things that we’ve seen over the last several years, even before the lockdown, was an increase of trade war going on and a decline in international trade. An international trade is an extremely important factor in fueling economic growth within the United States and other countries, and that is a very big headwind to continued economic expansions, and probably is going to be the area that you see these disruptions start to emerge first. So, that’s what we’re looking at. We do think that it’s a great time to accumulate and we’ve noticed that Central Banks were buying more gold this year at prices around $1,780… $1,800. Central Banks see these prices as long-term low prices. They used to say, way back when, we’ll be a buyer below $1,000. Then it was, we’ll be a buyer below $1,300. Now, they seem to be saying, we’ll be a buyer below $1,840. So, Central Bankers who are sitting on top of a lot of economic analysis are saying, we want to have more gold and these prices are reasonable prices at which to buy from a long-term perspective. I think they’re right and I think that’s a great cue for individual investors. We’ll speak to you again soon on behalf of Monex. Have a good day.

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