Opinion with Peter Hug
A spooked Fed
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
(Kitco News) - We have been telling our clients, who were concerned about the drop in metals against the back-drop of a collapsing global equity space, that the reaction was a normal pattern. At the beginning of a crisis, the psychology is to raise cash. Some investors raise cash because of margin calls, others to chase lower pricing in other asset classes. The most liquid asset is gold and therefore the first option in raising cash. Once the crisis becomes a more sustained threat, governments take action, generally through their central banks. We suggested that the Fed may create liquidity before the March meeting to calm markets. The danger of Fed action is that it may send the wrong signal -one of panic. Friday the Fed indicated it would remain pat and look at the situation at the March meeting. An hour ago, they cut rates by 50 basis points in an emergency meeting. Gold immediately rose $30, with silver posting a 3% jump. The question is, how much powder do the central banks have, to stave off a global recession. The guns are pretty empty. It will take a change in the course of psychology that the Coronavirus is under control and the global supply chains will reactivate quickly to prevent a significant global downturn. Until that occurs, central banks will stimulate aggressively, which will continue to push metals higher.
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