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A spooked Fed

Commentaries & Views

(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.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.