Hawaii Six O - Gary Wagner
Fed signals slow road to recovery, while maintaining current monetary policy
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
In his first press conference of 2021, the Chairman of the Federal Reserve, Jerome Powell said that the Fed intends to maintain its current monetary policy of low-interest rates and massive accumulation of treasuries and mortgage-backed securities. The Federal Reserve will continue adding to its assets sheet with purchases of $120 billion monthly. Powell stressed that it would be much too soon for the U.S. Central Banks to even contemplate exiting their current accommodative monetary policy.
This is precisely what market analysts and economists had predicted out of the first FOMC meeting this year. A statement from the interest-rate committee underlined that fact, “The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.”
Although data suggested that the Fed sees slower growth there were no comments in the statement or the press conference that the Fed would implement a more aggressive monetary policy to help the economy recover from the pandemic.
Ian Shepherdson, chief economist at Pantheon macroeconomics said that the Fed sees, “slower growth, but not slow enough to trigger action.”
The Fed Chairman emphasized during the press conference that the road to recovery will be much slower and longer than originally anticipated. This statement triggered a massive selloff in U.S. equities. The Dow Jones industrial average fell just over 2%, and after factoring in today’s decline of 633.87 points closed at 30,303.17.
During his press conference chairman Powell detailed that the economy remained far away from a recovery, with a slower recovery than anticipated. He suggested that recent gains in equities might be premature. He noted that these gains have been fueled by a renewed optimism that the rollout of the vaccine coupled with fiscal stimulus would bring the pandemic to a quicker conclusion. By underscoring that the economy was far from recovering he suggested that optimism was unrealistic which was a primary factor in today’s brutal selloff inequities.
That being said precious metals traders witnessed moderate declines across the board in gold, silver, platinum, and palladium. For the most part, these losses can be attributed directly to dollar strength. The U.S. dollar index gained ½ a percent in trading today and is currently fixed at 90.60. But there was another possible factor that caused the precious metals to selloff. Typically, when equities selloff strongly there is a tendency for large institutional players and money managers to liquidate assets across the board. When you add to that the short squeeze on two particular stocks (AMC and GameStop) forcing major hedge funds to liquidate assets including gold to cover the loss on their short positions.
As of 5:43 PM EST gold futures gave up $8.60 or -0.46% in trading which is roughly equal to the gains of ½ a percent witnessed in the dollar index. However, silver was hit much harder as the industrial component of the precious metal added to today’s decline. Currently, silver futures are fixed at $25.315, after sustaining a $0.22 drawdown or a decline of -0.87%. This indicates that silver’s decline was a combination of selling pressure and dollar strength, whereas gold’s decline was primarily dollar strength.
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Wishing you as always, good trading,