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Read my lips, “no more interest rate hikes for the next couple of years.”

Commentaries & Views

According to Wikipedia, “Read my lips: no new taxes” is a phrase spoken by then-American presidential candidate George H. W. Bush at the 1988 Republican National Convention as he accepted the nomination on August 18. However, the sad truth is he made a pledge that he was not able to keep. In fact, the New York Post published a similar headline the following day that said, “Read my lips; I lied.”

This phrase, spoken by George H. W. Bush, is a perfect example of a politician’s broken promise and will forever remain a landmark example of broken promises made by politicians.

However, in the case of Chairman Jerome Powell, his statement about not raising interest rates in 2021, 2022, and maybe even into 2023 seems to be a pledge that he will steadfastly honor given the nature of the recession created by the pandemic.

What is interesting is that in contrast to Bush’s statement, which was actually accepted as a believable pledge and quickly broken, the probability that we will not see an interest rate hike this year is almost an absolute certainty. As for 2022, there were only four dissenting members at the most recent FOMC meeting, signaling that the majority of Federal Reserve members are in agreement as to their future monetary policy in regards to Fed funds rates.

In the case of the Federal Reserve’s pledge, it seems that market sentiment does not agree or see this as a feasible possibility. The fact that 10-year treasury notes have been moving up substantially over the last week is an example of market participants voting with their investment capital.

Immediately following the conclusion of the FOMC meeting on Wednesday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. More importantly, the rally that continued to take gold higher on Wednesday has continued to be a guiding force taking gold pricing higher. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

This time Chairman Powell made it clear that it is the Federal Reserve’s intent to keep interest rates where they are for a long time. The statement is being made as new data suggests that the economy is rebounding, which even Chairman Powell agrees with. The fact that he is forecasting a GDP of 6.5% by the end of the year is more than extremely optimistic, and some even believe it is just wishful thinking.

Today gold continued its upward climb gaining $11.40, with the most active April 2021 Comex contract currently bid at $1743.90, which is a net increase of.66%. Just as impressive is the fact that the rally in gold has occurred concurrently with dollar strength and treasury yields staying above 1.5%. In other words, against the headwinds provided by a strong U.S. dollar and stronger yields, as shown the determination of gold bulls to take the precious yellow metal higher. These recent gains are even occurring in the light of bitcoin once again challenging its all-time record high. Bitcoin futures today closed up 1.88%, or $1080 per coin taking bitcoin futures to $58,445 per coin.

Whether your current market sentiment is bullish or bearish in regards to gold pricing, one must acknowledge the absolute strength and determination to move higher against market forces that would typically result in a price decline.

In the words of Chairman Powell, it will be the pandemic that dictates action by the Federal Reserve, and they will not act in a way that could hinder a full recovery in the fastest period of time. It might just be that the current monetary policy of the Federal Reserve is not just words alone, but it has been followed with action and a steadfast commitment doing what they said they would.">this link.

Wishing you as always, good trading,

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