Metals prices surged Wednesday–as they should have–after the Fed announced no rate hike. Gold jumped 1.6%, silver a whopping 3.7%. The Fed decision was a reaffirmation of a continued loose monetary policy.
Gold and silver investors need to keep in mind that the world’s monetary and fiscal policy makers have fully embraced loose money and that they will not reverse course until forced to do so by the markets, which means massive money creation for as far as the eye can see. There is no way to know when it will end.
In December, 2015, I doubted that the Fed would make its first rate hike in seven years. I was wrong. The Fed posted a .25% rate hike. But, I wasn’t that far off.
At the time, expectations were that the Fed would hike rates four times over the next 12 months. We’re half way through 2016 with only three more FOMC meetings scheduled, and there have been no increases this year.
Meanwhile, the IMF forecasts US GDP growth for 2017 at only 2.5% and revised downward 2016’s to 2.2%. Worse, the GDP grew an anemic 1.2% in the 2nd quarter. (The Fed had to know the numbers before they were released to the public.) Coming out of past recessions, GDP has regularly posted gains in the 4.5% range.
Also undoubtedly influencing the Fed’s decision not to raise rates are corporate earnings, which while still positive, have registered declining growth rates for four years. And, there’s still great uncertainly on the impact of Brexit.
Although the Bank of Japan ruled out a form of “helicopter money” that would involve the BoJ buying perpetual bonds from the government, bonds that would never be paid, massive money creation is expected in Japan. Prime Minister Shinzo Abe pledged a “bold and comprehensive package in excess of ¥28 billion,” equivalent to 5.6% of Japan’s GDP. The goal: “to boost growth and inflation.” The money created to buy the bonds would be forever be added to the money supply, with no promise of the money ever being withdrawn because the bonds would be perpetual.
A form of helicopter money advocated by Martin Wolf, chief economic commentator for the Financial Times, would be for the world’s central banks to deposit money into the accounts of all adults. Talk about a bold and comprehensive plan!
In reality, governments rarely repay debt, opting to redeemed maturing bonds with funds raised through the issuance of new bonds. It’s a Ponzi scheme at the highest level.
Remember when inflation (rising prices) was the enemy? Now, rising prices are our friend, according to establishment paperhangers.
This is a climate in which the metals will do well. While there will be down days and even weeks that metals prices decline, the overall trend is up. Physical gold and silver should be in every investment portfolio.