The Federal Reserve Open Market Committee (FOMC) decided to do nothing, except say that ZIRP (zero interest rate policies) are going to continue for a long time. And that MORE fiscal stimulus is needed. As long as Mayors and Governors continue their economic lockdown policies, more monetary and fiscal stimulus will be needed.
Where does The Fed go from here (given that Covid-19 seems to be growing still)? The implied Fed policy rate looks to be negative by 2021.
Gold is surging as investors figure out that our fiat currency cannot support the reckless spending in Washington DC.
Let’s see what Fed Chair Jay Powell (aka, Thurston Powell III) comes up with. Hint: Fed buying stocks and going to negative rates.
The U.S. dollar’s decline may be just getting started, according to a widely-watched technical indicator. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its major peers, formed a death cross pattern on Friday, with its 50-day moving average dropping below its 200-day one. The gauge has tumbled more than 3% this month amid concern over the spread of the coronavirus in the U.S. and wrangling between lawmakers over the next stimulus package.
But against gold …
(Bloomberg) — Bond investors keep getting bombarded with fresh reasons to stay bullish after another record-breaking week in Treasuries.
As the five-year yield plumbs near all-time lows, the 10-year benchmark is again testing levels notched in the depths of the pandemic despair. Leveraged-funds keep pulling back their bearish bets to the lowest since early 2018.
With U.S-China tensions raging again, Wall Street is telling clients to stay constructive and investors are finding it tough to wager against securities they deem the most overvalued in decades.
And Fed policies are likely to keep Treasuries yielding less than the inflation rate.
There is no doubt that The Federal Reserve panicked over Covid-19 by setting interest rates near zero and printed money like there is no tomorrow. The TED spread is now at 13.92, about where it was pre-Covid breakout.
(Wikipedia)The TED spread is an indicator of perceived credit risk in the general economy, since T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders, therefore, demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases. Boudt, Paulus, and Rosenthal show that a TED spread above 48 basis points is indicative of economic crisis.
Well, the TED 3-month spread is only 13.29 which is far below the 48 basis point spread indicative of an economic crisis.
But The Fed hasn’t killed gold speculation. In fact, The Fed is likely scaring everyone into buying gold and silver.
The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions — prompting policy makers to fear a deflation spiral reminiscent of the Great Depression. But economists including former Bank of England official Charles Goodhart, and investors such as BNP Paribas Asset Management, are asking if a different phenomenon lurks in the wreckage of global growth.
Muted Price Growth
IMF predictions for inflation rate at end of 2021
Yes, inflation rates are muted in the short-run, but the surge in government spending and The Fed balance sheet is scaring some people about “inevitable” hyperinflation.
And the surge in M2 Money Supply YoY is leading some to panic.
The COVID-19 virus sweeping the globe is having dramatic impact on asset and commodity prices. Particularly gold.
Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the spot price of the contract today. Such is the case for gold futures where the futures price for gold exceeds the spot price.
The Dollar Index looks poised for a run at the 100 level for the first time since 2017 as investors seek out the safety of American assets amid the ongoing coronavirus spread.
The U.S. currency has benefited this week from a narrowing in haven options, with the yen slumping to a nine-month low on fears the outbreak could push an already struggling Japanese economy into recession. In contrast, U.S. stocks closed at a fresh record Wednesday, Treasuries are seeing continued demand and a bullish golden cross pattern is set to form in the dollar gauge, suggesting further upside is possible.
The golden cross is a candlestick pattern that is a bullish signal in which a relatively short-term moving average crosses above a long-term moving average. The golden cross is a bullish breakout pattern formed from a crossover involving a security’s short-term moving average (such as the 15-day moving average) breaking above its long-term moving average (such as the 50-day moving average) or resistance level.
The US dollar index follows President Trump’s approval rating. Or is it that Trump’s approval rating mirrors the US economy?
Gold is also flashing a technical buy!
Gold surpassed $1,600 an ounce this week and its climb may not be over yet. The GTI Vera Convergence Divergence Indicator, a technical measure which detects trend exhaustion, triggered a buy signal on Tuesday, its first since the end of January. Growing concern over the potential impact of the coronavirus on the global economy is boosting haven demand for the metal, which is now closing in on a seven-year high.
The coronavirus is ravishing China … and may soon ravish the USA as well. As a result, the inverse correlation between gold and the US dollar is weakening and resembles the weakening that occurred during the financial crisis.
Yes, gold is rising again in the face of coronavirus fears ravaging the Chinese economy.
The CFTC’s Gold Non-commercial long contracts/futures remains near an all-time high.