Dovish Fed and Brexit drive gold and silver upwards. $1300 in sight?

Edited and updated version of Julian Phillips’ latest commentary following the dovish Fed comments implying perhaps only one rate increase this year, if that.

With the Fed completing its two-day meeting today markets held their breath to see if any surprises would be sprung on us. We didn’t expect any. But we may hear Mrs. Yellen be less optimistic than the market expects and hopes. The persistent desire for higher interest rates, which the Fed indicated was on the way in summer, may well miss summer and autumn. We see winter as an appropriate time because of the cold damage winters can cause. The U.S. economic recovery may well be looking OK but the data threatens to weaken. In itself this prospect has so far put the Fed off raising rates. In the event gold surged to the high $1,290s

The global economy continues to weaken and will affect the U.S. Most importantly, a rate hike would cause the dollar to rise, something that will damage the U.S. economy.  In the event gold surged up to the highish $1.290s making another tilt at $1,300, before being brought back down a few dollars in later trade.  It will be interesting to see what the Asian and European markets make of the latest Fed inaction overnight and tomorrow.

Global financial markets are tensioning up in preparation for next week’s Brexit vote, with the Yen hitting new recent highs at 106.21: $1, as global equities continue to rise slightly to ‘toppy’ areas.

As we have said in the past, equities are rising because they are the only place left where there is yield, not because a rosy future lies ahead. The huge danger in this is that if and when interest rates do rise, both bonds and equities will tumble!

Yesterday, we mentioned ‘a potentially devastating set of ‘ripple’ effects’’. We need to emphasize this. We are not simply talking about the ripples setting off other crises elsewhere, we are taking about a group of crises being set off and when synergized together, create an even larger global crisis in which precious metals will blossom.

Gold ETFs – On Tuesday the holdings of the SPDR & gold Trust rose yet again as 2.376 tonnes was purchased into the gold ETF, leaving its holdings at 898.671. No purchases or sales were made in the Gold Trust, leaving its holding at 196.90 tonnes.  This persistent buying is not simply holding prices up, but steadily draining London’s physical gold liquidity. We are under no illusion that once the ‘season’ for gold begins in September. Market physical shortages will shine through.

Silver –Silver is again marking time without making as strong a move as gold.



Julian D.W. Phillips | | StockBridge Management Alliance


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