Ahead of the September FOMC
Updated
Next week brings the long-awaited September FOMC meeting. What is said and what is unsaid will have significant impacts on the short-term direction of COMEX gold and silver prices, so let's take some time today to speculate upon what may be coming.
And "speculate" is precisely what we will do today, as there is no one anywhere who can accurately predict what the Fed will do next. This has been the case since Greenspan and "the size of his briefcase" all the way through to Bernanke, Yellen, and now Powell. You may think you know what the Fed will do next, but they often end up moving too soon or too late. So, anyone who claims to know precisely what the Fed will do next is most likely selling something.
To that end, though, hard-earned experience and wisdom can offer some guidance. For example, the Fed often floats "trial balloons" through their sycophant media outlets. For a long time, Jon Hilsenrath of the Wall Street Journal served this role for Ben Bernanke. Steve Liesman of CNBC often seemed to be the "leaker of choice" for Janet Yellen. Though Chairman Powell doesn't seem to have a preferred media mouthpiece as yet, his Fed still operates under the same "trial balloon" method.
And what do we mean by a trial balloon? Let's let the nice folks at Merriam-Webster explain:
Hmmm. "A scheme tentatively announced to test public opinion". Keep that in mind as we next recall a few of these headlines from the past few months.
At the conclusion of the June FOMC, Chairman Powell conducted his usual press briefing. In his answer to the very first question, you'll find the statement here: [url=federalreserve.gov/mediacenter/files/FOMCpresconf20200610.pdf ]federalreserve.gov/mediacenter/files/FOMCpresconf20200610.pdf
More details were provided when the minutes to the June FOMC were finally released three weeks later. You can read through them if you'd like by clicking this link: [url= federalreserve.gov/monetarypolicy/files/fomcminutes20200610.pdf ] federalreserve.gov/monetarypolicy/files/fomcminutes20200610.pdf
The next balloon was sighted on July 17, when this article appeared at Bloomberg in the wee hours of the morning. You should be sure to read it now if you've not seen it before, as it contains the text shown here: [url=bloomberg.com/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change ]bloomberg.com/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change
On August 5, the next balloon floated by with this article from CNBC: [url=cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html ]cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html
And finally, Powell himself began to lay it all out with his speech at the Fed's "Virtual Jackson Hole" conference on August 27. While not addressing the Yield Curve Control part of the equation, Powell made it abundantly clear that achieving price inflation was the Fed's #1 goal at present and that his Fed will be ready to employ all sorts of unconventional monetary tools to make it happen: https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm
And "speculate" is precisely what we will do today, as there is no one anywhere who can accurately predict what the Fed will do next. This has been the case since Greenspan and "the size of his briefcase" all the way through to Bernanke, Yellen, and now Powell. You may think you know what the Fed will do next, but they often end up moving too soon or too late. So, anyone who claims to know precisely what the Fed will do next is most likely selling something.
To that end, though, hard-earned experience and wisdom can offer some guidance. For example, the Fed often floats "trial balloons" through their sycophant media outlets. For a long time, Jon Hilsenrath of the Wall Street Journal served this role for Ben Bernanke. Steve Liesman of CNBC often seemed to be the "leaker of choice" for Janet Yellen. Though Chairman Powell doesn't seem to have a preferred media mouthpiece as yet, his Fed still operates under the same "trial balloon" method.
And what do we mean by a trial balloon? Let's let the nice folks at Merriam-Webster explain:
Hmmm. "A scheme tentatively announced to test public opinion". Keep that in mind as we next recall a few of these headlines from the past few months.
At the conclusion of the June FOMC, Chairman Powell conducted his usual press briefing. In his answer to the very first question, you'll find the statement here: [url=federalreserve.gov/mediacenter/files/FOMCpresconf20200610.pdf ]federalreserve.gov/mediacenter/files/FOMCpresconf20200610.pdf
More details were provided when the minutes to the June FOMC were finally released three weeks later. You can read through them if you'd like by clicking this link: [url= federalreserve.gov/monetarypolicy/files/fomcminutes20200610.pdf ] federalreserve.gov/monetarypolicy/files/fomcminutes20200610.pdf
The next balloon was sighted on July 17, when this article appeared at Bloomberg in the wee hours of the morning. You should be sure to read it now if you've not seen it before, as it contains the text shown here: [url=bloomberg.com/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change ]bloomberg.com/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change
On August 5, the next balloon floated by with this article from CNBC: [url=cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html ]cnbc.com/2020/08/04/the-fed-is-expected-to-make-a-major-commitment-to-ramping-up-inflation-soon.html
And finally, Powell himself began to lay it all out with his speech at the Fed's "Virtual Jackson Hole" conference on August 27. While not addressing the Yield Curve Control part of the equation, Powell made it abundantly clear that achieving price inflation was the Fed's #1 goal at present and that his Fed will be ready to employ all sorts of unconventional monetary tools to make it happen: https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm
Note
So let's cut to the chase. What are Powell and his Fed trying to tell you?1. They are desperate to spark inflation in order to manage the extreme level of U.S. debt and ongoing deficits.
2. They've made it explicitly clear that they will NOT raise the fed funds rate before 2023, even if inflation actually begins to surge.
3. "Conventional" monetary tools have failed to spark inflation in places like Japan. Therefore, the Fed will actively consider "non-conventional" tools.
4. Among the many non-conventional tools under consideration is Yield Curve Control. In June, the FOMC was briefed on the historical experience of YCC in the United States.
Will a formal policy announcement of Yield Curve Control come out of next week's meeting? Maybe. Perhaps Yield Curve Control is already in place and the Fed just hasn't told anyone.
Note that since March 27, the yield on the U.S. 10-year note has closed between 55 and 75 basis points on 101 of the 114 trading days. Stated differently, the yield on the 10-year note has closed between 55 and 75 basis points 88.6% of the time since March 27. If the Fed has already instituted a covert, de facto Yield Curve Control program, they certainly appear to have done a good job so far!
So listen closely to what the FOMC says—and doesn't say—next Wednesday. The trial balloons floated since June all suggest that major policy changes will be forthcoming and these changes will all be designed to drive higher inflation. Higher inflation with Yield Curve Control will lead to sharply negative real interest rates. And sharply negative real interest rates will lead to higher gold and silver prices.
Note
The need for precious metals is great. The need for financial protection remains.Prepare accordingly.
Stay safe and as always, keep stacking.
Note
Let me start with an apology, because there is nothing really new to say. While we got the sharp move down in stocks with the expected bounce now under way and the opposite in the dollar, metals and miners have been basically going sideways. The best example of this is Gold, lower highs and higher lows must come to some resolution one way or the other soon. The daily RSI says it all: it’s crawling along the neutral 50 mark. The MACD Line is almost back to zero too. Snoozeville! It also tested the 50-day moving average on Tuesday and bounced from there. This also just happened to match the previous low ~1910 in late August. The risk is that the weak hands that were late to the party throw in the towel and we get one more final plunge down to 1800, 1750, or possibly 1670. In order for that to happen, though, we need to see a conclusive break below 1910 with follow-through below the August 12 low of 1874. Until then, it could go either way.This sideways action could also be just consolidation before moving higher again. The extreme oversold and bullish conditions at the record high have been corrected. That said, for the bulls to take control, we need to see at least a break of 2000 again followed by the prior high of 2025. But ultimately it will take a new record high above 2089 to confirm that the bottom is in.
With respect to the miners, the previous support levels that I provided for GDX and SILJ remain intact. The initial support levels to watch in both are ~37 and ~13.40 respectively. A higher high above 43 in GDX and 16.50 in SILJ would suggest that the bulls are in control again.
I cannot provide any definitive view on the direction from here until we see either these support or resistance levels break. However, if stocks and precious metals continue to rise ahead of the FOMC meeting next week while the dollar drifts lower, the risk that the market is disappointed increases and those moves are reversed. What I can say with a far greater degree of confidence is that when the Fed, the U.S. Treasury, and/or Congress turns on the magic money machine again, Gold, Silver, and the miners are heading much higher. The destination is clear, in my opinion, but the route to get there remains in doubt.
We should get resolution one way or the other around the FOMC meeting next week. Until then, Stay safe and as always, keep stacking.
Note
FOMCFOMC left FFR unchanged at 0.00%-0.25% as expected and sees rates unchanged at least through 2023.FOMC also kept IOER unchanged at 0.10%, maintained the asset purchase schedule and stated it expects to maintain current FFR until the labour market has reached levels consistent with assessments of maximum employment and inflation has risen to 2% and on track to exceed that for some time.
FOMC stated that the Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and that with inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%, while the Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. Fed seeks to achieve inflation moderately above 2% for some time so it averages 2% and reiterated that the path of the economy will continue to depend significantly on the course of COVID-19. Furthermore, Fed’s Kaplan and Kashkari voted against the language used in the statement as Kaplan prefers that the FOMC retain greater policy rate flexibility and Kashkari prefers the Committee to keep rates unchanged until core inflation has reached 2%on a sustained basis.
Fed maintained projection for FFR to remain at 0.1% in 2020, 2021 and 2022 which was inline with the June forecasts, while the Fed median view was for rates to stay at 0.1% in 2023 but there were four dots above 0%, and it kept its forecast for rates in the Longer Run at 2.5%. Fed raised its Real GDP forecast for this year to -3.7% (Prev. -6.5%) but lowered forecasts for 2021 and 2022 Real GDP, while it lowered Unemployment Rate projections and increased PCE Inflation estimates for 2020-2022 although do not see PCE prices rising to its 2% target until 2023.
Fed Chair Powell stated that household spending has picked up from depressed Q2 levels, recovering three-quarters of the earlier decline and there are signs of improvement in business investment. Fed Chair Powell expects the economy to recover quickly now but slack in the economy later will put downward pressure on inflation, while he responded that he believes guidance adopted today is powerful when questioned on forward guidance and that effectively we're saying that rates will be very low until we're far along in the recovery. Furthermore, he noted that the Fed is not out of ammo and will remain highly accommodative until the expansion is well along and have a moderate overshoot of inflation for some time, but also noted that the lack of fiscal aid will eventually hurt the economy which remains a downside risk.
Note
White House Chief of Staff Meadows said a USD 1.5trln stimulus proposal might be acceptable to US President Trump and that he sees some encouraging signs from Democrats on the COVID-19 Health Bill. Furthermore, Meadows stated the White House wants to avoid using pandemic funds to bailout poorly run states and the biggest obstacle is money for state and local governments. (Newswires)White House is reportedly strongly signaling that it's willing to agree to a compromise USD 1.52trln COVID-19 stimulus proposal and that Senate Republicans should go along in order to seal a deal in the next week to 10 days. (Newswires)
US House Speaker Pelosi and Senate Minority Leader Schumer have invited the White House back to the table but stated that GOP's won’t meet them half-way, according to Politico's Sherman. (Twitter)
Note
US President Trump says he supports something like a plan for coronavirus relief proposed by bipartisan group, adds we are getting closer to a deal on coronavirus reliefNote
The next round of US stimulus as US President Donald Trump signaled that he would like to make a deal and he and his party will need to do so very soon to make any impact on the economy and sentiment ahead of the US election on November 3rd. According to sources, Trump is thought it be amenable to a larger package than the original $650 billion proposal from his party and could agree to something of twice that amount.Note
2 days before stocks and precious metals and miners dump and DXY tags 94 target.While we may see some ST reversals, I don't believe we're done yet.
Until we see "action" from the Fed, US Treasury or Congress.
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