What to make of all this interest rate stuff?

Gold Survival Gold Article Updates:

19 March 2015

This Week:

What to make of all this interest rate stuff?
The Rule of 3 – 7 days to go
Gold miner bankruptcy – sign of the times?

Prices and Charts

	Spot Price Today / oz	Weekly Change ($)	Weekly Change (%)
NZD Gold	$1564.48	– $24.54	– 1.54%
USD Gold	$1173.20	+ $18.30	+ 1.58%
NZD Silver	$21.49	+ $0.11	+ 0.51%
USD Silver	$16.11	+ $0.57	+ 3.66%
NZD/USD	0.7499	+0.0231	+ 3.17%

Big moves in precious metals as well as in the dollar this morning. All because of one little word in (or rather not in) the Fed statement presumably.

We’ll come back to that after the charts.

The NZ dollar has been the biggest impact on prices this week.

With local prices of gold and silver falling while US dollar prices are up for the week.

Gold in NZ dollars has dipped down to its 200 day moving average as we thought it might. While in US dollars it got close to last years lows but then bounced sharply higher on the Fed announcement.

Silver did much the same…

But it was the NZ dollar bouncing a giant 2 cents from 0.7295 to 0.7499 that had the biggest impact on local gold and silver prices.

The US Dollar had gotten too popular so it’s not surprising to see it moving lower from here and the Kiwi bouncing higher. Although we think the bigger overall trend of a rising US dollar might still be in play for a bit yet.

So what caused all these sharp movements in exchange rates, stocks and precious metals prices?

From the mouth of the Fed head came the words:

“Just because we removed the word patient from the statement doesn’t mean we’re going to be impatient,”

What?

The Fed is no longer patient but they’re not impatient about raising interest rates either?

We’re not sure what the word for that is then. mid-patience maybe?

Don’t you find it hilarious how much importance is placed on these utterings?

But it seems the mainstream take away has been that the Fed is still a little way off raising rates. One article said:

“Liftoff suspended

A recent spate of disappointing US economic data, such as lower retail sales and consumer sentiment, has led some economist to call for a rate rise to be delayed even further.

“The Fed is in no rush,” said Ward McCarthy, chief US economist at Jefferies.

“At the current juncture, the timing of the liftoff is still indeterminate and will depend upon the inflation data. The policy statement eliminated the use of ‘patient’ in forward guidance, but the FOMC also described the new forward guidance as being “consistent” with the prior forward guidance.”

He added: “The word ‘patient’ was removed, but the meaning of patient remained.”

However we couldn’t find too many reasons given for why gold moved so sharply higher.

Here’s a CNBC article that was titled “Gold surges after Fed removes ‘patient’ from statement”.

However it makes no comment as to why the surge in gold occurred. In fact it just has commentary from a swiss private bank that is negative on gold:

“We have a bearish view, especially longer term, as the global economy is incrementally improving and growth risks are reduced, which means that there are simply fewer reasons to buy gold as a safe haven.”

But there is other data that is starting to point lower and show that the rest of the world is beginning to slide.

See this chart from BondVigilantes twitter feed:

As the chart shows historically this weaker economic data leads to rate cuts not rises. But no one in the mainstream expects this.

Adrian Ash from BullionVault makes a good point that:

“a small, one-off rise from zero is all the Fed might manage this summer. And losing its patience today…just as the data urge more cheap money for the cheap-money addicts…would certainly fit BullionVault’s in-house model of public policy. It’s based on nothing but irony and banana skins.

Either way, everyone says the end of patience…never mind a rate hike…would be awful for gold and silver prices. [GSG: this was written before the Fed announcement]

So just for the record, here’s what happened to Dollar gold prices last time the Fed boxed itself into raising interest rates….back to “normal” levels…after an “emergency” low.

Silver did the same. Only with bells on.”

That chart from the St Louis Fed shows that gold actually rose from 2004-06 when the Fed “normalised” rates from low levels after the 2001 tech crash.

So perhaps todays “surprising” rise in gold and silver is just doing what they did last time round?

Something else spotted by the National Inflation Association was that:

“The 15 FOMC participants who anticipate rate hikes to begin this year, project a median year-end Fed Funds Rate of only 0.625%. Only three months ago in its December 17th FOMC statement – those same 15 participants projected a median year-end 2015 Fed Funds Rate of 1.25%!

Over just the last three months, FOMC forecasts for the year-end 2015 Fed Funds Rate have been cut in half! The new projected year-end Fed Funds Rate of 0.625% would require a miniscule 2015 rate hike of only 50 basis points, which means the Fed isn’t serious about raising rates – and could soon change its mind and not raise rates at all!”