Yellow Metal Investors Once Again Turn Attention to Fed

In a February 28, 2017 speech widely regarded by analysts as heavy on rhetoric but light on substance, United States President Donald J. Trump reiterated the campaign promises that brought him to power without offering any plans for how or when he would deliver them. What was billed as a policy speech to lawmakers of both Republican-dominated Houses came up devoid of any specifics and had virtually no effect on metal or currency prices or the markets in general.

The Congressional address coincided with a three-day dip in gold prices but these marginal declines are directly attributed to the imminent decision of the U.S. Federal Reserve on interest rates. Market expectations of a rate hike have risen to anywhere from 50% to over 80% when the Fed’s Open Market Committee sits in mid-March. It is also scheduled to present a Summary of Economic Projections but there was precious little in Mr. Trump’s remarks that could put meat on the prediction menu.

Massive Spending Promises Remain

President Trump assured Americans that he intended to keep his promises, re-asserting his pledge to commit 1 Trillion dollars to infrastructure and find tens of billions for “one of the largest increases in national defense spending in American history” while leaving Social Security and Medicare fully funded and simultaneously providing “massive tax relief” for the middle class. While this is a very appealing vision for the future, there remains a distinct absence of a blueprint for achieving it.

Financial observers note that everything Mr. Trump brought forth in his early term address has already been factored into the price of the United States Dollar. The greenback, meanwhile, continues a gentle float upwards on speculation of an interest rate increase which, if it occurs in March, would be a second consecutive quarterly boost. The price of gold bullion correspondingly slipped, while other precious metals were seeing slight gains including palladium at a full point.

The Take-Away

In the short term, there was exactly nothing in the Trump speech from which to take direction. Focus returns to the Federal Reserve, with Chair Janet Yellen speaking to the nation’s economic outlook in Chicago. At least here, words could bring immediate consequences. If Ms. Yellen drops hints that another rate hike is in the offing, basic market expectations are that the dollar will rise. The FOMC deliberates on March 14-15 which is when action, if any, is taken.

In the long term, there is no change either, but for a much different and deeper reason. One of the world’s leading asset management experts points out that Mr. Trump’s generous spending plans and the Fed’s money policies diverge in no way from governments past and present, here and everywhere else. Board member Egon von Greyerz calls these strategies unsustainable, and predicts they will result in the virtual collapse of the world’s major currencies, quite possibly before the end of this White House term. That is why real gold trumps paper money.



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