Loose monetary policies on the horizon

As noted May 22, “the odds are that the Fed will next cut interest rates.”  While there have been no rate cuts, Fed Chair Jerome Powell has made statements that indicate rate cuts this year.  Also noted: “gold should respond well.”

Gold was stuck in the $1275 range but now is trading above $1345, a $70 move in less than three weeks.  The metals respond well to easy money policies, and they should.

However, with the fed funds rate at 2-1/4 – 2-1/2 rate, there is little room for the Fed to operate.  So, next is fiscal policy, or more deficit spending, probably on domestic projects so that the money flows to middle America.  The Fed’s buying of $4 trillion of bank assets sent money to Wall Street, which, as David Stockman says, is now a casino.

Perhaps, though, the Fed is talking about lower rates to fillip stocks.  To many analysts, the Fed seems to be more concerned about a falling stock market than the economy.

Then again, with only 2-1/2 points to operate with, maybe the Fed will experiment with negative interest rates.  Many German government bonds have traded with negative returns for years because of massive buying by the European Central Bank.

If the Fed goes with negative rates and reaches its goal of 2% inflation, the real rate of return becomes even more negative.  Then still more money will flow to the metals as they over the last three weeks.

Silver has not responded as well as gold because the sophisticated (supposedly smart money) goes first to gold.  As it becomes more evident that the Fed and Congress are embracing loose monetary policies, silver will catch up.

Check out the new kilo silver bars, which sell at the same premium as new 100-oz silver bars.