This is going to be an interesting day to see how the Federal Reserve manages its rate cut announcement coming in a few hours and how gold reacts to it. Jerome Powell is now a prisoner of the financial markets.
Remember a year ago when he talked about heading to a “normalization” of interest rates? He argued a year ago that the economy had finally gotten to the point where it could exit from the Fed QE style policies that had been in place since 2008.
But then the stock market dumped 20% and he had to make a 180 degree shift and become an easy money man. The move to “normalization” proved impossible, because the economy was not normal then and still is not now.
In essence after falling 20% last year the market rallied in the first half of this year to front run a coming cycle of declining interest rates.
That’s why the Fed has had to lower interest rates twice this summer just because the stock market fell a few percentage points off of its high and why it is now engaging in a new QE program it is not calling QE.
In July though when Powell did his first cut he said it was a “normal” economy again and that a lot of cuts may not be needed. That made some people think the Fed didn’t understand the situation so the stock market dumped on him after his first cut so he had to take all that talk away.
Fed Fund futures this morning say that there will be no cut in December so Powell must deliver a cut today and announce some sort of pause in a way that does not spook the markets like his talk in July did. He can’t try to say things are normal again.
In other words look for Powell to talk easy money and imply that the Fed will come in if the market falls or the economy goes into recession or the yield curve moves in a spooky way like it did in August instead of talk about everything being normal like he tried to do in July.
Right now a lot of people are still predicting a big crash for gold, because they had in their minds the gold rally of 2017 and decline that happened that Fall. Well if gold is really going to dump it will do it now. If gold rallies into the end of this week then the door will be slammed on these gold bears!
I think people should buy gold, silver, and mining stocks now, but most interested want to see it go up first as confirmation.
So if you want a signal to buy gold, silver, or the mining stocks watch the action going into the close today to see how the metals markets react to the Fed statement and see how it trades tomorrow too.
This is going to be an interesting day. The financial markets are not normal (don’t be fooled) and this is why the Federal Reserve has had to lower interest rates so many times this year.
I did an interview with Jim Goddard of www.howestreet.com about gold, silver, and the financial markets. To listen go here:
http://wallstreetwindow.com/2019/10/interview-gold-and-silver-update-mike-swanson-10-30-2019/
-Mike
