Much more news flow this week, some of it clearly timed for presentation and/or Core Shack presence at this years Cordilleran Roundup. The Roundup is the regional version of the PDAC, a technical rather than an investment show. It does attract some funds and analysts though and companies time news for it, as much for meetings held outside the conference as the conference itself.
Before commenting on news, I should comment on the outcome of yesterday's Federal Reserve meeting. I'll have a bit more colour and background in the next Journal but, for now, suffice it to say that the FOMC has helped strengthen the bullish move in gold that was already well underway.
The Fed left rates on hold, which surprised exactly no one. What made the gold market happy, and Wall St ecstatic, was comments that the Fed would be "flexible" going forward, which the market took to mean "no more rate increases until further notice". I read it the same way. Wall St got even happier when Powell, in his post meeting Q&A, said that the current rate of balance sheet reduction ("QT") was being studied and that the Fed was open to making changes in the balance sheet to meet ongoing economic conditions if they warranted a "looser monetary position than changes in the Federal Fund Rate could achieve on its own". That's Fed Speak for "we didn't raise rates as much as we should have when we had the chance, so if the economy really slows we'll dust off the printing presses and it's back to QE".
Wall St loved this message and equities soared. It clearly views this as a capitulation by the Fed, with the central bank acknowledging the supremacy of Wall and Broad. No one's ever accused Wall St of humility, but they have certainly been prone to hubris in the past, and we might be seeing another example now. Central bank cooperation should keep the rally on Wall St alive for a while, but I see this as a note of caution as well.
It doesn't seem to have occurred to traders that the Fed may not be doing this just because it loves them so much. It may be (and I think it is) also due to the Fed seeing storm clouds on the economic horizon. They are not obvious to most yet, but as I have noted several times in the past two months, forward-looking metrics have deteriorated rapidly. With a month of shutdown in Washington, there are a lot of January numbers still unavailable. The Fed may be privy to negative raw data the rest of us haven't seen yet. That could matter soon enough for equities, but I don't think it will matter for the gold market. We've just had a large move in the gold price that may need digesting, but the gold market wants higher, and it will drag silver along with it. If a slowing trend continues weighing on the US Dollar, it will just strengthen the trend in precious metals and help support base metals and other dollar priced commodities. I think odds are high we see more upward pressure in gold prices and a repeat of the early 2016 resource market looks more likely today than it has for many, many months. Let's have some fun.
January 31, 2019
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