The Daily Market Report: Gold Poised for Solid Weekly Gain


USAGOLD/Peter A. Grant/03-17-17

Gold remains firm, poised for its first positive weekly close in three-weeks. The yellow metal rebounded smartly on Wednesday after the Fed announced policy and economic projections, extended higher yesterday and is maintaining the bulk of those gains today.

Minneapolis Fed dove Kashkari reiterated why he dissented on this week’s rate hike, noting that inflation remains below the Fed’s target and that slack in the labor market remains. He also said the Fed should come up with a plan to start reducing the balance sheet before raising rates further.

“I dissented because the key data I look at to assess how close we are to meeting our dual mandate goals haven’t changed much at all since our prior meeting,” said Kashkari. However, the FOMC statement specifically cited “realized and expected” inflation as a reason for the rate hike.

While the University of Michigan sentiment index (prelim) rebounded to 97.6 in February, the inflation expectations component tumbled to a record low! “[R]eal people’s expectations of inflation in the medium-term has collapsed to its lowest on record,” noted ZeroHedge.

In the latest massive setback for the Federal Reserve, which is desperate to break the recent “deflationary mindset” to have gripped the US population (see Japan for the results), long term inflation expectations declined to the lowest level since 1980: an annual rate of 2.2% was expected in the next five years, down from 2.5% last month and 2.3% in December. Just 6% expected long term deflation. These lows were supported by the fewest complaints of rising prices eroding their living standards—just 6%, the lowest since 2002 and barely above the all-time low of 4%. — ZeroHedge

That all seems a little incongruous to me. If the UM inflation data are to be believed, the risk of inflation is probably a lot smaller than the Fed would have you believe. So why is the Fed raising rates on alleged inflation concerns?

Read the FT article I posted earlier this morning entitled A blind spot masks the danger signs in finance. The gist is that in keeping rates so low, policymakers were perpetuating economic gloom and a “deflationary mindset.” In raising rates, they are perhaps trying to inspire some optimism and inflation. Think of it as some monetary policy jujitsu . . .

Either that, or there is a legitimate concern that inflation is brewing and may explode onto the scene at any moment. One explanation for how that might happen was proffered by our own Mike Kosares in the March newsletter. If you haven’t read his piece yet, I encourage you to do so:

Will banks’ excess reserves fuel a new monetary crisis? Don’t look now but inflation and a new gold rush might be in our future

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