Gold turned rather volatile this morning, but earlier losses were quickly retraced after Janet Yellen began her speech in Jackson Hole. Amid persistent political and geopolitical tensions, along with a weaker dollar, the outlook for the yellow metal remains favorable.
Ahead of the Yellen speech at 9:41ET, a large sell order hit the futures market. Reportedly 2,868 contracts ($370M notional) were sold within one second. That knocked gold to a new low for the week at 1274.45. However, those losses were not sustained. As the Fed Chair began her speech. the yellow metal began retracing those losses and eventually re-approached the intraday high.
Yellen warned that memories of the last crisis “may be fading” and defended the regulatory reforms that came in the wake of that crisis. Reforms that the Trump administration is trying to walk-back.
Some analysts viewed the “passionate defense of the post-crisis regulation” as a swan-song of sorts. The suggestion being that it lessens the likelihood of her being reappointed when her term expires in February. In my opinion, it was a long-shot even before she made her speech today.
Months after predicting we won’t see another financial crisis in our lifetimes, she no longer seems quite so sure:
I expect that the evolution of the financial system in response to global economic forces, technology, and, yes, regulation will result sooner or later in the all-too-familiar risks of excessive optimism, leverage, and maturity transformation reemerging in new ways that require policy responses. — Janet Yellen
CNBC’s Steve Liesman interpreted this segment of the speech as Yellen warning that another crisis is “inevitable and regulators should be prepared.”
The notion that there is an absence of credit and liquidity is lost on me. Total household debt recent hit a record high, with individual components of student debt and credit card debt at records. Corporate debt is at (or near, depending on the calculation) a record. And then of course the national debt is butted up against the debt ceiling. Less regulation is just going to mean more debt, but it all seems so inevitable anyway.
Given the ever-growing debt load is only sustainable as long as rates are low and the dollar is weak. But even that does not preclude another crisis. However, this shakes out, a well diversified portfolio with a physical gold component is the best way to ride-out the storm.
Next up: Mario Draghi.