Gold, the Dollar and the Fed. Fortunes Made and Lost?
Are some making mega-gains on positive and negative statements by US Fed insiders? The gold price—and that of the other precious metals—yoyos on successive hawkish or dovish statements on interest rates by Fed officials.
Precious metals price movements could be predictable, given Wall Street’s obsession with the effect of even a 25 basis point interest rate rise on precious metals prices. The prospect of higher interest rates has an immediate effect on the markets, driving the dollar up and precious metals prices down. This was obvious following last week’s action after a procession of hawkish statements from FOMC Board members and regional Fed heads.
These statements raised the perceived odds of a March FOMC meeting rate increase from around a 20% level to over 80% in just a few days. Any knowledge of such a move could have had a huge financial effect for those in the know.
Advance leaks can affect those in a position to take advantage, either directly or by informing friends on Wall Street. The financial sector is packed with those who would happily take advantage of such leaks.
Williams discusses a moratorium on statements by Fed insiders; Fed Chair Janet Yellen’s statements; and the Fed’s forecasted interest rate raise in March.
Despite the pros and cons of interest rate increases, the Fed has painted itself into a corner with respect to a March increase. Whether gold has taken the likelihood of a rate rise into account remains to be seen. Williams expects a fall in the gold price, albeit a short-lived one. Past patterns suggest a knee-jerk fall in price when such decisions are made, with those who would like to see the price lower climbing into the paper gold markets to push it down.