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Inflationist Yellen Takes Helm at Fed
Zero Percent Interest Rates Quietly Extended Indefinitely
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Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.
Welcome to this week's market wrap podcast, I'm Mike Gleason.
Well, the inevitable was made official this week. The U.S. Senate confirmed Janet Yellen to be the next head of the Federal Reserve.
Yellen will inherit a balance sheet that outgoing Fed chairman Ben Bernanke blew up by $4 trillion dollars. The Fed's assets are slated to continue growing by $75 billion per month under Quantitative Easing, and that's just the official number.
Even though the Fed will be trimming its monthly injections from the $85 billion per month it had been committing to buying government bonds and securitized mortgages, it isn't even pretending to back away from its Zero Interest Rate Policy.
Quite the opposite! In an under-reported move, the Fed actually loosened its interest rate policy at the same time it announced its so-called “taper.” The Fed vowed to keep rates near zero "well past the time" that the official jobless rate falls below 6.5%. Previously, policymakers had suggested that ultra-low rates would stay in place only until the unemployment rate falls below 6.5%.
The shift in language is a subtle admission that the official unemployment number drastically undercounts the actual proportion of the population that is currently without a job. Despite the fact that the unemployment rate has continued to drop, the labor participation rate in the U.S. is now at a 25-year low, a paltry 62.8% rate – a rate not seen since the stagflation era of the late 70s.
Across the Atlantic Ocean, it's a similar story. The European Central Bank on Thursday kept its benchmark interest rate at a record low. ECB President Mario Draghi warned of downside risks to the economy.
The currency markets were little changed following the ECB's announcement. On the week, the U.S. Dollar Index – and gold and silver prices – are all basically unchanged. Gold currently trades at $1,243 per ounce and silver is at $20.10, both getting a nice bump during the early trading session on Friday morning as we're recording this podcast.
Bigger picture, silver remains mired in a lateral trading range now extending into its 7th week. A strong close above the $20.50 level in the days ahead would signal an upside breakout, while a break below $19 could invite more technical selling down to lower levels of support.
Meanwhile, platinum and palladium are each up a little more than 1% on the week.
Ultimately, we expect silver to deliver the best returns if inflation fears reassert themselves. Incoming Fed chair Janet Yellen is well-known to be a dove who favors higher rates of inflation. In the near term, though, not much is expected to change in terms of Fed policy when Yellen takes the helm. So far throughout her career at the Fed, Yellen has never – not once – dissented on a rate-cutting or rate-raising decision.
But she has floated some unconventional policy ideas to try to stimulate the lower end of the economy – including negative interest rates. So far, the main beneficiaries of Quantitative Easing have been bankers and Wall Street.
In the past year, the stock market has been the favored outlet for the excess liquidity generated by the Fed. And, as long as that's the case, nobody seems concerned about inflation risks. But other countries are suffering under rapidly rising consumer prices. That's because other central banks keep inflating to keep pace with the Fed – as they don't want their currencies to strengthen relative to the dollar.
Eventually, rising consumer prices will come home to roost in the U.S. Total money supply has already gone through the roof. An uptick in money velocity is now all that's needed to suddenly make inflation a real danger. And by that point, the Fed will be behind the curve. During the last major inflationary episode in the late 1970s, the Fed kept raising rates in incremental steps but never got out in front of inflation until Paul Volcker jacked up the discount rate to 12% in 1979.
By that time, gold and silver had surged to record highs and managed to pile on more gains until they finally topped out in January 1980 once those extremely high interest rates restored confidence in the dollar. Rest assured, Janet Yellen is no Paul Volcker, and her policies could easily inspire a flight from the dollar rather than confidence in it. Time will tell.
In any event, with silver prices now at three and a half year lows, you have an opportunity to buy some solid inflation insurance on the cheap. Even better, through today, you can get as little or as much silver as you want fromMoney Metals Exchange for only 99 cents over the spot price.
No, not $4.50 over spot and waiting in line for weeks for delivery like you would for silver American Eagles – thanks to mismanagement by the U.S. Mint.
Instead, at Money Metals, you pay only 99 cents over spot per ounce on 10-ounce silver bars, and your order can ship right away. Plus if you spend at least $2,000, we'll pay the cost to ship and fully insure your order.
You heard that correctly: in addition to the 99 cent per ounce premium, we will ship and insure your entire order for FREE!
The deadline for these special discounts on silver bars is tonight. Order either online at www.MoneyMetals.com, or by phone at 1-800-800-1865, and we'll lock in your prices – including your steeply discounted premium. Whether you decide to buy 10 ounces or a few thousand ounces, you'll get today's extraordinarily low spot price AND these amazing low premiums, but don't delay because the deadline is only hours away.
Well that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar…with speed, with accuracy and with top notch service. Have a great weekend everybody.
Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.