by Samuel Bryan, Schiff Gold:
In his Gold Videocast earlier this week, Peter Schiff said the Federal Reserve will likely use turmoil in the markets following the Brexit vote as an excuse not only to renege on its much anticipated rate-hike, but to cut rates and launch QE4. In fact, Peter was saying the Fed would end up cutting rates in the near future long before Brexit.
Well, the mainstream is catching up with Peter’s thinking much faster than normal this time around, and some analysts are becoming more bullish on gold as a result.
As we reported earlier this week, mainstream talking heads are already discussing the possibility of a Federal Reserve rate cut on major media outlets. Now we have a long article in the Daily Mail making the case that the Fed will take a knife to interest rates and gold will benefit:
The prospect of Brexit, and consequent risks to the global economy, have traders thinking the formerly unthinkable — that rather than lifting rates, the Federal Reserve could opt to cut.”
Analysts aren’t just looking at a Fed cut. Many believe other central banks will move to further ease monetary policy post-Brexit. Bloomberg reported the Bank of England will likely slash rates in the near future:
Havens like gold and silver are in demand on prospects of weaker economies and lower yields on assets such as stocks and bonds, along with prospects central banks will act to support growth. Governor Mark Carney said Thursday that the Bank of England could cut interest rates within months as it tries to shield the UK economy.”
It’s also possible the European Central Bank and others will drop rates even deeper into negative territory.
As the Daily Mail pointed out, plunging interest rates during the financial crisis in 2008 was a major catalyst for gold and silver:
Ultra-low rates were a key factor driving the metal to record highs near $2,000 an ounce in the years after the 2008 financial crisis, and analysts say any expectations that the US will keep rates on hold or even cut them in coming months would be a further catalyst for a gold price rise.”
The article also made the point that precious metals prices can “whip-saw” in times of market volatility, but analysts say “the positive impact on gold of lower interest rates would likely lead to more stable gains for the metal than any uplift generated by market volatility.”
Of course, none of this really has anything to do with Brexit. As Peter has been saying, the UK’s vote to leave the EU was a “get out of jail free card” for Janet Yellen. Brexit will be the excuse, or the catalyst for rate cuts and quantitative easing, not the cause:
You know, she’s kind of boxed herself into a corner because she doesn’t want to admit how weak the US economy is, but then, she doesn’t want to actually raise rates. She keeps talking about the fact raising rates is appropriate because the economy is strong, but the reason she can’t raise rates is because she knows the economy is weak. And so, this gives her the perfect excuse. Now she can blame her failure to raise rates on Brexit and all of the turmoil that has resulted. In fact, she can even use this as an excuse to cut rates back to zero and launch QE4.”
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