The FOMC Opens the Door to a Higher Gold Price

February 1, 2019

By The Gold Report

Source: Rudi Fronk and Jim Anthony for Streetwise Reports   01/31/2019

Rudi Fronk and Jim Anthony, co-founders of Seabridge Gold, explain why they believe a new bull market for gold is about to commence.

Yesterday’s FOMC statement and the subsequent news conference with Chairman Powell removed the last significant headwinds for gold. We think that a new bull market for gold is about to commence.

Essentially, Chairman Powell trashed the Fed’s forward guidance of the last several years, which he had enunciated as recently as October, 2018. There is now no commitment to a forward path to “policy normalization” that has been the developing Fed narrative since ending QE in November, 2014, and its first of eight rate hikes in December, 2015. Over the past few years, this narrative has substantially strengthened the dollar and raised real interest rates, two factors that have traditionally translated into pressure on the gold price.


Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.




Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter






According to Chairman Powell, rates can go up or down and the balance sheet can expand or contract based on the economic data. We have now returned to Alan Greenspan’s data-dependency.

Why this sudden and far-reaching change in direction? There can be no other rational interpretation than the Fed’s fear of a stock market rout, which we got a taste of in December 2018. Powell argued yesterday that the Fed continues to believe that the U.S. economy is strong. For months now, the long end of the Treasury market has disagreed. He noted that “the case for raising rates has weakened” but provided no convincing economic data to support this claim.

Powell also stated that there is now need for “an abundant reserve” for the banking system compared to the past and that future interest rate changes would be administered by the Fed, not managed through changes in the quantity of reserves. He confirmed that the Fed had returned to use of the Fed Funds Rate as its main monetary tool.

We think the chairman knows that QE creates asset bubbles and that is why he was a firm advocate of policy normalization. By reversing field, he has proved what we have long suspected…that QE is another Hotel California: “You can check out any time you like but you can never leave.”

In our view, balance sheet expansion (more QE) is now more likely than more Quantitative Tightening despite the fact that we can now say with certainty that QE is strictly an asset bubble machine, not a support to the real economy. We will provide our evidence in following commentaries.

This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders. Disclaimer: The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.

Sign up for our FREE newsletter at: www.streetwisereports.com/get-news

Disclosures:
1) Statements and opinions expressed are the opinions of Rudi Fronk and Jim Anthony and not of Streetwise Reports or its officers. The authors are wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation. The authors were not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the authors to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
2) Rudi Fronk and Jim Anthony: we, or members of our immediate household or family, own shares of the following companies mentioned in this article: Seabridge Gold. We personally are, or members of our immediate household or family are, paid by the following companies mentioned in this article: Seabridge Gold.
3) Seabridge Gold is a billboard sponsor of Streetwise Reports. Click here for important disclosures about sponsor fees.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.