They say bells never ring when markets hit the top. But maybe they do and people just don’t listen.
Yesterday, Bloomberg reported China may slow or even stop its purchase of US Treasuries. In other words, a major source of US government debt financing may be pulling out. This comes at the same time the Federal Reserve has committed to shrinking its balance sheet.
In the weeks leading up to the December Federal Reserve rate hike, the price of gold fell and most mainstream analysts were bearish on the yellow metal. After all, rising interest rates are bad for gold. right? But we took a contrarian position, saying the negative relationship between rising interest rates and the price of gold is really more of a “sell the rumor, buy the fact” phenomenon.
As it turns out, we were right. In the weeks since the Federal Open Market Committee nudged the interest rate up another 25 basis points on Dec. 13, gold has outperformed most other major assets.
Stock market mania continues unabated. But in the latest episode of the Schiff Report, Peter Schiff warns that twin deficits may soon doom the stock market boom.
If we have a return of the twin deficits as a problem in 2018 – I’m talking about the budget deficit and the trade deficit – twin deficits. You know the last time that was a big problem? It was in 1987. What happened in 1987? We got a stock market crash. I know that was just over 20 years ago, but what was happening then reminds me a lot of what’s happening now. We had the stock market roaring. Everybody was confident. But people were overlooking these gigantic problems until they couldn’t overlook them anymore and then it ended in a spectacular crash.”
Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.
We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.
The December Federal Open Market Committee meeting went pretty much according to scrip.
Analysts widely expected the Fed to raise rates by .25. It did. Analysts also expected the Fed to signal three more hikes in 2018. It did that too.
The Federal Reserve is widely expected to nudge interest rates up again this week. Most analysts agree that the specter of a rate hike is one of the primary reasons gold has slumped over the last several weeks. But are rising interests rates really bad for gold?
The short answer is no. At least not historically