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Gold and Silver Plunge as the FED Talks Taper

Saturday, September 20, 2014 12:53

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(Before It's News)

TND Guest Contributor: Nathan McDonald for Sprott Money Blog |

The FED may raise interest rates as early as 2015? Did the FED actually allude to this? Yes, they did. Do they intend to follow through on these words? I highly doubt it. That is, unless they’ve completely gone off the deep end.

Janet Yellen rocked the precious metals and stock markets around the world in the most recent FOMC meeting minutes. The main reason being the fact that they implied to pull the punch bowl from the market if, and this is a big if, the economy improves.

This announcement should shock no one. It’s simply more extend and pretend talk. People are missing the facts, there is a global slowdown. Even China can no longer keep pace and has announced additional QE. In light of this, what hope does the US economy have? An economy that virtually produces nothing, except inflation via fiat dollars.

Regardless of reality, the market reacted as expected. The smash in gold and silver has commenced and is likely to result in even more physical metals leaving the West and entering into the hands of Eastern investors, never to be seen again. Silver has broken through its important $18.50 resistance level, while gold is trending towards the $1200 mark. A significant discount from previous levels.

I encourage you all to read the official statement from the FOMC meeting minutes and decide for yourself:

Policy Normalization Principles and Plans

During its recent meetings, the Federal Open Market Committee (FOMC) discussed ways to normalize the stance of monetary policy and the Federal Reserve’s securities holdings. The discussions were part of prudent planning and do not imply that normalization will necessarily begin soon. The Committee continues to judge that many of the normalization principles that it adopted in June 2011 remain applicable. However, in light of the changes in the System Open Market Account (SOMA) portfolio since 2011 and enhancements in the tools the Committee will have available to implement policy during normalization, the Committee has concluded that some aspects of the eventual normalization process will likely differ from those specified earlier. The Committee also has agreed that it is appropriate at this time to provide additional information regarding its normalization plans. All FOMC participants but one agreed on the following key elements of the approach they intend to implement when it becomes appropriate to begin normalizing the stance of monetary policy:

The Committee will determine the timing and pace of policy normalization–meaning steps to raise the federal funds rate and other short-term interest rates to more normal levels and to reduce the Federal Reserve’s securities holdings–so as to promote its statutory mandate of maximum employment and price stability.
- When economic conditions and the economic outlook warrant a less accommodative monetary policy, the Committee will raise its target range for the federal funds rate.
- During normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the interest rate it pays on excess reserve balances.
- During normalization, the Federal Reserve intends to use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the federal funds rate. The Committee will use an overnight reverse repurchase agreement facility only to the extent necessary and will phase it out when it is no longer needed to help control the federal funds rate.
The Committee intends to reduce the Federal Reserve’s securities holdings in a gradual and predictable manner primarily by ceasing to reinvest repayments of principal onsecurities held in the SOMA.
- The Committee expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve.
- The Committee currently does not anticipate selling agency mortgage-backed securities as part of the normalization process, although limited sales might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public in advance.
The Committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.
The Committee is prepared to adjust the details of its approach to policy normalization in light of economic and financial developments.

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Nathan McDonald writes for Sprott Money Blog, part of Sprott Money Ltd., a leading precious metals dealer selling gold coins, silver coins and bullion bars online and over the phone. As one of Canada’s largest owners of gold and silver bullion, the company’s goal is to facilitate ownership of precious metals no matter how big or small the portfolio.