Share:

‘Taper’ talk from the Federal Reserve is back in focus. But for now, it’s all talk and no action.

Last week, former New York Fed President William Dudley said the central bank will begin the process of tapering – winding down its monthly asset purchases – by year end.

While echoing current Fed policymakers’ position that the recent spike in prices is “transitory,” Dudley acknowledged the likelihood of inflation persisting above 2% longer term.

“I think in the long run, are we going to see inflation... above 2%,” he said. “I think the Fed is going to succeed in doing that."

The latest Consumer Price Index report due out on Thursday could be a doozy. The CPI is likely to come in even hotter than last month’s 4.2% annual increase.

The Fed may be forced by inflation realities to start tapering sooner than it (and Wall Street) would like.

Some Fed watchers are eying the August Jackson Hole gathering of central bankers as a potential time and place for officials to signal strongly on tapering.

A “taper tantrum” redux could roil markets heading to the fall.

Back in May 2013, then Fed chairman Ben Bernanke announced plans to taper the Quantitative Easing program. It was only words at that point, not action. Nevertheless, the stock and bond markets responded by throwing a tantrum marked by a spike in Treasury yields.

Gold prices also sold off, although they had been in a downtrend in the months prior to the Fed’s taper talk. The gold market finally bottomed out in late 2015 at $1,050/oz.

This time around, Fed Chairman Jerome Powell will undoubtedly tread more carefully when it comes to announcing any move toward curtailing bond purchases, i.e. monetizing the federal debt with new money creation.

More importantly for the outlook on precious metals markets, this time around inflation pressures are much more acute.

The pressures on the Fed to help facilitate record-high government borrowing at artificially low rates are also much more pronounced today than they were a few years ago, when budget deficits were much lower.

Gold and silver markets tend to thrive on negative real interest rates. With inflation running over 4% officially and the 10-year Treasury yielding under 1.6%, rates are deeply negative in real terms across the entire yield curve.

Precious metals markets are also on a more bullish technical footing than they were in 2013 – two years removed from major tops in 2011.

Silver, in particular, put in an historically significant low during the depths of last spring’s COVID lockdown panic and now appears to be in the early stages of a major bull market.

‘Taper’ talk from the Federal Reserve is back in focus. But for now, it’s all talk and no action.

Last week, former New York Fed President William Dudley said the central bank will begin the process of tapering – winding down its monthly asset purchases – by year end.

While echoing current Fed policymakers’ position that the recent spike in prices is “transitory,” Dudley acknowledged the likelihood of inflation persisting above 2% longer term.

Meanwhile, a de-dollarization process is proceeding on the global stage, led by China, Russia, and other countries eager to ditch the U.S. currency. Some countries are embracing cryptocurrency while others are acquiring hard currency.

The Russian National Wealth Fund announced last week it will dump its U.S. dollar assets and increase its holdings of gold.

Investors who considering tapering their precious metals holdings ahead of potential Fed tightening may wish to reconsider.

Although Fed-driven volatility in metals and other markets is possible, officials are in no position to take significant action on interest rates that would make U.S. fiat dollars a compelling alternative to sound money.

Share: Feed news

Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content

Editors’ Picks

EUR/USD stabilizes above1.0800, looks to post weekly gains

EUR/USD stabilizes above1.0800, looks to post weekly gains

EUR/USD continues to trade in a tight channel above 1.0800 in the second half of the day on Friday, as the improving risk mood makes if difficult for the USD to gather strength. The pair remains on track to snap a five-week losing streak.

EUR/USD News

GBP/USD clings to modest daily gains above 1.2650

GBP/USD clings to modest daily gains above 1.2650

GBP/USD trades in positive territory above 1.2650 in the American session on Friday. The bullish opening in Wall Street doesn't allow the USD to gather strength and helps the pair stay on track to close higher for the fifth consecutive day.

GBP/USD News

Gold holds steady above $2,020 as US yields edge lower

Gold holds steady above $2,020 as US yields edge lower

Gold regained its traction and stabilized above $2,020 after falling below this level during the European trading hours. The benchmark 10-year US Treasury bond yield is down nearly 1% on the day below 4.3%, allowing XAU/USD to keep its footing heading into the weekend.

Gold News

Ethereum price risks decline as increasing exchange supply raises chances of profit taking

Ethereum price risks decline as increasing exchange supply raises chances of profit taking

Ethereum price crossed $3,000 several times this week but the altcoin failed to sustain above this key level, raising concerns regarding its price trend. ETH price faces the risk of decline as the supply of the altcoin on exchanges is on the rise. 

Read more

Up go stocks, down go bonds

Up go stocks, down go bonds

We knew that yesterday was going to be a good day – at least for the stock markets, given that Nvidia defied the expectations that it would - maybe – fail to deliver $20bn sales in the latest quarter. 

Read more

Majors

Cryptocurrencies

Signatures