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March Metals Update: What Happens If The Fed Raises Rates?

Spot prices and Technical Analysis:

After Yellen made her announcement, Gold made positive dollar gains five consecutive trading sessions in a row eclipsing $1200/oz. Silver shot up even more impressively reaching past the $17.00 mark from as low as $15.60 just a couple of weeks before. However, both metals have retreated slightly this week. Below is current snapshot of spot prices and their moving averages.

Gold: $1185.00 (-1.80)

Silver: $16.66 (-0.10)

Moving Averages based on NY Close

 

Gold

Silver

50 day

$1,221.25

$16.79

100 day

$1,209.50

$16.51

200 day

$1,237.70

$17.79

Market Commentary:

Janet Yellen's testimony on the 18th has defined much of this Month's trading. The word "patient" was removed from her official statements regarding a planned rise in the Federal Funds Rate. Setting aside the tragic reality of how every market seems hopelessly addicted to the dictates of the central bank for future direction and guidance, this most recent meeting seems to put the target date around June for an initial rate rise. At this stage the Federal Reserve finds itself somewhat forced to follow through on raising the rate given that is what the markets have come to expect. Deciding not to do so might create more uncertainty and instability in the financial community than otherwise. However, this puts the Fed between a rock and a hard place as raising rates could prove harmful to the market at large, not to mention harmful to their own balance sheet. I outlined the potentially harmful effects of a rate increase in my most recent commentary, Why the Fed Cannot Raise Rates.

While the Fed is a Central Bank and enjoys certain privileges that other private banks do not, at the end of the day it is still a bank and must appropriately manage its capital (make sure assets > liabilities), lest it lose its creditworthiness. If its creditworthiness should fall, then the assets and liabilities it owns will also suffer. The assets of the central bank are mostly government bonds and real estate mortgages. It's liability is the Federal Reserve Note, more commonly known as the Dollar.

As Peter Schiff has said countless times, the Federal Reserve, is driving the American Economy, and the global economy with it, off the edge of a cliff. The process began several decades ago, but we are now in the throes of a global economy mismanaged by Central Banks around the world. Whether it's Yellen in the US, Draghi in the Eurozone, or Shinzo Abe in Japan, economies and individuals are suffering under the rule of Central Banks and Central Governments.

Other Related News:

How Markets Are Calling Fed's Bluff: Ex-Fed Gov
CNBC • Mar 31, 2015

US Economy Stalled in First Quarter: Economists
CNBC • Mar 31, 2015

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