The markets capped off their worst week since a global rout in August – with pain felt across stocks, bonds, oil and currencies – as anxiety grows over a possible rate hike ahead of the Federal Reserve’s meeting next week. Until recently, that was about the same as Germany pays to borrow for a decade – which is absurd, right?
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“The hawks at the Fed want tighter monetary policy now, to prevent wage inflation taking off. They cite reasonably stable – though hardly robust – economic growth and a shrinking unemployment rate as evidence that the economy needs to have more normal interest rates”.
Treasury yields rise when prices fall and vice versa. The drop raised concerns that its weakness could weigh on the global economy. “A broad range between the high $US1,080s to $US1,030 is where we are going to see gold in the first quarter, starting towards the lower end of the range in a knee-jerk reaction to the Fed’s move and then grinding higher throughout Q1”.
Prices fell on Thursday as a stronger dollar reduced the appeal of the metal as an alternative asset, he said, adding that traders are expecting borrowing costs will be increased at the Fed meeting on December 15-16. With as much dignity as it can muster, the Bank of Yellen will reverse itself and implement some next round of stimulus. The repo rate is the rate at which the central bank of any country lends money to commercial banks.
The tumult has spread throughout the world’s 7 largest economy, leading to impeachment proceedings of Brazil’s President Rouseff and raising the risks of sovereign debt and political crises across South America – all with the current zero-rate policies of the Federal Reserve.
That strikes me as unsafe talk. If the Fed has even the slightest doubts about what policy might be required in, say, the second half of next year, it should stay on hold.
In an ominous sign, Third Avenue Management, a junk bond fund, said that it would liquidate its roughly $788 million in assets on Friday.
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Gold for February delivery on the Comex division of the New York Mercantile Exchange slumped $10.30, or 0.96%, to trade at $1,065.60 a troy ounce during European morning hours. The market is pricing in 2 to 3 more rounds of tightening next year so this possibility is not inconceivable.
