Volatility Increases As Markets Worry About Higher Rates

Gold and silver markets gyrated up and down following the Federal Reserve’s policy meeting on Wednesday.

Fed chairman Jay Powell recommitted to keeping the central bank’s benchmark funds rate near zero. This, even as surging bond yields seem to be sending a market signal that rates need to move higher across the board.

Fed policymakers are insisting they won’t hike rates at all this year and most likely not in 2022, either. Powell vowed that accommodative monetary policy will remain in force until the Fed sees official inflation rates persist above 2% over an unspecified period of time – likely well into 2023.

Investors received Powell’s comments as dovish. But he offered up no specific program to tame the bond market. Bond yields continued to rise on Thursday, triggering something of a breaking point for some stocks and commodities.

The Nasdaq sold off hard yesterday, as did crude oil and other raw materials. Precious metals markets, meanwhile, held up relatively better.

Meanwhile, the impressive move in palladium represents a breakout from a trading range that had been in force for several months. A new all-time high is likely just ahead.

Will gold and silver markets follow palladium’s lead? Or will they succumb to pressure from rising rates and a breakdown in crude oil and other commodities?

Technically, gold remains oversold and has plenty of room to rally if a flight from equities triggers safe-haven buying. The other trigger which may coincide with a gold rally is a relief rally in the bond market.

Treasury bonds have suffered their worst drawdown in years. And while Treasuries may continue to be a poor investment long term, there is too much at stake for too many powerful interests to let yields continue spiking.  After all, the government’s debt management strategy depends on being able to issue trillions of dollars in bonds at negative real rates – a strategy that also happens to be a primary driver of higher gold prices.

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William K. 3 weeks ago Member's comment

That NFT craze is not new, it has just extended from the art world, where items sel for prices not related to their values. It indicates a rather hedonistic mindset coupled with an excess of wealth easily gotten. " Chasing after the wind, catching it, and feeding on it."to quote a verse in Proverbs.

And of course, the fools un the federal reserve will do nothing to displease their friends in Wall Street, such as avoiding inflation.

It may happen that there will come a "correction" of rather brutal proportions. Certainly painful for all of us.