(USAGOLD – 6/10/2020) – Gold surged immediately after the Fed’s announcement that it would keep rates at the zero level through 2022. Though the 1.17% jump in the gold price was impressive, the 2.65% increase in the price of silver was even more telling – an indication that the markets were interpreting the Fed’s policy stance as potentially inflationary. “While further policy tools, such as yield curve control (the Fed buying certain maturity Treasuries to keep targeted rates suppressed) were not discussed in the policy statement,” reports Daily FX, “many market participants expect the Fed to move this into their toolbox in the coming months. Willingness from the Fed to keep the taps open on its current tools, such as the balance sheet and current funding facilities bolstered gold.” The uptrend got an additional boost on a comment from Treasury Secretary Mnuchin that the economy “definitely” needed additional fiscal stimulus directed at the most damaged sectors – retail, travel, leisure.
Here is what today’s action looked like on the one-day chart courtesy of TradingView (value lines expressed in percent):
“In the end, what this means longer term is that there will be fewer suppliers of gold futures contracts from here on out with bullion banks fleeing the scene. They don’t want to touch these contracts anymore. It’s too dangerous. Traders will have to bid higher to get them, and a lower supply of contracts means higher prices per contract anyway. My feeling is that the premium gap between the physical and paper markets is on the verge of closing in favor of physical, possibly within weeks now.”
