Thursday, October 20, 2016

Gold market overreacted to Yellen speech, Fed is pretending to be hawkish

Last week, the Federal Reserve held its annual summer retreat in Wyoming. During the visit to the Cowboy State, Fed Chair Janet Yellen stated that the case of a rate hike next month has “strengthened.” Meanwhile, Fed Vice Chair Stanley Fischer noted that a September rate hike will depend on August’s jobs numbers.

If everything is sound by September 20 then the Federal Open Market Committee (FOMC) will agree to a boost in interest rates, just the second time in the last decade.

One contrarian investor believes the gold market overreacted, while criticizing traders for not looking at the numbers.

Peter Schiff, president and CEO of Euro Pacific Capital, stated in a recent podcast that the United States central bank is just being hawkish in its talk. In fact, according to Schiff, the Fed is pretending to be hawkish in order to fool the markets.

He noted that whether the Fed goes through with a rate hike or delays action it will really have very little effect on the national economy.

“For a small person, Janet Yellen certainly casts a large shadow over the financial markets. Everybody was on pins and needles,” he said. “All the traders were there with their fingers on the buttons waiting to react to anything that Yellen said.”

Schiff said the stock market only cares about what the central bank will or will not do.

“Nobody cares what the numbers actually are. They only care about what the Fed is going to say about the numbers,” Schiff averred. “What they say, supposedly, indicates what they might eventually do. So, it all boils down to ‘what is the Fed going to do?’ Nothing is real. Nothing else matters.”

The bestselling author of “Crash Proof” and “How an Economy Grows” also provided an interesting point: a hawk is predatory, and in the central bank world, a hawk is a central banker with a strong view of sound money. The Fed clan can’t be described as those, Schiff said.

“When it comes to hawks with respect to the Federal Reserve, the bird is extinct,” Schiff stated. “They are all doves and the only difference is the degree of dovishness. The hawks are gone and are probably never coming back. Yellen was not a hawk, and neither was Stan Fischer.”

Markets are optimistic that a rate hike will happen within the next few months.