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May 26, 2024
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Precious Metals

US Federal Reserve Signals Policy Shift, Precious Metals Rally

Federal Reserve Hints at Policy Pivot, Fuels Rally in Precious Metals

In a pivotal development, the U.S. Federal Reserve (Fed) has suggested its intent to alter its stance on interest rates, hinting at a transition from quantitative tightening (QT) to quantitative easing (QE).

Such a shift was implied in the recent post-Federal Open Market Committee (FOMC) press conference, steered by Fed Chair Jerome Powell. Powell’s remarks indicate that the Fed considers the present rate hikes adequate and is mulling over the timing and terms for future rate cuts.

A Response to Unseen Adverse Conditions

Experts believe that this potential shift by the Fed is a response to negative conditions within the banking and economic systems, conditions that remain undisclosed to the public. This belief is reinforced by actions such as the reduction of the Reverse Repo Facility and the initiation of the Standing Repo Facility. These moves are seen to increase liquidity in the banking system, a move that some interpret as a form of QE.

Impact on Precious Metals and Mining Stocks

The perceived pivot has triggered a significant rally in precious metals. Gold and silver have seen notable value increases, and mining stocks, particularly GDX, have experienced even larger surges. The prevailing sentiment is that this marks the commencement of a sustained bull cycle in precious metals. Mining stocks such as Cabral Gold and i-80 Gold have shown promising drill results, contributing to their rising stock values.

2024 Forecast: A Shift to Rate Cuts

The 2024 rotation on the Fed’s interest rate setting committee leans more hawkish than the outgoing 2023 group. Despite this, the expectation of a pivot to interest rate cuts remains unshaken. Powell’s signal of the Fed’s intent to commence cutting rates this year has sent bond yields tumbling, with markets pricing in rapid policy rate reductions starting in March. Economists predict as many as five quarter-point rate cuts this year. The US economy appears to be operating at a softer pace, with hiring and spending remaining robust. The absence of a recession, as inflation inches toward 2, suggests that the US economy is on track for a soft landing.

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