World Processes Janet Yellen’s Latest Speech

Anyone loading a gold spot chart this morning would have had their attention grabbed by the near 2% pop overnight. The catalyst was Janet Yellen’s dovish presentation on U.S. monetary policy at the Economic Club of New York overnight. 

A brief summary of the immediate impacts of the speech are as follows:

  • The U.S. dollar index significantly weakened 
  • 1.2% rise in the AUD to circa 76.42c
  • Gold price up by over $20
  • Oil down by approximately 2.3% marking the 5th straight day of declines
  • DJIA which started down by about 100 points closed up by about 100 points
  • NASDAQ up by 81 points
  • Most areas of US market did well with the exception of large banking stocks
  • Australian markets set for 33 point gain at open.

Despite falling short of specifically mentioning negative interest rates, Yellen confirmed that the Fed would introduce more bond purchases and swaps should the circumstances require such actions. Yellen then continued to acknowledge that economic conditions are currently somewhat more arduous than what seemed apparent to her only months ago and cited, as usual, global economic concerns as bottlenecks. Yellen referenced “considerable scope to provide additional accommodation” making reference to the ability to cut the federal funds rate to near zero in the face of “stubbornly low” inflation. Of particular interest to analysts was the statement “we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy; specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of long-term securities”. Ken Ford of Warwick Valley Financial Advisors stated that the ongoing anaemic global growth as the keystone of the speech will be ultimately bullish for gold in the long term as central banks continue to struggle with their diminishing effectiveness and credibility. Gold prices are up in the vicinity of 17% year to date.

A selection of commentary on the speech is provided below:

“This speech will presumably kill any speculation that the Fed might somehow raise rates in April” - Paul Ashworth, Capital Economics Chief Economist

 “Her comments were very dovish and the rate hike expectations are pushed towards the early start of 2017” - Naeem Aslam, AvaTrade Chief Analyst

“From a longer-term-trend perspective, gold may have turned the corner” - Ken Ford, Warwick Valley Financial Advisors President 

In summary, the remarks give weight to established bearish predictions from many alternative media figures such as Euro Pacific Capital’s Peter Schiff who has for some time gone on record stating that the Fed’s next move is likely to be QE4 by another name.