This quick change in course occurred on Tuesday, as the Federal Reserve, led by Chairman Jerome Powell, held an unexpected emergency meeting in which they slashed rates by 50 basis points, making the new effective Fed funds rate 1.0 - 1.25%.
What is most shocking in this unexpected move was that it occurred just weeks before an already scheduled, planned Fed meeting, which was set to take place on March 17th-18th in Washington.
This meant that the Federal Reserve felt that this emergency rate cut was needed right now and that they could not wait a mere 12 days! Think about that for a moment.
The Federal Reserve, along with other Central Bankers around the world, like so many others have been completely caught off guard by the rapid spread of the
New cases appear on a daily basis, with some countries such as the United States taking emergency action, hoping to contain the virus before it is too late.
Pushing for further rate cuts, President Trump, in typical fashion, took to Twitter to berate the Federal Reserve, calling for a further slashing of rates.
I personally believe that he is going to get his wish, as the Federal Reserve knows now the economic damage that is going to erupt due to the spread of the coronavirus , as supply chains around the world begin to feel massive disruptions in the months ahead.
In addition to this, sectors of the economy, such as those related to hospitality, travel and leisure are going to be crushed if this virus is not contained soon, as many people are going to simply put off unnecessary travel and expenses, creating a spiralling, self-fulling prophecy that will result in a major economic recession.
The Federal Reserve in this case is going to have no choice but to slash rates, over and over again, moving into negative interest rate territory, such as those seen in the European Union and Japan.
Unfortunately for those countries, they have no room to move lower, as their rates are already in unchartered territory.
However, other Central Banks around the world will follow suit, joining the Federal Reserve in their crusade of lower and lower interest rates, attempting to prop up their economies.
In addition to this, Central Bankers will enact massive stimulus programs, that could possibly even dwarf that of the 2008 crisis, sending their printing presses into hyperdrive .
Those who cannot cut rates, such as those previously mentioned, due to already being in negative territory, will simply print even more fiat money.
(Chart via goldprice.org)
Gold bullion appears to be well aware of this possible future scenario as well, as it is now being bought hand over fist, moving up a stunning 1.68% in today's trading session alone.
This puts gold bullion up 5.35% over the past 30 days and up 27.72% over the last year.
These are huge gains and once again prove that in a time of unfolding crisis, gold bullion is the same safe haven asset that it has been for thousands, upon thousands of years. Offering much needed financial protection in a time of need.
Meanwhile, in the same time period, stock markets have corrected by over 10% in the last 30 days, which are truly stunning losses for anyone who has just lately come to the party.
Will we see further drops in the market, or have the weak hands already been flushed out? Sadly, I believe that the market is so overbought and so inflated at the moment, that we have only seen the tip of the proverbial iceberg, with additional, huge corrections yet to be seen.
This prognostic is further reinforced by how the markets responded following the Fed's "shock and awe" emergency meeting that took place on Tuesday.
After lowering rates in an unexpected fashion, the expected result would of been a rally in market prices, correct?
Well, sadly for the Federal Reserve and many other market participants, the exact opposite occurred, as the DOW Jones dropped 2.94%, the S&P 500 plunged 2.81% and the NASDAQ followed suit, falling 2.99%.
(Charts via google.com)
And even though some of these losses were earned back during Wednesdays trading session , they were then completely eradicated throughout Thursdays trading session, with the S&P 500 dropping a stunning 3.41% and the DOW Jones 3.47%, at the time of writing.
At this point, anything is possible and the future is widely unpredictable. The markets hate this, as uncertainty will lead to wild gyrations in the price of stocks as we move forward.
Meanwhile, I believe that anything is now possible for the price of gold as we head deeper into 2020 and as the threat of the
I believe gold at $2000 an ounce at this point is a very likely target, the only question is, how fast will it reach it?
- As first seen on the Sprott Money Blog
