As was widely expected, the Federal Reserve has announced this afternoon it will be raising interest rates by 50 basis. This is the 6th increase this year but instead of 75 basis point increases, we got the 'soft pivot' the financial world has been trumpeting since FED Chair Jay Powell's comments earlier in November that rate increases may be lowered but put in place for a longer period of time.
This move mirrors the Bank of Canada's last two rate increases of 50 instead of 75 or 100 basis points, the most recent being last week.
Zero Hedge reports in an article published today that the terminal rate has dropped from 5.2% to below 4.8% Terminal rates are described as real rates catching up with inflation rates after which real rates are able to quell inflation. Are things starting to slow down?
High interest rates usually cause that sort of thing.
On another front, I'm keeping a close eye on precious metals at the moment in real time. Gold took a tiny dip right around the FED announcement and appears to be recovering. Gold has done extremely well since the beginning of November. Yesterday was a good day for gold as well, something to do with the latest CPI print, as shown in the Kitco chart below. Gold is now solidly back above $1,800 per ounce.
Silver's been doing great. Not that long ago, it was in the $17 range. It's already recovered from its very brief dip. By the way, the silver to gold ratio remains high, above 70:1. Higher interest rates coupled with high inflation, Hmmmmm, historically, that's been good for precious metals. It's done really well the last couple of days and is back in the $23 range after briefly breaching the $24 mark. The high silver to gold ratio could be presenting an opportunity as there is the very real possibility silver will jump higher into the new year (see 194 million ounce silver deficit).
You can see silver's reaction from yesterday's CPI print release in red. Silver usually acts in tandem with gold but often overshoots to outperform gold but is much more volatile than gold as it is also an industrial metal as well as an investment tool.
WTI crude has added about $2 per barrel since this morning.
Bitcoin added $34 since yesterday and is presently at $17,812.
While the USD Index jumped a bit before and after the FED's announcement, it remains range bound at 103.88 at time of writing.
While the news is still very fresh, we'll probably get a clearer picture in the next day or two of how markets react as the news spreads around the world. While today's rate increase is lower than previous hikes, it is still very damaging to emerging markets as it further weakens their purchasing power.
As a result, I see commodities such as gold and silver as safe havens against weakening purchasing power.
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