Silver as an investment

G30 Banking Seminar 2017 and Gold / ARKADIUSZ SIEROŃ / OCTOBER 18, 2017

On Sunday, there was a meeting of international central bankers. What does it imply for the gold market?

After a week of meetings between the World Bank and the IMF, there was the G30 banking seminar. The group of speakers included Janet Yellen from the Fed, the ECB Vice President Vítor Constâncio and Bank of Japan Governor Haruhiko Kuroda. Yellen sounded hawkish, as her “best guess” was that consumer prices would soon accelerate after a period of surprisingly soft inflation. Even though at the last FOMC press conference Yellen admitted that subdued rate of inflation was “a mystery”, she stated during the meeting that “these soft readings will not persist” and that “the ongoing strength of the economy will warrant gradual increases”. Importantly, both the ECB and Bank of England officials echoed Yellen’s remarks. Only Kuroda was an outlier, as he remained a dove due to the lack of decisive inflationary pressures in Japan. He said: “achieving the two percent price stability target is still a long way off and the Bank of Japan will persistently pursue aggressive monetary easing.”

What does it all mean for the gold market? Well, on one hand, not necessarily good things. A dovish Bank of Japan and hawkish Fed imply a stronger U.S. dollar against the Japanese yen. This is bad news for gold prices. However, the Bank of Japan is an outlier. The ECB and other banks, such as the Bank of Canada or the Bank of England, either already started to tighten or are going to normalize their monetary policies soon. The narrowing divergence in monetary policies should be positive for gold prices, as the Fed will not be the only hawk in town anymore. But there is one caveat: the narrowing divergence results from a synchronized global economic expansion. The improved global economic outlook is not good news for the gold market. This is why investors should always look at the broader macroeconomic context.


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