In this article, I will explain exactly why gold and silver prices dumped to an interest rate cut, and why this immediate price reaction is irrelevant to the long-term price outlook for gold and silver. Yesterday, I discussed reasons why everyone that is making investment decisions should find the US Central Bankers interest rate decisions to their long-term strategies irrelevant. Ultimately, the feds cut Fed Funds interest rates by 0.25%, which would be expected to boost gold and silver prices on the surface level. On the surface level, it may be difficult to understand why gold and silver prices dumped to an interest rate cut. But once you understand the constant smoke and mirrors deception games played by Central Bankers, the price dump actually becomes very easy to understand.
So why did gold prices dump $25 from about $1,511 to $1,486 an ounce and silver prices dump by an even greater percentage (2.3%) from about $18 to $17.57 an ounce in the immediate aftermath of the Central Banker interest rate cut announcement? The simple answer is that the stew of deception cooked up by Central Bankers contributes to the resultant price behavior and not just one ingredient, like the interest rate cut, that goes into the stew. I have written in previous posts about how just a single word or two in the press releases can shift market asset prices by cumulative billions of dollars, so a logical question to ask would be if there was a significant shift in the language from the previous US Central Banker press release about their interest rate decision. The answer would be negative. The US Central Bankers continued to claim their intellectually dishonest “implications of the global development for the economic outlook as well as muted inflation pressures” as the impetus of yesterday’s interest rate cut, which was the exact same language they used to explain their interest rate cut that preceded the one announced yesterday. The reason I label this language intellectually dishonest is due to the following: Just because the US Department of Labor produces muted and false inflation statistics of 1.7% on an annual basis for the 12-rolling months ending in August 2019 does not mean that the real inflation rate is not at least 5-times higher than this reported “official” rate. In addition, though rising gold and silver prices for the last 12-months specifically out this inflation statistic as completely bogus (as rising gold and silver prices would not be happening at such a significant rate within the past 12-months if the real inflation rate of the USD was only 1.7%), since the reported official inflation rates have been outright lies for decades, this is not the reason why gold and silver prices dumped to an interest rate cut yesterday. So why did they dump?
Let’s keep searching. If we look at the Fed’s dot plot revealed yesterday it was reported as follows: five members were against an interest rate cut announcement yesterday, five were for it but against any further cuts for the rest of the year, and seven favored at least one more cut this year. Since the FOMC committee consists of twelve members, this means the majority of the committee favored at least one more rate cut later this year, which also should be favorable to gold and silver prices, so the dot plot reveals no explanation for why gold and silver prices dumped to an interest rate cut, at least not as of yet. In any event, the fact that market price behavior reacts so strongly at times and places so much emphasis on the dot plot is moronic in my opinion, for the simple reason that Central Bankers, as infamously revealed by former US Central Banker Alan Blinder, view their last duty as a banker to publicly tell the truth, including any information they release in the Fed dot plot. For example, though no mainstream financial journalists ever call out Central Bankers for their continual vomit of lies, I can easily illustrate how useless the dot plot is in aligning with reality.
Just last December the Fed dot plot predicted two more interest rate hikes in 2019, which would have meant that the Fed Funds rate would have increased to 3.0% at a minimum (it is now 1.75% to 2.00%). Then in March, the Feds dot plot revealed that they would likely abandon not just one, but both of the interest rate hikes in 2019 that they just stated would happen three months prior, but they STILL predicted that the Fed Funds interest rate would end the year at 2.40%, which obviously will not happen either.
And in every instance in which analysts criticize their language for being wildly deceitful, the Central Bankers always rebuke these criticisms by stating that these calls were merely forecasts that change as the data changes and were never promises that they would actually carry out their forecasts. In laymen terms, this means their forecasts mean nothing, so it is comical why market asset prices react so strongly to the Fed dot plot and why so many financial “journalists” write articles about the importance of the Fed dot plot. Maybe if these journalists removed their heads from their you know what, they would realize that the Fed dot plot is always intended only to move asset prices in their desired direction and not intended to give any hints into their actual actions in the future.
In any event, since the dot plot is irrelevant to what will really happen in the future, and I always dismiss it completely regarding my forecasts for future gold and silver prices as should everyone else, the problem is that everyone else does not. So, before I moved on from the dot plot data, I checked what the dot plot was forecasting longer term. Bingo! The dot plot forecasted that the Fed Funds rate would rise to 2.5% longer term. In addition, when I scoured the statement again for any other language that would have driven gold and silver prices lower, I found that US Central Banker chairman Jerome Powell indicated that yesterday’s interest rate cut should not be interpreted as part of a more aggressive strategy to keep cutting interest rates, which you know by now, based on the article I published yesterday, is a statement that I believe is another completely blatant lie. So, there you have it.
The reason why gold and silver prices dumped to an interest rate cut, and to a Fed Funds interest rate cut that should have been short-term bullish for gold and silver, was because of lies and propaganda spread by the US Central Bankers foolishly accepted as truth by HFT programs. Furthermore, the immediate price reaction of gold and silver to these lies is just another indictment against how AI development will forever ruin any chance of fair market pricing in the future if more and more trading is controlled by AI. Whereas lies of Central Bankers cannot fool an analyst like myself, these lies simply have to be spread via press releases and sent around the world to easily fool HFT programs that are programmed not to assess consistency of words and actions of Central Bankers, but merely to trade the language of Central Bankers. And if you were trading the language of Central Bankers and taking their word as bond for future actions, which I have already illustrated above should never happen, then you would also interpret the US Central Bankers press release yesterday as a reason to trade gold and silver prices lower. Thus, yesterday’s result was very similar to the numerous oxymoronic moves in banking stock prices I observed during the aftermath of the 2008 global financial crisis, when bankers parlayed a deceptive tactic over and over again to successfully game their share prices higher. They executed this game as follows. Bankers deliberately primed the market to expect massively horrible losses during earning seasons that they knew were not true, then unleash a “surprise” to the upside, though the earnings release still revealed huge losses. However, because the huge losses were not as massive as the market had been unrealistically primed to expect a few days prior by deceptive dishonest press releases, their bank share prices often rise significantly in the aftermath of reported giant losses, simply because the losses were not as horrible as expected. Likewise, yesterday, because Central Bankers released forecasts that they do not plan to continue cutting interest rates aggressively, HFT trading algorithms punished gold and silver prices because the expectations of future interest rate cuts were forecasted as being less than desired.
However, just read yesterday’s article on my blog if you want to understand why these games, even though they affect gold and silver prices in the immediate term, should never derail your long term wealth preservation strategies, with physical gold and silver as key pillars of this strategy. US Fed Funds interest rates are still heading back close to zero no matter the games being played right now. Review our exclusive patron only content here and subscribe to our free weekly newsletter here.