Did “ Interest Rate Fears Trample Gold ” Last Week?

By – Mike Fuljenz

Last week’s Wall Street Journal featured a post-mortem on gold’s decline with the headline, “Interest-Rate Fears Trample Gold.” The two loaded words in the middle of that headline (Fears Trample) was somewhat inaccurate. The article said “Fed officials are debating when to raise interest rates, a move that would further diminish the case for owning gold.”  However, this “debate” is one-sided.  The Fed’s “doves” (who favor continued super-low rates) out-number the “hawks” by 5-to-1.  Some debate!  Yes, the hawks had their say, but the doves – led by the Queen of the Doves, Janet Yellen – will carry the day.

The Federal Reserve did NOT raise any fears of rising interest rates last week.  They seemed to bend over backward to say that they would delay any rate increases until a time of near-perfect economic growth, sometime in mid-2015 or later.  Here’s the specific evidence from public statements released last week:

First, the Fed released the minutes of its last Federal Open Market Committee (FOMC) meeting, which revealed that the majority doves were very worried about problems in the labor market.  As a result, the FOMC consensus was that the Fed should keep key interest rates low for “some time.”

Then, in her talk at Jackson Hole, Wyoming, Ms. Yellen said that the Fed would wait until U.S. economic growth strengthened before raising rates, adding this caution: “…if economic performance turns out to be disappointing and progress toward our goals proceeds more slowly than we expect, then the future path of interest rates likely would be more accommodative than we currently anticipate.”

She also said that we should not be fooled by the drop in the unemployment rate, since the labor market participation rate is so low.  She said that there is still a lot of “slack” in the labor market, so she asked Fed observers to be more patient in setting dates on when the Fed will eventually raise key interest rates.

So, please scratch these “high interest rate fears” off your list of things that could “trample” gold prices any time soon.

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