by Alasdair MacLeod
This week, both the Bank of Japan and the Fed announced their interest rate policies.
The BoJ came up with an underpinning of 10-year JGBs at zero yield, and the Fed came up with, well – nothing. Except, the FOMC reckoned long-term real GDP growth was likely to be about two per cent, rather than previous hoped-for rates of three or four per cent.
That bit of the FOMC statement didn’t get much publicity, but it represents the Fed throwing in the towel on monetary policy. Japan has no more significant policy tweaks either. So what we are seeing is an admission that interest rates will have to be kept at zero and negative respectively for a prolonged period of time, because neither central bank really knows what else it can do.
Gold and silver had begun to rally ahead of the interest rate announcements, and following the Fed’s on Wednesday night, gold jumped 2%, and silver by 4%. Silver in particular has had a good week, with the dollar price rising from a low of $18.78 to a high yesterday (Thursday) of $20.07, up nearly 7%. This morning it had eased to $19.80 in early European trade. Gold rose from a Monday low of $1309.5 to a high of $1343.7 yesterday, a rise of 2.6%.