It was a volatile week for gold and silver prices, which took a break from responding to geopolitical tensions to react to the latest US Federal Reserve interest rate decision.
As was widely expected, the central bank left rates unchanged at 3.5 to 3.75 percent. However, the move came with the most disagreements since 1992.
Gold ended the week at around US$4,615 an ounce, down from around US$4,700 at the start of the period; Silver fared better and closed at US$75.27 an ounce, where it started from.
Drawing more attention to that rate was the Fed leadership change. Jerome Powell’s term as chairman ends on May 15, meaning this week’s meeting was likely his last in the position.
Although there is some uncertainty over whether nominee Kevin Warsh will be cleared to take over, he did so this week voted through By the Senate Banking Committee. Now all that remains is for the Senate to approve it. This is expected to happen in the week of May 11.
But even if it goes smoothly, Powell won’t be out of the picture just yet.
He said this week he plans to retain his spot on the Fed’s board first time Since 1948 a Chairman has remained on the Board as Governor.
Powell’s decision stems from concerns about the Fed’s independence. US President Donald Trump has been critical of the central bank, and particularly Powell, because they have not lowered rates as quickly as he would like – something Trump has said would be in line with what Powell wants.
Powell also faces a Justice Department criminal investigation that it believes was motivated by the rate decisions. Although it was removed this week, he indicated that he would not leave his Fed board post until it is “well and truly concluded with finality and transparency.”
These circumstances are raising questions about what Wersch would actually be like as Fed chair, and experts I spoke to this week were willing to share their views.
Lynette Zang of Zang International said she was skeptical about how much change would occur:
“I was listening to Kevin Wersh in front of the Senate Banking Committee, and he said they have a different definition for price stability. And so my ears perked up, right? Because the current definition of central bank price stability is inflation running so slowly that the public doesn’t change their spending patterns. Rather, they borrow more to try to maintain their standard of living.
“So when he said, ‘I have a different definition,’ I was very curious what that definition was? And what he said was, ‘Prices rise so slowly that people don’t even notice.’ “That seems to be the definition to me.”
Gareth Soloway of VerifiedInvesting.com also echoed Warsh’s comments, saying his views on how to measure inflation are worrying:
“When he was testifying before Congress for his confirmation hearing, he[talked]about changing the way inflation is monitored, or changing how the numbers come out. In other words, what he was saying is that … the Fed needs to throw out any outlandish numbers. So let’s say oil goes up 30 percent or 40 percent in a month, his policy that he wants to set would be to say, ‘Okay. “We’re not going to factor it into inflation. We’re going to focus on keeping everything kind of stable.”
“It’s a concern, because as a citizen of the world and of America, this is not your real information about inflation, and we know that. And so I think it’s a little disingenuous.”
Going back to gold and silver, Zang and Soloway both expect higher prices in the future, but Soloway believes gold’s bottom has not yet arrived:
“The chart is telling me that we’re likely to get down to this US$4,300 level, maybe a small bounce, then we’ll break out to US$3,900. Will this be a bottom in gold or not? That’s a good question. I think there’s a possibility of a drop to around the US$3,500 level later this year, and at that point at least I’m already separated (where) I go to buy. I am holding a long term position.
“So again, I remain a long-term gold bull, which means if you look at government spending, and what’s going on in the world and the gradual devaluation of fiat currencies and the dollar – and maybe even gradual de-dollarization – then it makes sense for me to buy gold, although I want to make sure I get it as close to the low as possible on this pullback. And for me, that’s $3,500. Is.”
Bullet Briefing – UAE exits OPEC, Shell acquires ARC
UAE exits OPEC
As turmoil continues in the Middle East, the United Arab Emirates (UAE) announced this week that it will leave OPEC and OPEC+ from Friday (May 1).
The UAE, which joined OPEC through Abu Dhabi in 1967, has long signaled frustration with production quotas, saying they have limited the profitability of its oil industry.
Analysts estimate the country could produce 5 million barrels of oil per day, up from about 3.4 million barrels before the Iran war began.
Market watchers say the UAE’s move will limit OPEC’s ability to influence oil prices, which have been volatile since the start of the Iran war, and which spiked when news of the UAE’s exit was announced.
Shell to acquire ARC Resources
Elsewhere in the oil sector, major producer Shell (NYSE:SHEL) said plan to Get ARC Resources (TSX:ARX,OTCPL:AETUF) C$22 billion deal.
ARC is focused on the Montney Shale Basin, which spans the Canadian provinces of BC and Alberta, and produced the equivalent of 374,000 barrels of oil per day last year.
According to Shell, the purchase is expected to close in the second half of the year, and “will establish Canada as Shell’s stronghold.”
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Securities Disclosure: I, Charlotte McLeod, have no direct investment interest in any of the companies mentioned in this article.
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