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When it comes to the precious metals outlook, there’s no shortage of optimism right now. You may remember I’ve previously referred to analysts and money managers who say explicitly that the gold and silver bull still has a long way to run. Typically, however, the best information about where an asset could be headed comes from the real corridors of power. The opinions of professional economic and financial observers certainly are valuable. But the opinions of those who have some actual control over the economy? Even better.
The thing is, sometimes the most helpful information about markets and assets comes from that which is left unsaid. It’s important to develop the ability to identify useful information even when what’s being discussed might not seem relevant at first.
Case in point: During a recent Brookings Institution webcast about the future of monetary policy, high-profile Federal Reserve Governor Lael Brainard said nothing about the precious metals outlook. Yet at the same time, she said a great deal about gold and silver. In fact, she “said” so much it’s safe to say those who’ve been wondering if the precious metals bull run is over should again be excited. Let me explain…
Zero Interest Rates Could Be Rule for a Long Time, Fed Governor Suggests
Brainard spoke about the direction of monetary policy in the pandemic’s wake. She made clear that America’s central bank will remain “all in” on the initiatives that have proven so energizing to gold and silver. For both current and prospective owners of gold and silver watching the metals trade sideways, the message comes at an important time.
But Brainard did not mention gold or silver or the precious metals outlook in her speech. She didn’t even make any indirect references to either metal. However, what she did say was every bit as relevant to precious metals as if she had spoken about them directly.
Among her remarks, Brainard declared that “with the recovery likely to face COVID-19-related headwinds for some time, in coming months it will be important for monetary policy to pivot from stabilization to accommodation.” Brainard added that “the next phase of monetary policy” involves providing “the requisite accommodation to achieve maximum employment and average inflation of 2 percent over time.”
Essentially, what she is saying here is that we will continue to see massive amounts of stimulus coming from the Federal Reserve. It is precisely the kind of stimulus that typically proves so beneficial to the precious metals outlook. And it’s exactly why Augusta spends a lot of time sharing information about the economy – gold and silver owners need to know these things.
Nothing of a material nature is expected to change with ongoing Fed accommodation, except for how that stimulus is packaged for public consumption. Up until now, drastic Fed assistance has been portrayed as necessary to save the economy. Now, that same radical Fed assistance is needed to fully restore the economy, according to Brainard.
Brainard opined the Fed should do what’s necessary to reach and maintain maximum employment and an average inflation rate of 2%. And it’s not the first time she’s said so. In February, Brainard said at the U.S. Monetary Policy Forum that the Fed should keep interest rates at zero until those goals are reached. MarketWatch’s Greg Robb noted at the time that such an approach “could leave rates near 0% for a long time. The Fed has yet to hit its 2% inflation target a decade after the 2008 financial crisis. And many economists don’t think full employment [following the financial crisis] has been reached either.”
All of this suggests we could be looking at highly accommodative measures as standard monetary policy for years. And it’s possible even extreme measures, such as quantitative easing (QE), could end up being tools the Fed uses regularly. It’s hard to see how such an environment could be anything but supportive of precious metals.
Precious Metals Becoming Retirement Savers’ Go-To in Lasting Zero-Rate Environment Says Analyst
Retirement savers should understand two key angles to the low-interest-rate agenda. The first is all the tools we likely can expect the Fed to implement to “support” the economy. These tools include unprecedented quantitative easing so extensive that eligible securities for Fed purchase now include even junk bonds. This contrived injection of mountainous cash piles into the monetary system could be very beneficial for the precious metals outlook.
And then, of course, there’s the second important angle of the low-interest-rate agenda: the likelihood that interest-bearing assets will offer real returns close to – or even below – zero. Retirement savers’ money can’t grow under those conditions and that would make alternative options such as gold and silver even more attractive.
Augusta Precious Metals senior economic analyst Devlyn Steele has said the global economic condition – both now and ongoing – remains extremely poor. So poor, in fact, that even a modest tightening of rates would cause a multitude of economies to collapse. “We are trapped in near-zero to negative interest rates and negative real yields,” Steele said. He identifies this ultra-low-rate environment as a reason why there’s a “great rotation” of money from traditional assets into gold and silver in play currently.
The Fed’s monetary policy agenda by itself could be very potent for the precious metals outlook. However, it’s only one side of the formula for a continued gold and silver boom. In her recent Brookings appearance, Brainard emphasized the importance of massive fiscal stimulus to revitalizing the economy. Such stimulus has also proven beneficial to gold and silver.
“While the virus remains the most important factor, the magnitude and timing of further fiscal support is a key factor for the [economic] outlook,” Brainard said. “As was true in the first phase of the crisis, fiscal support will remain essential to sustaining many families and businesses.” Translation: The government should continue on its path of record-level deficit spending. This is an effort that likely will include direct payments in a variety of forms to American citizens.
As long as the foundational drivers of precious metals remain in place, gold and silver should move higher over the long haul and the precious metals outlook should be good. According to influential Federal Reserve Governor Lael Brainard – who didn’t mention gold or silver once in her recent remarks – those drivers may well be here to stay.