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Posted by on Aug 29, 2016 in Market Insight

Fischer Moves Markets More Than Yellen

Fischer Moves Markets More Than Yellen

August 29, 2016

Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.

The US Dollar has rather obviously soared since Friday but almost nothing that Dr. Yellen had to say Friday was and/or is responsible for the dollar’s strength for quite honesty while she was speaking the dollar was falling. She said of course that rates would likely rise but she gave no concept of when or by how much. Her comments were even blander and less interesting that any of us might have expected them to have been.

However, when Dr. Fischer, the Fed’s Vice Chairman spoke, to our friend Steve Liesman on CNBC later in the day on Friday suggesting that rates were going to rise more swiftly than most in the market had thought likely the dollar rose, and it rose and rose some more. It has risen even more in Asian dealing overnight and has refused to sell down from its best levels. It is fascinating then that having waited with obvious bated breath for Dr. Yellen’s comments, it was not hers that moved the market but were instead those from Dr. Fischer.

Dr. Yellen’s comments made it reasonably clear that the Fed’s next move shall be to raise the overnight fed funds rate and to put some other policy actions upon the table for further discussion, but it was Dr. Fischer’s comments on CNBC that pushed the odds of a rate increase at the impending September FOMC meeting from effectively non-existent previously to something closer to 40-60 against. Dr. Fischer also made it clear that although a November rate increase is unlikely, one in December is a very, very real possibility.

Turning to the precious metals, Friday was one of the most volatile days we can remember with gold falling a few dollars as Dr. Yellen’s comments were first leaked to the market’s attention; then gold soared, with spot gold rising to $1342 or nearly twenty dollars/oz. higher, before peaking and then quietly but steadily falling all session long as the remarks by Dr. Fischer were made public. Spot gold closed hard upon its lows for the day in late New York dealing, as did silver and as did both platinum and palladium. At its peak, Gold/EUR traded to €1185 and closed at €1176.  It shall take a movement upward through €1185/oz. today or tomorrow to truly turn the market’s technical circumstances to the better.

Moving on, the Gold Bugs are trying to make much of one of the comments made by former Federal Reserve Bank Governor, Kevin Warsh. He said, in an editorial in The Wall Street Journal that The Fed often treats financial markets as a beast to be tamed, a cub to be coddled, or a market to be manipulated.

The emphasis upon the notion of manipulation is ours and although the “Bugs” make much of this, believing that this is an admission by a former Governor of manipulation even into the gold market we hold that this is simply an admission of that which is obvious: that the Fed “manipulates” the overnight fed funds rate, as it always has and as it always will but little else. The Fed has the ability… and the intention… to manipulate only this shortest term interest rate. Mr. Warsh is simply acknowledging that fact. He had nothing to say about gold, nor should he have.

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