Federal Reserve Chair Yellen Acknowledges Global Risks on February 10

Yellen Acknowledges Global Risks, Pushing Gold and Dollar Lower

(Continued from Prior Part)

Yellen’s testimony

Janet Yellen, the Federal Reserve Chair, submitted the semiannual economic report to the US Congress on February 10, 2016. Yellen testified that the global turbulence has significantly impacted the financial conditions in the US. The stock markets traded lower, the US dollar initially rose, and borrowing costs rose.

The rout in the oil market and the currency devaluation in China, the world’s second-largest economy, left the world’s stock markets in rough shape. With the monetary loosening in Europe and Japan amid this crisis, and with other economic risks emerging, gold has gained about 13.9% since the start of 2016. Silver also spiked about 11.5%.

The rise in gold and silver also lifted the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV) by 12.8% and 10.3%, respectively, on a year-to-date basis.

The Federal Reserve ended the zero rate era in December 2015 by lifting the federal funds rate by 25 basis points. Further, the Fed had planned four rate hikes to occur in 2016, but at a gradual pace.

Such rate hike sentiment negatively impacts precious metals, which bear no interest. Mining-based stocks Coeur Mining Inc. (CDE), Yamana Gold Inc. (AUY), and Randgold Resources (GOLD) also negatively reacted to the rate rise.

Dovish Stance

Although Yellen acknowledged the downside risks in the economy, she also maintained an optimistic view for the coming quarters. She expected the wage gains to accelerate as unemployment figures fell to an eight-year low.

She also asserted that the Fed policy-setting committee eyed an upward move for rates rather than down. Although the current monetary loosening by other major economies accompanied by global worries may push the hike out, the overall longer term outlook of raising the rates did not change much.

Overall, the scenario on the rate hike remains blurred, and the dovish stance gave a little movement to the precious metals.

Browse this series on Market Realist:

• Part 1 - Silver Still Shy of $15.50, Volatility Spiked

• Part 2 - US Dollar and Gold Retreated after Yellen’s Dovish Stance

• Part 3 - Gold Broke Its 5-Day Winning Trend on February 10