All eyes were on the US Federal Reserve this week as it met for two days.
Market watchers were wondering if the central bank might signal a move away from its easy money approach, and were speculating on what it could mean for gold.
Speaking ahead of the Fed’s meeting, Frank Holmes of US Global Investors (NASDAQ:GROW) told me he was not expecting any meaningful changes.
“I don’t see any changes. The stock market is acting still pretty resilient. I think it’s full throttle of printing money around the world — we’re talking about trillions and trillions of dollars. And you still have this pent-up demand, so therefore you’re going to have the perfect storm of inflation, and if you can borrow inexpensively you’ll be ahead of the curve” — Frank Holmes, US Global Investors
So what ended up happening after the meeting? While the Fed said that it will keep its benchmark interest rate near zero, it signaled that there could be two rate hikes in 2023.
The central bank has not made any decisions on ending its bond-buying program, and in terms of inflation, another closely watched topic, Chair Jerome Powell said in a statement that it could be “higher and more persistent” than anticipated.
“As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect” — Jerome Powell, US Federal Reserve
The reaction from gold has been negative so far. The yellow metal has steadily declined this week, falling below the US$1,800 per ounce mark on Thursday (June 17) from above US$1,860 on Monday (June 14). It was trading just above US$1,770 at the time of this writing on Friday (June 18). On the flip side, the US dollar and US 10 Year Treasury yields were on the rise following the Fed’s meeting.
With this week’s events in mind, we asked our Twitter followers if they think the Fed will be able to hike rates as potentially planned in 2023. By the time the poll wrapped up, less than 40 percent of respondents said they think it will be able to do so.
Taking a step away from gold, INN’s Priscila Barrera looked at the battery metals space this week, honing in on America’s efforts to pick up its pace in the electric vehicle (EV) race.
China remains at the forefront of EV uptake, and Europe is also gaining steam. The US is behind by comparison, with EVs accounting for only 3.1 percent of its car sales mix in the first four months of this year. That’s compared to China’s 8.6 percent.
“In the US and Canada, this is roughly a 3.1 percent penetration rate of EVs in the total sales mix. Meanwhile, China had a penetration rate of 8.6 percent in the opening four months” — Charles Lester, Rho Motion
The future may be brighter — the Biden administration has earmarked US$174 billion to “win the EV market,” although the experts INN spoke with emphasized that the country’s exact plans remain unclear. Some individual states have also made zero-emission vehicle commitments, but not all have done so.
Ultimately, the consensus seems to be that the US will face unique challenges in bringing EVs to the masses and needs to take a long-term view — not make changes to its plans between presidencies.
“We need a long-term perspective. The American industry and its stakeholders, investors and consumers … will do the rest to close the gap, but first we need some clear rules of where to go” — Srinath Rengarajan, Oliver Wyman
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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