The Federal Reserve announced yesterday that it raised the "discount rate" by 25 basis points to 0.75%. This move was meaningless because very few institutions use the Fed's discount window, in comparison to more widely used overnight lending. The current balance of discount window borrowing is only $14 billion, compared to the $1.1 trillion in excess reserves currently being hoarded by banks.
By the Fed raising the discount rate but not the overnight federal funds rate, they are clearly trying to talk up the U.S. dollar and push down gold and silver prices, without reducing the supply of cheap credit. Considering that gold and silver prices rose slightly yesterday following the Fed's announcement and held strong today, it is our belief that the market is calling the Fed's bluff and beginning to realize that artificially low interest rates are here to stay.
Many people forget that gold's bull run from $35 to $850 per ounce during the 1970s came during a time of rising interest rates.
Sure, they're talking their book. Who doesn't? Before you discount what they say, though, you might want to read the full article here. Then, before you dismiss them, try to find the flaw in their data or their reasoning. If it's there I'd love to hear about it!
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