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Demand for Gold ETFs Surge as "Not" QE Returns - Nathan McDonald (Oct 11, 2019)

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October 11, 2019

The Federal Reserve has cut interest rates twice this year in an attempt to spur the economy and keep the good times rolling.

Despite this fact, the markets are not happy. They have demanded more, and as it now appears, they will get exactly what they wished for.

The odds of an additional rate cut occurring within 2019 have surged higher, as market analysts overwhelmingly predict another cut soon.

The reason for this is that the Federal Reserve has proven they will not let the free market regulate itself, as seen in their recent intervention in the short-term lending markets throughout the month of September.

The Financial Times reports:

"In recent weeks, the Federal Reserve Bank of New York has injected billions of cash reserves into short-term lending markets to ease the pressures that bubbled up in September and sent the cost of borrowing cash overnight via repurchase, or repo, agreements as high as 10 per cent."

Despite these bailouts, the short-term lending markets are still seen as being on shaky ground and vulnerable to a repeat collapse.

This has prompted the Federal Reserve to take even further action, announcing that they would once again resume purchases of Treasury Securities from the open market in an attempt to keep the system chugging along.

At the National Association for Business Economics conference in Denver on Tuesday, Federal Reserve Chairman Powell explained how the Fed plans on supporting the markets moving further. However, he stressed that this should not be viewed as Quantitative Easing, stating the following:

“I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis.”

Reiterating this point, Powell would later go on to say:

“In no sense, is this QE,”

To anyone with half a brain, the above statement by Powell is pure nonsense, as this is obviously QE, whether the Fed wants it to be or not.

This recent softening by the Federal Reserve, in addition to the ongoing geopolitical risks that seem to be plaguing much of the world, has resulted in a massive surge into Gold ETFs, as market participants seek the protection that only the king of metals can provide.

ETF gold holdings reached an all-time high in the month of September, resulting in the longest run higher in holdings in the past decade—with the most notable being holdings within the UK.

 

The last time such demand for gold ETFs was seen was shortly after the 2008 financial crisis, which does not bode well for what may be coming over the horizon.

According to the World Gold Council, gold backed ETFs added 75.2 tons of metal to their holdings last month, bringing the total to 2,808 tons.

This surpasses the previous record set in 2012, when gold was at $1,700 per ounce, highlighting just how underpriced gold is at the moment.

Despite these warning signs, signals from the Fed, and the deteriorating geopolitical climate around the world, gold stubbornly remains around the $1500 USD per ounce level, struggling to break higher.

The year 2020 will be one for the record books, and I believe that anything could happen as we head into the U.S. Presidential Election, with political violence and uncertainty creating a powder keg-style situation.

These artificially-suppressed prices will not last much longer. The fundamentals for higher gold prices are inevitably going to win the day, and precious metals will surge higher as we head into an even more tumultuous and unpredictable next year.

Until then, enjoy these prices while you can, and as always, keep stacking.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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