Gold and silver surge as new Fed chair speaks

Janet Yellen takes a definitively dovish tone in her first appearance to Congress. For the first time since last summer, precious metals have entered a new uptrend.

By InvestorPlace Feb 11, 2014 5:36PM

Image: Gold Bars (© Stockbyte/SuperStock)By Anthony Mirhaydari

The good days are back again. The Dow Jones Industrial Average is flirting with 16,000 again. The Federal Reserve chair is telling Congress that ultra-low interest rates will continue for the foreseeable future.

But now, as it becomes clear the Fed won't stop until inflation returns, investors are moving back into gold and silver for the first time since July. Here's why.

Tuesday, new Fed chair Janet Yellen, in her first appearance to Congress, sounded a definitively dovish tone despite indicating that the taper of the ongoing QE3 bond purchase stimulus would continue at a $10 billion-a-meeting pace. She noted that the labor market is far from healed despite a quicker-than-expected drop in the unemployment rate in recent months. She defended the Fed's extreme monetary policy experiments, saying they've clearly helped the recovery.

And she picked up the gauntlet from her predecessor, Ben Bernanke, in refocusing the Fed's efforts from bond-buying stimulus to a more amorphous concept known as "forward guidance" -- or pledging to keep short-term interest rates lower for longer.

To do this, she backed away from the Fed's 6.5 percent unemployment rate threshold that Bernanke had pegged as a level that the Fed would need to see before raising rates from near 0 percent -- where they've been since 2008 -- and refocused on other metrics such as long-term unemployment, those working part-time for economic reasons, and the fact that inflation is still rather low.

Long story short, Yellen's Fed isn't going to move on short-term rates until its preferred annual inflation measure moves to 2.5 percent versus its current perch of 1.1 percent. It's worth noting that this measure, which measures the rate of inflation on core personal consumption expenditures, hasn't hit 2.5 percent since January 2012. So it could be a while.


With the Fed telegraphing that it's not going to raise the price of money until inflation becomes a problem, investors are understandably refocusing on the inflation protection offered by gold and silver. The SPDR Gold Shares (GLD) is pushing above its upper Bollinger Band to an extent not seen since July.

Precious metals mining stocks, which started perking up on Monday, are taking flight. Just look at the chart of the Global X Silver Miners (SIL) as it goes vertical.

Precious metals and the related mining stocks represent a rare area of value in a market where valuations are no longer attractive and earnings growth is slowing. I've recommended SIL as well as Harmony Gold (HMY) and Great Panther Silver (GPL) among others to my subscribers. Since I added them to my Edge Letter Sample Portfolio on Monday, both SIL and GPL are up 5.1 percent.

More From InvestorPlace

Anthony Mirhaydari is founder of the Edge, an investment advisory newsletter, as well as Mirhaydari Capital Management, a registered investment advisory firm. As of this writing, he had recommended HMY, GPL, and SIL to his clients.

Tags: GLD
Feb 11, 2014 6:17PM
Gold and silver surge as new Fed chair speaks


Feb 11, 2014 5:52PM
Yellen has just strapped on her dildo and is about to go to town on the currency and the United States.
Feb 11, 2014 7:11PM
OK, the official debt clock number is well over 17 trillion. If the Fed raised interest rates to just 10% we would be liable for 1.7 trillion per year, right? Inflation will be well over 2.5 before an interest rate hike.
In fact, it is already too late for a hike. Happy days are here forever, assuming a lower quality of life means happiness.
Feb 11, 2014 9:01PM
Inflation is pegged at 1.1%??.....I must be shopping at the wrong stores, or maybe they mean in the last few minutes.
Feb 11, 2014 7:08PM
Of course gold and silver prices are going up......Congress just bowed to Obama on the borrowing authority so the value of the dollar was just guaranteed a swift kick in the **** to the floor.
Feb 11, 2014 7:33PM
Gold has been making a slow steady climb for the last couple of weeks. Is the nonsense coming from the Fed really the catalyst? QE3 pumped 85 billion per month and promises of maintained near zero rates. Gold dropped like an anchor. Rumors that physical gold bullion is short supply may be the truth. After all , Germany asked for a mere 20% or so of its gold bullion from the stock stored at NY reserve,but, we cannot give it back in good time,why? 
Speaking of Germany, Deutsch Bank has pulled out from the London Gold price fix. More rumors are flying that that investigation could make LIBOR look like small potatoes. Hmmm.
Feb 11, 2014 9:54PM
Maybe not a surge, but a nice rise....Hoping a longer sustained surge is on the horizon.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.