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.


021114GLD


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
13Comments
Feb 11, 2014 6:17PM
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Gold and silver surge as new Fed chair speaks

THAT TELLS YOU HOW MUCH CONFIDENCE THERE IS IN THE U.S. $$$$$$$$$$$$$$$$$$$$

AND THE NEW FED CHAIR
Feb 11, 2014 5:52PM
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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
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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
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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
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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
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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
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Maybe not a surge, but a nice rise....Hoping a longer sustained surge is on the horizon.
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