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In a new twist on the ongoing Federal Reserve interest rate debate, there are now conflicting signals coming from the U.S. central bank. This week Chair Janet Yellen will have the opportunity to clarify where they stand on the future of the benchmark rates in the United States. In the back of her mind will be continuing problems with the Japanese economy, the Greek crisis which has not ended, and even ongoing terrorism concerns in Germany and France. The case for gold continues to be made by all of these events and the upcoming Asian festival season as well.
All Eyes on Annual Jackson Hole Summit to Clarify Fed Interest Rate Position
The Fed members have been sending mixed signals lately regarding when they will attempt to raise interest rates. On Sunday, Stanley Fischer the number 2 policy maker delivered comments that the Fed is nearing its dual mandate targets of two percent inflation and full employment. He did not wade into the debate on when the central bank would increase the interest rates in his remarks.
Last week, important member William Dudley, the President of the New York Fed, claimed that it would be possible for the Fed to raise rates at its next meeting in September. Despite this more hawkish comment, the market is not buying it. The Fed Futures Fund rate is showing approximately a 50% chance of a rate increase for the December meeting. The markets are seeking clarity on where the Fed really stands on the issue. The task of providing it falls on the shoulders of Fed Chair Janet Yellen at the annual central bankers summit in Jackson Hole, Wyoming. The bankers meet this week on Thursday, August 25th. Yellen will speak on Friday. All eyes will be watching her to see if she is able to finally make the interest rate hike issue clear.
Japanese Companies Revolt Against Bank of Japan
Among the many global economic problems Janet Yellen is forced to consider with her choices is the Japanese battle on deflation and stagnation. A new Reuters poll showed that the Bank of Japan has a new problem with its attempts to ease its monetary policies more. Japanese firms have overwhelmingly responded that the most recent stimulus policies of the government are not going to help improve the economy. They went a step further by claiming that the Bank of Japan should not attempt to do any more easing. At the Jackson Hole conference and over the coming weeks this struggle will play out on the global economic stage.
Greek Debt Problems Continue to Worsen
Europe continues to struggle with a variety of problems that begin with economic slowdowns and the refugee crisis and extend to ongoing political turmoil after the stunning Brexit vote to leave the European Union altogether. In the wake of all these pressing issues, the Greek economic crisis is sometimes forgotten. It was only last summer that this captured the world news headlines. Greece's economy continues to deteriorate, threatening to spread contagion to other peripheral EU states and European banks at any time. After two bailouts so far, the Greek debt to GDP ratio has climbed to an astonishing 180%. It is now among the most debt burdened countries on earth.
The problem is so serious that the International Monetary Fund can not decide if it should participate in this latest bailout round. The IMF has finally come to the position that the Greek debt burden is unsustainable. They are insisting that the EU lower the Greek debt to a manageable level. The IMF also wants the tough demands on Greece like the surplus in their primary budget to be dropped. This is a powder keg that could explode at any time. While it is no longer front page headlines, it is still simmering dangerously in the background.
Germany Telling Citizens to Prepare for Significant Attack
In a sign of how severely the country with the largest economy on the continent is reeling from last month's two Islamic terrorist attacks and a separate shooting incident, the Germans have raised an issue not seen since the end of the cold war. The German cabinet is going to debate reinstating the civil defense concept on Wednesday. The civil defense text would order members of the German public to stockpile both water and food to be prepared for an armed attack or other disasters, the German newspaper Frankfurter Allgemeine Sonntagszeitung reported Sunday.
This plan is likely to be improved in light of the serious terrorist threats to Germany and neighboring countries. It would mandate that each citizen keep 10 days worth of food supplies and five days of drinking water on hand. Members of the public would also be instructed to hold an emergency supply of cash and energy at the ready as part of it. The report is 69 pages and brings up several other concerning issues. It states that Germany needs to implement a dependable alarm system, greater material civilian support for the military, enough spare capacity in the healthcare system, and even reinforced buildings. It is a real reminder of the dangers that Germany and France in particular face as the two largest economies still in the European Union.
Hedge Fund Managers Reduce Gold Positions While Asians Increase Them
Despite the troubling geopolitical events hanging over Europe and Japan especially, hedge fund managers cut their gold and silver positions in the last report. Friday's data from the Commodity Futures Trading Commision reported another instance of the so called smart money hedge funds and money managers reducing their long holdings in both Comex gold and silver contracts for the week ending August 16th. This has not managed to hurt gold prices much as the Asian buyers are picking up the slack. Actual physical gold demand in both China and India is rising. It improved as the two nations' consumers begin to stock up on the yellow metal for their upcoming seasonal festivals.
Gold demand is typically higher in both countries for this part of the year. The Chinese and Indians know the importance of a real asset like gold that protects your retirement portfolio. It is a lesson everyone should remember with all of the ongoing economic and political instability in the world today.