What Janet Yellen as Treasury Secretary means
Gold traders are paying particular attention to Janet Yellen being appointed Treasury Secretary on November 23, 2020. Yellen is considered to be very “dove-ish”, meaning she is concerned about maintaining employment at the expense of inflation and other consequences that may arise from unfettered monetary easing. In other words this mean she would be opposed to interest rate increases supported by the “hawks”. This is, of course, very bullish for Gold investors, as the prospects of expansionary policies and/or stimulus packages continuing remain very strong.
In terms of policy and the impacts this will have, it is likely that she will continue the existing trend of apparently unlimited stimulus packages, or the “do whatever it takes” policy. While her responsibilities as Treasury Secretary will be different when compared to the responsibility of the Chairman of the Federal Reserve, it is a strong indication that a Biden Presidency will mean the money printer will continue printing for the foreseeable future.
In the past, Yellen has defended massive government stimulus programs, including a $3 trillion effort by the Federal Reserve to help extricate the U.S. economy from the mire of the Great Recession stemming from the 2008 financial crisis. Her philosophy would appear to align with that of the president-elect, who has advocated a sweeping set of policies to ease the economic burden on individuals and promised to “spend whatever it takes” to prevent small businesses from being forced into bankruptcy.
Gold
Blue: Gold | Red: Silver
With Gold moving upwards the past few years, Janet Yellen will likely mean business as usual. The US govt is weighing the amount of stimulus they will be injecting in the economy. Consensus appears to be at $2.2 Trillion. If you haven’t already seen what this means to Debt-to-GDP ratio, you should read our previous article covering this.
Gold has recently pulled back from it’s all-time-highs. While there may be some arguments in favour of this, there is a strong case to make for a rebound once further stimulus is confirmed. The current selection of policy makers indicate this is the direction that the socialist government of america will likely pursue.
Longer-term, these pro-stimulus views bode very well for gold, noted TD Securities head of global strategy Bart Melek. “Yellen was dovish as a governor and chair of Federal Reserve. She has fairly strong ideas about income inequality. She is an advocate of spending when it is necessary. And if there was a time when the government has seen the conditions that called for more fiscal stimulus, this is it,” Melek told Kitco News.
Yellen chaired the Fed from 2014 to 2018. And with her as Treasury Secretary, new stimulus measures are more likely to be approved, said Commerzbank analyst Carsten Fritsch. “Yellen has described fiscal relief as essential, for example. The low-interest-rate environment is also unlikely to change in the long term. After its current losing streak, gold should therefore begin climbing again, even if this may well take some time yet and is likely to start from a lower level,” said Fritsch.
Conclusion
Yellen’s appointment will simply mean business as usual, and there appears to be a trend of further dependence on government stimulus. Whether this is sustainable is yet to be seen, however for the time being, Janet Yellen as Treasury Secretary is very positive for commodities in general, particularly hedges against currency debasement such as Gold and Silver.
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