by James Passin
At the end of September 2019, the Federal Reserve injected at least $63 billion into the financial system to eliminate a shortage of cash in the repo market. The recent spike in overnight repo rates from 2% to 10% is a sign of the seriousness of the recent shortage of cash in the financial system. (Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds.) While the repo shortage may prove to not have any lasting serious impact on capital markets, it is an interesting omen of the precariousness of the financial system itself, as well as the Fed’s inability to extricate itself from loose monetary policies without collapsing capital markets.
The shortage of U.S. dollars and the recent strength of USD against other major currencies has created a bearish environment for gold. The resiliency of the gold price in the face of this negative environment is an extraordinarily bullish sign for gold.