Federal Reserve Chairman, Ben Bernanke, strongly defended the U.S. central bank’s bond-buying stimulus before Congress on Tuesday, easing worries that monetary policymakers might be getting cold feet.
KEY POINTS
Bernanke said Fed policymakers are cognizant of potential risks from their extraordinary support for the economy, including the possibility the public loses confidence in the central bank’s ability to unwind its stimulus smoothly or the potentially destabilizing effect of low rates on key markets. However, in testimony on the central bank’s semi-annual report on monetary policy, Bernanke said the risks did not seem material at the moment, adding the central bank has all the tools it needs to retreat from its monetary support in a timely fashion.
In response to the financial crisis and deep recession of 2007-2009, the Fed not only slashed official interest rates to practically zero, but also bought more than $2.5 trillion in mortgage and Treasury debt in a possible effort to push down long-term interest rates and spur hiring. The Fed is currently buying $85 billion in bonds each month and has said it plans to keep purchasing assets until it sees a substantial improvement in the outlook for the labor market. Minutes of the Fed’s January 29th-30th policy meeting, released last week, showed a number of officials felt the potential risks posed by the bond purchases could warrant tapering or ending them before hiring picks up. However, several other Fed Governors argued there was a danger in halting them prematurely.
With a seemingly dovish Bernanke along with continued economic headwinds from both Europe and here in the U.S., it is my opinion that traditional safe haven assets like Gold and Silver may still be buying opportunities.
FED ON HOLD
I believe personally that the Fed won’t change policy soon. It is my view that the members of the FOMC may need quarters, not days, weeks, or even months of better economic data before policy is changed.
It is my opinion that the market may change long before the Fed changes, for one must remember that the Fed follows market data, it does not lead market data.
SILVER PLAY
I am looking to buy a Silver bull call spread by buying the May Silver 32.50 call and selling the May Silver 34.00 call for a purchase price of 10 cents or $500.00. The risk on the trade is the price paid for the spread plus all commissions and fees. Max profit on the trade that one could collect is $7,500.00, minus all applicable commissions and fees only if the futures trades over $34.00 by the time of May Silver’s option expiration in late April. I don’t feel there will be that big of a move past $34.00, but perhaps a bounce back up to the $31.00 level in Silver sometime in March may be possible.
Only time will tell.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS.
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