Gold and Silver Holding Up Well Despite Tightening Financial Conditions

October 24, 2023

The Fed’s reverse repo facility has declined 51% since March 31st, which is when the RRP facility started drawing down quickly. Without having access to the Fed’s inside books, my bet is that the drawdown in the facility is a result of money market funds redirecting cash from the RRP facility into Treasury Bills. In early April the rate on the three-month T-Bill began to quickly rise above the RRP rate, which would have incentivized MMFs, which are a large percentage of the RRP facility, to reallocate cash from the Fed’s overnight facility to slightly longer duration, higher yielding Treasuries. For MMF’s, gaining 20 basis points of yield is like winning the lottery.