The price of gold recovered overnight losses after the release of US Federal Reserve meeting notes in London trade Thursday morning, rising back to $1375 as major stock markets also rose with commodities.
While the Fed’s taper talk has been tapered and then un-tapered, the market may now be tapering the Fed rather than vice versa. Let’s assess Act 2 of the taper talk and the implications for the markets, including the dollar and gold.
Investors expect the Fed to begin reducing QE as early as this summer. However, whether or not the Fed follows through on “tapering” largely depends on whether the US economy can stand on its own two feet without support from the central bank? Our view is that it cannot and this article examines why that’s the case and why talk of “tapering” is just talk.
Seems whatever financial media you go to, the discussions are about speculation that Bernanke and his cohorts at the Fed’s Federal Open Market Committee (FOMC) are considering cutting back on quantitative easing, which is now running at $85 billion a month. ($45 billion in Treasuries, $40 billion in mortgage debt.)
Last week, Ben Bernanke made a speech in which he warned that a long period of low interest rates could lead to asset price bubbles and a new financial crash. Bernanke is worried about another banking crisis or another bubble caused by bank lending while low interest rates and Fed manipulations have already led to a new bubble. It’s in US Treasuries.
Since the onset of the global financial crisis governments and central banks have been attempting to bring about economic prosperity by creating money and pushing it out into the global economy. After almost six years however, they have failed to produce a lasting recovery, or indeed anything close.
Regular readers will know I am in the inflation, possibly hyperinflation camp; but there are those that think the future is more likely to be deflationary. In the main this is the view of neoclassical economists, Keynesians and monetarists, who generally foresee a 1930s-style slump unless the economy is stimulated out of it.
Neil Irwin over at the Washington Post recently set about reminding the unwashed masses that, only the dollar is money, in his piece “Bitcoin is ludicrous, but it tells us something important about the nature of money.” He starts us out with his “givens”.
Anyone who’s ever had a brick fall on one’s feet knows how much it can hurt. It’s little consolidation if that brick is made of gold. What’s happening to the price of gold? And has our outlook changed, be that for gold, the U.S. dollar or currencies more broadly?
Is it time for the Federal Reserve (Fed) to stop printing money? Today, we focus on what might be going through Fed Chair Bernanke’s mind and the possible implications for the U.S. dollar and investors.