The Fed has announced its intention to spend $300 billion on long-term Treasurys.The Fed is of course the bank of all banks, and the fact that it is taking this path of "quantitative easing" shows that it recognises that it cannot hope to pay its debt, so its going to sustain spending by refloating the economy on a sea of paper money. The impact of course is to delute the value of the USD. This is however not just US policy. This is an organised campaign by all central banks around the world in similar straits. We can see a pattern of 'cohorts' supporting each others 'fairytale' monetary policy. This is what evil government does. On the one hand they offer you lower interests, with the other hand they (the banks) restrict your ability to get a loan, no matter how good your credit rating. Banks are no longer in the lending business, they are in the speculating business.
On the one hand they are offering you tax cuts, on the other hand they are increasing the tax rate through inflation. Bracket creep will very quickly see you paying the top marginal tax rate.
This is not just the US Fed Reserve and US government, these policies are supported by a number of foreign central banks. Sorry but Obama is no different. But don't feel bad you really didn't have a choice. They are all bad. The system is rotten.
The "quantitative easing" will increase the volume of dollars in the financial system (i.e. increase money supply), and of course that action will eventually feed into inflationary expectations. You cannot fake reality. So when they pretend to be surprised when inflation shows up in a few months, you can cynical sigh that it 'was meant to be'.
The US Federal Reserve is not the only central bank to take such steps. The British and Japanese central banks have already announced that they would purchase their respective government debts, while the Swiss National Bank is selling its francs to weaken its currency.
Gold responded as we expected - up $17/oz overnight, closing at $US956.95. I might add that gold also found support at the $880/oz level as expected.
There are a number of ways you can gain exposure to gold:
1. Derivatives such as options, Contracts for difference, futures
2. Gold mining stocks
3. Funded emerging gold producers
4. Exchange traded funds (ETFs)
The gold holdings of the world's largest gold-backed ETF, the SPDR Gold Trust, rose to a record 1,084 tons on March 18, up 1.4% in a single day. Silver holdings in the world's biggest silver-backed ETF, iShares Silver Trust, rose 1.3% on Wednesday. People might talk about "an ebb in demand for gold in India", but trust me its not going to be Indian consumers driving gold to $2,000. Its going to be speculative investment in the financial capitals. People like me have been talking about this day for 10 years. This is it - the wave has crest. Don't be shy - your time is here. Jump up on that surf board because the Fed sharks are in the water. Just let them drown in their own paper money.
India gold demand also ebbed on Thursday as traders said prices were too high. Demand should pick up in mid-April to May as the wedding season begins. Other precious metals tracked gold higher, also benefiting from the weaker dollar. Spot silver surged to $13.68 an ounce, its highest since Feb. 26. It was last at $13.45/52 an ounce from $12.88.
For more information on precious metal investments - see our Commodities and Speculative Equities blogs.
Andrew Sheldon www.sheldonthinks.com