Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bernanke's Conundrum What it Might Mean for Gold

Commodities / Gold and Silver 2013 Jul 02, 2013 - 05:04 AM GMT

By: Michael_J_Kosares

Commodities

“Central banks sold a record amount of US Treasury debt last week and bond funds suffered the biggest investor withdrawals on record as global markets shuddered at the prospect of the US Federal Reserve ending its quantitiative easing program.”


“People are throwing in the towel. It’ll drag the market down lower over the course of the summer.” Markus Rosgen, chief Asia equity strategist at Citigroup

Link

If “people are throwing in the towel” as Mr. Rosgen suggests, Bernanke will find himself in an all-new conundrum quite the opposite of the one in which Alan Greenspan found himself in 2005.

For the Fed, the Treasury debt selling creates a twofold problem:

First, the supply of bonds in the open market will continue to drive up rates. When the goal is to keep rates down, it presents a new kind of conundrum - a Bernanke version the exact opposite of Greenspan’s. Greenspan wanted higher rates. The market gave him lower rates by accelerating its purchases of Treasuries, thus the conundrum. Bernanke wants the exact opposite, that is, lower rates. The market is giving him higher rates by accelerating the sale of U.S. government debt - a conundrum opposite to the one Greenspan encountered. Then and now, the market pundits fret that the Fed is losing (has lost) control of interest rates.

Second, if the world is selling Treasuries, some entity will have to pony up with the purchases of newly-issued U.S. government debt. That entity is the Federal Reserve - the government’s lender of last resort. The new Bernanke conundrum will force the Fed to continue its QE program until such time that other private and public sector buyers of U.S. debt materializes. Ironically, the stock market, like the bond market, might already be reacting to the new rate reality, while gold’s sudden demise, if indeed caused by the so-called “paring down of quantitative easing,” might have been false. If that is the case, a make-up rally could be in the offing.....in fact it might already have been launched.

In an earlier article, I advised that we should take heed of what the Fed does, not what it says. In a certain sense, as you see in the two graphs below, the Federal Reserve may have already launched QE4 while simultaneously talking about ratcheting monetization down. The two graphs together show cause and effect and tell the real story of what is happening at the Fed. For a while, it wasn’t clear why bank reserve credit (QE) was rising. When you marry that chart to 10-year Treasury maturity rates, the reason becomes quite clear. The Fed is battling the market to keep rates low and the government financed at favorable rates.


Sign-up here

By Michael J. Kosares
Michael J. Kosares , founder and president
USAGOLD - Centennial Precious Metals, Denver

Michael Kosares has over 30 years experience in the gold business, and is the author of The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold, and numerous magazine and internet articles and essays. He is frequently interviewed in the financial press and is well-known for his on-going commentary on the gold market and its economic, political and financial underpinnings.

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in