Silver has been capped all week below $31.85 per ounce.  The apparent situation for March delivery could be explosive especially considering that physical investment demand in the U.S. hit an all-time high in January.  People love silver at this price.  It represents one of the few undervalued assets in this new QEternity environment.

One of the real dangers of this strategy by the Fed is simply that everything cannot go up except the things they don’t want to go up.  Not only has the Bernanke Fed taken the position that they know how much money should be floating around out there they are trying to now completely engineer where that money goes even though it wants to go other places.  A 7 month down trend in long-dated bond prices is not a vote of confidence for the Fed’s policy.  But, given that they want both inflation and negative real rates they are going to have to give one of them up if they want to keep the price of strategic commodities and gold under control.

All the money can’t just go into houses and cars, Dr. Ben.  Some of it is going to go into the oil, gold and silver futures market and you won’t be able to stop it.  Everyday the Fed becomes less like the little dutch boy and more like King Canute.

While following the Fed is normally a good idea, I would caution readers to be prepared to ditch them at a moment’s notice because everyone else will as well and the only protection is gold and silver.