Fed Doesn’t Taper QE, Gold Explodes

By Tom Luongo in Gold and Oil News | September 18, 2013 22:49 | Tags: , , ,

The Fed had a choice to make and it was an unpleasant one regardless of which side of the economic fence you’re sitting.  It could either taper bond purchases to defend the dollar versus Gold and the rising currencies of the BRICS or it could continue on as it has been, trashing the dollar and staving off an interest rate spike that would take down the banking system.

It chose the latter, and in doing so unleashed a huge amount of pent-up energy in the precious metals markets.  In the moments before the announcement gold caught a bid and pushed decisively away from $1300 which was the signal to what the Fed was going to say a few minutes later.  When the announcement came down and the policy statement read gold shorts who foolishly listened to Goldman-Sachs got crushed and the yellow metal ended the day at $1364 per ounce before the New York Access market closed.

Equities rejoiced as the liquidity-fueled pump-fest that is the stock market rejoiced.  Capital flooded in from the sidelines as bonds were bought aggressively as well sending the 10 year yield below 2.70%.  The next few days will be key to seeing if the intermediate trend in interest rates will change, but for now, the Fed has bought some time from the interest rate derivative time bomb that is likely what called its bluff on exiting from QE.

Make no mistake, this non-announcement by the Fed has ended the credibility of its communications strategy and we are now on a path to infinite money printing to inflate away the sins of the past two generations. Gold will soar from here, unhindered.

About Tom Luongo
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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