Gold Jumps as the Fed Withdraws Taper Talk

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Analyst at the BullionReport.com Predicted the Surprise

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With Bernanke or his successor, don’t anticipate any kind of exit until the 'official' inflation numbers start to get dangerously high. By then it may be too late.

For months, Fed Chairman Ben Bernanke has led markets to believe that he was going to begin to taper the pace of asset buying. The market fully anticipated a $5 to $10 billion monthly slowdown from $85 billion per month. The market was broadly misguided as the Chairman revealed no such tapering would be happening anytime soon. The announcement led interest rates (^TNX) to drop 15 basis points to 2.75%, the Dow Jones IA jumped 1.4% instantly and the ETF GLD gained 5.5% on the day. (1)

A BullionReport.com article written last week “The Bond Bubble Must Go On” (2) outlined exactly why the Fed Chairman was unlikely to taper. The perception of low inflation, a shrinking labor market, anemic economic growth and rapidly rising interest rates all contributed to the decision.

After 5 years and $3.8 trillion of stimulus, one has to wonder, is it working?(3) It is always difficult, nay impossible, to compare the current economic environment with alternative paths of action. Investors should anticipate ongoing or even ramping up of the money printing in QE 3, as every marginal dollar has less and less effect on economic growth and the jobs market.

With Bernanke or his successor, don’t anticipate any kind of exit until the “official” inflation numbers start to get dangerously high. By then it may be too late.

1. finance.yahoo.com
2. http://bullionreport.com/the-bond-bubble-must-go-on/
3. http://www.thestar.com.my/Business/Business-News/2013/09/19/Fed-caused-unnecessary-pain-with-taper-caper-M-and-A-Securities.aspx

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Nick Spohn
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