Fed's extended bond buying program

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Mallinson's picture
Mallinson
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Joined: Feb 8 2012
Posts: 4
Fed's extended bond buying program

After listening to all the discussion about how PMs are going through a correction and how they are likely to take off if the Fed resumes bond buying, what do we see with gold and silver this morning but some gyrations (currently lower).

The wisdom out there was convinced gold would undoubtedly spice up!!

Why didn't it?

Paul M

Mallinson's picture
Mallinson
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Posts: 4
Fed's extended bond buying program

"was convinced gold would undoubtedly spice up!!"

I eman't to say SPIKE UP!!

Travlin's picture
Travlin
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Joined: Apr 15 2010
Posts: 1322
Because

Welcome Mallinson

Because they are not increasing their net amount of bonds by buying them with money created out of thin air.  The are continuing their program of swaping short duration US Treasuries for long durations.  No new money is created by this, so it doesn't promote higher PM prices.

Travlin 

Mallinson's picture
Mallinson
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Posts: 4
Fed's extended bond buying program

Thanks Travlin. I see the point.

However, I thought this would be somewhat bullish for gold since it confirms the low interest rate policy etc.

dshields's picture
dshields
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Joined: Oct 24 2009
Posts: 599
operation twist

I do not like Operation Twist.  The Fed Res says they are selling short term instruments and purchasing long term instruments.  I read somewhere that the Fed Res or the primary dealers (the Fed Res) are buying 60% of the 20+ year paper.  Now why would they be doing that ?

1) Europe made a big mistake.  The countries sold short term paper and spent the money on operating expenses for the most part - transfer payments of one kind or another.  The US is doing better i suppose.  The Fed Res is selling the Fed Gov long term low interest rate money.  We spend the money on transfer payments of one kind or another but we do not have to roll the long term paper over for many years.  We just pay the low interest and spend the money now.  Europe ended up have to roll short term paper over into a hostile market environment.

2) It enables the Fed Gov to just keep the spending spree going non-stop until after the election or possibly longer.

3) The Fed Res lies.  This was proven by the Bloomberg Freedom Of Information Act suit.  We really have no idea what they are doing.  We only know what they say.

I do not like it because it is creating a time bomb for the future.  Someday we are going to have to pay back the principle or defalt.  As the amount of the principle will be in the trillions we will simply not be able to pay it back.  Or, the world will simply not want any more dollars.  Either way - very bad things will happen then.  The good news is we do have time to prepare.  The government is preparing and so should you.

taxidriver's picture
taxidriver
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Joined: Aug 24 2012
Posts: 7
Gold won't go up because of

Gold won't go up because of the latest announcement. Even if they don't pursue further inflation, the existing supply has to have an effect eventually.

JeromeH's picture
JeromeH
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Joined: Sep 5 2012
Posts: 2
The gold market is too

The gold market is too complex to judge every individual spike up or down. As far as I can see on the moment the gold price presently is short-term influenced directly by the price of the dollar vs other currency, and longer term by the buying of gold by quit a lot of central banks. My feeling is that this buying will happen for a while longer so I think overall gold will go up. I am long on physical gold and will stick to it for a long, long time.

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