• 4 minutes Energy Armageddon
  • 6 minutes How Far Have We Really Gotten With Alternative Energy
  • 10 minutes Russia Says Europe Will Struggle To Replace Its Oil Products
  • 4 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 11 hours Reality catching up with EV forecasts
  • 16 hours A Somewhat Realistic View of the Near Future for Electric Vehicles Worldwide
  • 1 day "Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
  • 11 days US Oil Independence is a myth and will always be a myth
  • 6 days The Federal Reserve and Money...Aspects which are not widely known
  • 11 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 15 days Natural gas price to spike when USA is out of the market
  • 14 days "Biden Is Running U.S. Energy Security Into The Ground" by Irina Slav
  • 14 days *****5 STARS - "The Markets are Rigged" by The Corbett Report
Why Oil’s 7-Month Downturn May Be About To Reverse

Why Oil’s 7-Month Downturn May Be About To Reverse

Commodity analysts at Standard Chartered…

Gold Or Silver: A Guide To Buying Precious Metals

Gold Or Silver: A Guide To Buying Precious Metals

When investors expect rising inflation…

Recession Fears Could Send Precious Metals Higher

Recession Fears Could Send Precious Metals Higher

As recession fears return to…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

More Info

Premium Content

Mis-Judging the Gold Market

Gold is so misunderstood.

My colleagues and I often joke about how gold is the "all-weather" investment. When the economy is good, pundits claim gold will rise because of inflation. When the economy turns bad, gold bugs claim it will soar on safe-haven buying. According to conventional wisdom, there is no losing scenario for the yellow metal.

We saw more mis-judgement on the gold market yesterday.

Many analysts seized on the Federal Reserve's Open Market Committee announcement as evidence of good things to come for gold. The Fed said in the speech that it will continue supporting the U.S. bond market, by using interest from Fed-hold mortgage-backed securities to purchase government bonds.

ADVERTISEMENT

There was a lot of news about why this will be good for gold. Essentially that the Fed is creating money to give to the government (via bond sales). The government will spend this money, unleashing it "onto the street" where it will cause inflation. Hard assets like gold should soar.

But this is not the case. The Fed is not creating new money. It is using interest payments on mortgage securities to buy bonds.

These interest payments come to the Fed from one of two sources. Either from government agencies who issued the securities, or from the private sector who own the underlying assets.

ADVERTISEMENT

This means whenever a payment goes to the Fed, it is being taken off the street. Either drained from government coffers (in the case of payments from agencies), or from the economy (in the case of private-sector payments).

The Fed then turns around and buys bonds. Injecting this money back into the government, and (possibly) eventually into the economy.

But the net sum of money out in the world remains the same. For every dollar unleashed on the planet, a dollar is siphoned out of the system.

Creating money is inflationary and good for gold. Cycling money between different hands is not.

By. Dave Forest of Notela Resources


Download The Free Oilprice App Today

Back to homepage


ADVERTISEMENT


ADVERTISEMENT



Leave a comment
  • Anonymous on August 12 2010 said:
    Gold makes good low-current electrical contacts, pretty coins and jewelry -- little else.
  • Anonymous on August 15 2010 said:
    Yes and if the government could figure a way to make more of it ,it wouldn't be worth a crap as a medium of exchange

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News