• 4 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 7 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 15 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 9 hours Adsorbent natural gas tanks are revolutionary.
  • 3 hours Visualizing How Much Oil Is In An Electric Vehicle (Hint: a heckuva lot)
  • 9 hours Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 1 hour Total nonsense in climate debate
  • 8 hours Apartheid Is Still There: Post-apartheid South Africa Is World’s Most Unequal Country
  • 11 hours IMO2020 To scrub or not to scrub
  • 5 hours Theresa May to Step Down
  • 24 hours Look at the LONGER TERM bigger picture of international oil & gas. Ignore temporary hiccups.
  • 17 hours IMO 2020 could create fierce competition for scarce water resources
  • 21 mins Some Good News on Climate Change Maybe
  • 1 day IRAN makes threats, rattles sabre . . . . U.S. makes threats, rattles sabre . . . . IRAQ steps up and plays the mediator. THIS ALLOWS BOTH SIDES TO "SAVE FACE". Then serious negotiations start.
  • 1 day Apple Boycott in China
  • 4 hours BBC: Proposal to spend 25% of EU budget on climate change
  • 20 hours Why is Strait of Hormuz the World's Most Important Oil Artery
Alt Text

The Worst Mining Nation On The Planet?

Falling production, financial hardships, strikes…

Alt Text

Tanzania Wages War Against Gold Miners

Tanzania’s national government is stepping…

Dave Forest

Dave Forest

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

More Info

Trending Discussions

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.

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.

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

Trending Discussions


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




Oilprice - The No. 1 Source for Oil & Energy News