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Gold Price Down On Cautious Talk From Fed: April 4, 2012

ByGoldMoney News Desk
Published 04/04/2012, 09:09 AM
Updated 05/14/2017, 06:45 AM
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The minutes from the Federal Reserve’s March 13 meeting were released yesterday. Though they again emphasised the Fed’s intention to keep rates “at exceptionally low levels through late 2014”, the absence of any QE3 indicators was what the market focused on, with stocks, commodities and bonds all selling off, while the US dollar rallied. The gold price lost over $40 (2.25%) in a matter of minutes after the news at 13:00 EDT, though the silver price held up better than gold – only down around 1.45%.

The weary predictability of all this becomes tiresome, and is summed up nicely by this graphic from ZeroHedge. Rest assured that the big picture as far as US monetary policy is concerned hasn’t changed. Real interest rates in developed countries will remain in negative territory for years to come, something that Casey Research’s Jeff Clark says will encourage more gold buying. In his words:

 . . . . When real interest rates are at or below zero, cash or debt instruments (like bonds) cease being effective because the return is lower than inflation. In these cases, the investment is actually losing purchasing power – regardless of what the investment pays. An investor's interest thus shifts to assets that offer returns above inflation… or at least a vehicle where money doesn't lose value. Gold is one of the most reliable and proven tools in this scenario.

So when you hear talk of economic recovery leading to higher interest rates, and how this is bearish for gold and precious metals, consider real interest rates instead. In particular, the real return on 10-year US Treasurys. In the words of Forbes contributing author Victor Sperandeo, eventually the “long run” that Keynes so famously disparaged catches up with you.

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