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Do Gold and Silver React to QE Anymore?

Hard Assets Investor made the observation – The QE trade is over, noting that price fluctuations in gold have been disconnected from monetary policy for a while.

As a practical trading matter, Hard Assets Investor is correct. It seems now QE (quantitative easing) impacts the bond, stock and real estate markets but not the gold and silver markets. This is a reversal from the early years of QE when gold and silver soared as a result of QE and real estate was stuck in a rut.

The prevailing trading wisdom seems to be:
-if a handful of doses QE hasn’t created price inflation by now, it won’t ever and hence there is no need to own an inflation hedge like gold or silver; and
-QE only impacts the bond, stock and real estate markets.

Is this true?
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Thanks - isnt that half of it?

When the fed offers credit to the banks at basically zero percent interest rates, you are right that is not printing money that is offeing credit which can be pulled back. Although in your example with the million dollar house dropping to 100k you noted the bank marks it down- under accounting rules passed in 2009 they don't. This was done in order to allow the banks to appear solvent.

When the Fed buys mortgage backed securities and us treasuries they are printing money out of thin air to do so.
The purchasing of MBS's acts to keep rates down ad encourages asset inflation of the prices of homes. You and other sensible people may not pay $500k for a boston condo but that is what the market is bearing because of the low rates engendered by the fed.

When the fed buys treasuries they are also printing money out of thin air. This money does circulate as it goes to pay for the government's spending.

Deflation would occur if the govt cut spending. The sequester isnt a cut in spending but rather a slowing of its growth.

Deflation is a natural product of a boom and we would have already gone through that period from 2008-2011 if the fed did not boost spending on homes and the stock market through Qe.

They are clearly interested in staving off deflation. That s why they have spent over 2 trillion since 2008, extending credit and printing money to buy MBS's and treasuries.

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The banks create money by lending. That is the only way.

The fed increases bank reserves by buying bonds from the banks with created computer cash. The increase in reserves allows for more lending up to the permissible 9 to 1, but only if the banks lend the money. The banks are not lending the money, only accumulating excess reserves. The actual ratio of deposits (created from lending) to reserves has now contracted to 3 to 1. This is why the money base (which includes excess reserves) has soared, while the money supply (M2) has not.

There is simply not enough demand for money (at acceptable risks).

Theoretically, the Fed could actually increase the money supply by buying hard assets and bypassing the banking system, thereby putting money directly into the hands of the people. Not sure that that would ever be in the cards.

Of course, by buying bonds, the fed frees up reserves to be used to buy new issue treasuries, thereby monetizing the debt. I believe 65% of the current deficit is accounted for with this. This facilitates deficit spending and does serve to increase money in circulation. But if the private economy is paying off debt faster than it assumes new debt, that serves to reduce the money supply. My understanding is the net effect of all this is a modest 6% increase in M2 since 2008.

But its not rationale for it to be

The Fed is pulling off its trick with the help of some negative pr and what appears to be market manipulation of the price of gold and silver
How long can Japan and the FED print and not have it impact the price of gold and silver.

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Do markets predict what will happen

ie is the stock market a good indicator of where the economy is headed?
Is consumer sentiment a predictor?

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