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Bernanke: Gold's BFF

By: Ned W. Schmidt | Tuesday, December 18, 2012

To date seems only one group truly loves the monetary policy of the Federal Reserve. Largely, that group is comprised of bankers and bond dealers that profit from selling bonds to the Federal Reserve. Bernanke and the bond dealers have become BFF, Best Friends Forever.

Perhaps the time has arrived for Gold investors to be less critical of Bernanke's policies. Instead, we might want to consider that Bernanke could be our BFF too. With a continuation of the intellectually bankrupt policy called quantitative easing by the Federal Reserve we may now have a Bernanke "Put" on Gold.

Federal Reserve Bank Credit

Above chart is one we have discussed many times. The blue line in that chart, using the left axis, is Federal Reserve Credit. Essentially, it is the size of the Federal Reserve's balance sheet. That data is released weekly on Thursday afternoon.

We have expanded the actual data by projecting out the Fed's balance sheet for the next year. That forecast is done using the stated policy of buying $85 billion per month of bonds. By this time next year the Fed's assets will be about $4 trillion. Contrast that with level of those assets two years ago. At that time they were slightly more than $2 trillion. In two years the Federal Reserve will have almost doubled the size of its assets by buying bonds.

Never in history has the premier central bank of the world acted so irresponsibly!

Red line in that chart, using right axis, is the year-to-year percentage change in the size of Federal Reserve Credit. By this time next year, the rate of increase in those assets should approximate the level reached in August/September of 2011. That is the last big hump in that line.

What was important about that period of time? September of 2011 was when $Gold reached its high.

Will history repeat itself? Odds are very good that it will. Hard to imagine the currency of a nation appreciating with such horrible monetary policy. Only the Keynesian quacks can believe that such a policy will benefit the nation. Global purchasing power of the dollar could quite likely begin to crumble by this time next year. That might be especially true with the economy killing regulatory and tax policies being advocated by the Obama Regime.

How should investors be responding to the efforts of our new BFF, the Bernanke Federal Reserve?

 

US$GOLD & US$SILVER VALUATION
Source: www.valueviewgoldreport.com
  US$
GOLD
US$
GOLD %
US$ /
CHINESE YUAN
CHINESE
YUAN %
Sell Target Suspended   None at this time  
Current $1,680   $0.1604  
Long-Term Target $1,895 13% $0.3330 108%
Fair Value $895 -47%    
ACTION Hold Gold   Buy Chinese Yuan  

 


GOLD THOUGHTS comes from Ned W. Schmidt,CFA as part of a mission to save investors from the regular financial crises created by Keynesianism, and the high priests of that misguided ideology. He is publisher of The Value View Gold Report, monthly, and Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com

 

Author: Ned W. Schmidt

Ned W. Schmidt,CFA,CEBS
The Value View Gold Report

Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT and author of "$1,265 GOLD", published in 2003. A weekly message, TRADING THOUGHTS, is also available to electronic subscribers. You can obtain a copy of the last issue of THE VALUE VIEW GOLD REPORT at The Value View Gold Report. Ned welcomes your comments and questions, and tries to answer most all. His mission in life is to rescue investors from the abyss of financial assets and the coming collapse of the U.S. dollar. He can be contacted at ned@valueviewgoldreport.com

Copyright © 2003-2014 Ned W. Schmidt