Thanks to Ben Traynor Chief Economist, BullionVault who sent us this missive this morning summing the Feds latest move:
GOLD CREPT higher this morning in early London trading, though the action was nothing spectacular as we wait for today's Federal Reserve policy announcement.
Silver meantime is broadly in line with where it started the week after briefly dipping below $33 an ounce during yesterday's US session.
Every man and his dog is predicting the Fed will announce plans to buy $45 billion of US Treasuries a month. We can see the logic from the Fed's point of view: such a move would add support to offset some of the uncertainty coming from the fiscal cliff debate, while it will also make sure there is no sudden liquidity crunch arising from the end of Operation Twist, the Fed's maturity extension program that is about to expire.
It would also reduce some of the hoopla that has surrounded Federal Open Market Committee meetings in recent years; the will-they-won't-they speculation about further quantitative easing announcements will be less prevalent if QE becomes an established, open-ended policy feature.
Monetary policy seems to be at something of a crossroads. In a speech last night, Bank of England governor-in-waiting Mark Carney has floated the idea of central banks adopting a nominal GDP target, noting that such a framework would oblige policymakers to make up for any failures to hit their target (as it stands, the Bank of England can overshoot its inflation target this month, but is not required to compensate by undershooting it in future).
The tone of Carney's speech suggests he sees advantages in a more flexible arrangement, namely that central bankers could more adopt more aggressive stimulus policies if they felt they were needed. This will be a worry to those who feel central bankers have been aggressive enough already.
One wonders if the effect of QE is starting to lose its potency as neither the markets or gold have moved much. As we write the DOW has closed down slightly and gold is more or less back to where it started the day.
Food for thought.
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