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« A ‘Taper’ in a Teapot | Main | Resource Supercycle Still Intact - Adrian Day »

The Federal Reserve Surprises with ‘No Taper’ Announcement

The Federal Open Market Committee met on Tuesday and Wednesday and decided not to taper Quantitative Easing (QE) not even by a small amount, so the $85 billion monthly bond-buying program remains in place until further notice.

Tapering would have represented a major turning point for the Fed in that it would have signaled the beginning of the end of QE and a reversal of monetary policy which provides by financial stimulus, however, tapering appears to be off the table, at least for the near term. Although the Fed Chairman did say the following:

“We could begin later this year, but even if we do that, the subsequent steps will be dependent on continued progress in the economy, so we are tied to the data. We don’t have a fixed calendar schedule.”

Part of the rationale for not tapering appears to be the rise in long term interest rates which could hamper this fragile economic recovery. This begs the question that if we cannot do it now when, if ever, can we do it? As Ben Bernanke is due to step down in January it may have been considered prudent to leave such changes to the new appointee. If Janet Yellen gets the nod then we could be waiting for some time. Just imagine it; we could be discussing an increase to the Feds balance sheet from the current $3.2 trillion to $5.0 trillion or so in a year or two.

The market in general reacted with a certain amount of volatility with the S&P500 trading up 20 points, closing at 1725 and the DOW up 147 points, closing at 15,676. The US dollar fell sharply on the news as this means the debasement of the dollar will continue.

The precious metals space reacted positively with gold gaining $55.00/oz to close at $1365/oz, silver gained $1.23/oz to close at $22.96/oz and the Gold Bugs Index, the HUI gained 22 points to close at 257. This is a gain of almost 10% for the HUI, achieved in just one trading session bringing with it much relief for both the producers and the long suffering investors.

The next couple of days will be crucial as we will see whether or not gold can build on today’s performance, gain some momentum and put in a decent rally to higher ground. So far this year we have seen this tiny sector take it on the chin as investors called it a day, cashed up and headed for the exit. Today’s jump in prices may have caught their attention thus tempting them to re-allocate some of the funds to the precious metals sector.

Finally we will take a quick look at the Gold Bugs Chart, the HUI, which indicates what a tough year it has been so far, along with today’s dramatic jump in prices. Also note that this is the second higher low that has been formed which is a positive sign. We now need to see the HUI follow through with a new higher high, and then things will look a lot better for the future prospects of the miners.

As a cautionary note there is still a lot to do to get back to the ‘600’ level which is where we were at in September 2011 and as they say; one swallow does not make a summer, so go gently, it’s still treacherous out there.

Take care.

With gold, silver and Uranium stocks being out of favor one must decide if this is a problem or an opportunity. We have steadfastly refused to buy gold and silver mining stocks for the last two years and as evidenced by the HUI we feel that our decision to hold back has been vindicated. The damage done to the mining sector may not be over yet but this demise is starting to offer up some exciting opportunities in my view.

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Reader Comments (5)

Surprises whom?

While some ... ahem ... had spoken of Fed tapering as if it were a foregone conclusion, because the payroll numbers were "strong," (insert bewildered Buckwheat face from Our Gang comedies here) I said repeatedly, at every opportunity that there was no way they would and, more to the point, no way they COULD without crashing the bond and stock markets and the clownbuck.

This was all a bluff to buy time. Total BS. The Fed lies. It's what liars do. They also conjure money from nothing. That's what inflationists/counterfeiters do. Like modern day alchemists, they turn currency into toilet paper.

Egon Von Greyerz has it right in this piece:

End the Fed! And send the Fed governors and all their banker mafia pals to jail for life.

September 19, 2013 | Unregistered Commenterfallingman

Yip - I was pretty much convinced that tapering would start as Im against QE anyway, it seemed to me to be the sensible thing to do. On the other hand when are our political masters sensible - yes indeed they fooled me this time around.

September 19, 2013 | Registered CommenterGold Prices

All the 'NO Taper' gains have been lost as the clobbering machine returns

September 20, 2013 | Registered CommenterGold Prices

Greetings Mr. Kirtley -

I read your posts via 321gold on a regular basis. Towards your piece this morning, I'm not sure why the following (3) points aren't being talked about vis-a-vis the current gold conundrum in the (U.S.) markets. Perhaps they are irrelevant and I'm way off base.

- First and foremost, there is no 'fear' right now. It's fairly calm out there.

- It hasn't yet dawned on the American public (bag-holders) that we have a serious, fundamental, Structural financial problem.

- Our foreign creditors seem to either: a.) Willfully accept whatever we do. b.) Are doing whatever they need to do in order to prepare for the inevitable. c.) Already have preparations in place and are simply waiting for the right (foreign policy blunder) to implement their economic ring-fence of the U.S.

For me, it is an eerie feeling right now - and not just on an economic/fiscal/monetary level. Something is afoot for this nation and I'm not all that sanguine about it. I think the only ingredient missing is fear. When that arrives is anyone's guess.

All the best,

September 20, 2013 | Unregistered Commentercc

When they're not even motivated to make false
promises anymore, they must want the house
to come down.

September 20, 2013 | Unregistered CommenterMat

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