Bernanke pours US economy another tall stiff drink

2012-SEP-14

As expected, Federal Reserve Chairman Ben Bernanke didn’t disappoint yesterday: “QE3” is here at last, though it wasn’t called that by him. The Fed is now committed to open-ended purchases of $40 billion’s worth of mortgage-backed securities (MBS) a month in order to stimulate the housing market and to keep long-term interest rates subdued. The FOMC also pledged to persist with “Operation Twist” (swapping short-term US government debt for longer-duration paper) and prolonged its forecast for how long it will keep interest rates at record lows. The Fed promised to keep rates at current levels until the summer of 2015, where previously it has cited 2014 as the outer limit.

“QE to infinity” would be another way of describing this policy. “Inflate or die” is another. Either way, precious metal holders have reason to feel happy. Gold, silver, platinum and palladium all took off yesterday following the news from Washington, with the reaction in the “monetary metals” (gold and silver) particularly violent. Gold burst through resistance it had been facing around $1,735-40 like a hot knife through butter, while silver accelerated decisively past the $32.50-$33 level that has served as resistance for good chunks of the last year.

President Obama may also have reason to feel pretty happy about events yesterday. Barring some kind of “October surprise” or some new scandal in his administration, Bernanke’s decision to pour the US economy another tall stiff drink will give the president’s re-election campaign a solid boost. Might Mitt Romney be regretting his recent “fire Bernanke” comments, or the talk about a new gold commission at the recent Republican convention?

Whatever the Fed’s motivations, it’s now “party on” in the commodity sector. Record highs may be only weeks away as far as gold, silver, and many other hard assets are concerned.