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FED Policy: Unwinding Or QE Infinity Coming? From Bernanke To Yellen

|Includes:SPDR Gold Trust ETF (GLD), IAU, NFLX

Ben Bernanke, November 2010:

We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time.


Ben Bernanke, November 2013:

What do I care now? Let Yellen unwind this mess...or not. I'm out.

Source: He didn't actually say that, at least not publicly :-)

To get serious again, Bernanke didn't lie in that first quote. He never promised that he will actually put the "tools" to use himself. From all we know successor Yellen is even less eager to put them to use soon once she becomes FED chair in early 2014.

Author Peter Schiff has the following opinion on the future of the USD vs gold prices in this context:

The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs: A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false. (Our new edition of the Global Investor Newsletter explores how the attraction never dimmed in India).

Recent developments suggest the opposite, that:

A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it,

B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession

C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar.


Needless to say Peter Schiff is in the minority with his views (as he points out himself) - but I do agree with him long-term.

Short-term, gold may still slump or go sideways in my opinion - if only because the (stock market) party is still on and people don't like to think about the ramifications. This could change, for example, when the largest foreign creditors (currently Japan and China) get nervous about the USD:

In fact, the Chinese may finally be getting the message. Late last week, as the debt ceiling farce gathered steam in Washington, China's state-run news agency issued perhaps its most dire warning to date on the subject: "it is perhaps a good time for the befuddled world to start considering building a de-Americanized world." Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise.

Source: continued from above

I will let that sink in because the implications are enormous.

PS: Meanwhile, a second tech stock just made it into my personal 2013 bubble list (the first one was TSLA): "Congratulations", NFLX. More details here:

Stocks: GLD, IAU, NFLX