This just in!
Instead of printing over a trillion dollars in stimulus per year, the Federal Reserve announced on Thursday that it will print only $900 billion.
Whew.
We dodged a bullet there. For a while I thought the stimulus printing was getting out of hand, but now with this ‘huge’ cutback, looks like our future is inflation free!
[Squinting and turning my head back and forth] Errrr, maybe we ought to take a look at what yesterday’s Fed announcement REALLY means…
First up let’s take a step back.
Had you asked if the Fed would announce its official tapering plan in 2013, your editor’s answer would have been ‘no’.
It didn’t seem like the time nor place to make an official announcement.
Ah, but that crazy-bastard Bernanke always tosses a good screwball. Happy holidays market watchers!
With a quick announcement the head of the Fed, in what could be one of his last actions as chairman, gave a concrete cutback on stimulus spending. Going forward (starting in January), the Fed will purchase $75 billion in bonds per month, instead of the previous $85 billion. (Specifically, the Fed will purchase $5 billion less per month of both mortgage backed securities and treasuries.)
I guess old Ben was sick of hearing the catchy phrase from the talking heads ‘over a trillion dollars of stimulus per year’.
At any rate, after yesterday’s announcement we’ve backed off of that 13-digit per year print fest. Come January we’re back down to a comfortable 12-digit per year print fest (that’s a ’9′ followed by 11 ’0′s.)
The markets rejoiced. After the 2pm announcement stocks represented by the Dow Jones were up a combined 292 points (1.84%). Oil and many commodities followed suit. The way the number-crunchers saw it, less stimulus meant the market was indeed strengthening. A stronger market means higher stocks, more burnt crude, more iPads, more grilled tacos, and so forth.
But there was a dunce in the corner…
After the Fed announcement, gold traders headed for the exits. Not in a big way, but in orderly fashion – this is a civilized crew, mind you. However, it’s all hands on deck – we’ll want to keep tallying up daily moves in gold. We’re continuing to see where the market likes to buy and sell – and over time, as it always happens, we’ll get a read on the metal’s next mid-term direction.
That said, my outlook remains unchanged at the moment. Gold remains under pressure and needs to find a level of support before re-establishing an uptrend. So far we can’t seem to hold support at $1,250. However, looking at a 30-day chart, as well as the 6-month chart, there seems modest support at $1,200. Will it hold? We’ll see! One thing that’s certain, though, is that this marks the next important line in the sand for gold. Stay tuned to price action.
But let’s connect some more dots.
The Fed announces the infamous taper and gold stays somewhat range-bound. As of typing this note the metal hasn’t plummeted through $1,200; that’s a telling sign in itself. Especially if you’re a long-term holder of the Midas metal.
I still like long-term gold. If anything the Fed’s taper announcement gave us a look behind the curtain. We moved from a little over a trillion per year in stimulus to a little under a trillion per year in stimulus. Indeed, you don’t quit this kind of monetary meth cold-turkey.
That said, we’ve entered the next stage of the monetary shell game. How much will the next taper amount be? When will the next taper announcement be? What about interest rates?
There’s a lot of guesswork ahead in 2014.
But one thing is for sure. Stimulus is going to be with us for a while – and that means inflation can’t be far behind. Truly, the US government – particularly the Fed – can only print so much money and sell so many low-interest homes before we’ve all go to pay the monetary piper.
Will that inflation hit in 2014 or in 2024? Your guess is as good as mine.
But rest assured that the Midas metal – for ‘buy and hold’ investors – will remain a store for wealth for years to come. When we see an opportunity to ‘buy the dips’ or play the downside from a trading standpoint, we’ll keep you posted.
In the meantime let’s give a hearty hurrah for Ben Bernanke. He finally pulled back the curtain – and the casino looks about the same on the inside.
Keep your boots muddy,
Matt Insley
Contributing Editor, Money Morning
Ed Note: Stock Fly, Oil Rallies, Gold Flounders originally appeared in Daily Resource Hunter, USA.