Gold’s Transition Zone…Investor Strategy

Jon Banking, Blogosphere, Economy, Fiscal Policies, Gold, Market Commentary, Precious Metals

The QE program created substantial hedge fund interest in gold-related ETFs. Unfortunately, QE never created the inflation the funds had anticipated.
That’s because commercial banks held the QE money they received, ‘tight to the chest’, rather than loaning it to businesses and consumers.
In a nutshell, by enlarging the money supply while GDP was falling, the Fed created deflation.
So, if the Fed were to shrink the money supply now, or at least reduce its rate of growth, while GDP rises, and banks start making loans with their ‘QE booty’ at the same time…. is that inflationary?
The answer is yes.
The taper is inflationary, because it stops the wild growth of the money supply, and does so as GDP grows and wages rise.
I’ve labelled 2014 the ‘year of transition’, from deflation to inflation. Most gold analysts are sure gold is either forming a base or a consolidation pattern, but neither scenario really fits with market fundamentals.

This post was published at Gold-Eagle on September 9, 2014.