Matt Insley

This just in!

Instead of printing over a trillion dollars in stimulus per year, the Fed announced yesterday 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.

Stimulus is going to be with us for a while – and that means inflation can’t be far behind.

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 U.S. government – particularly the Fed – can only print so much money and sell so many low-interest homes before we’ve all got 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
for The Daily Reckoning

P.S. Calendar pages come and go. Paper currencies follow suit… With deficits running wild, money printing off the charts, and the prices of food, energy and precious metals just starting to rise, there’s NEVER been a more important time to read Dr. Ron Paul’s “Lost” Gold Bible. I gave readers of yesterday’s Daily Resource Hunter an opportunity to grab a free copy of it for themselves. If you didn’t get it, you might of missed out. Sign up for the FREE Daily Resource Hunter to make sure that never happens again.

Original article posted on Daily Resource Hunter

You May Also Like:


Is Gold Set for an Explosive Rebound?

Byron King

In recent months, the price of gold has tumbled. Along the way, lower gold prices have undermined the share price of many mining plays.

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

Recent Articles

5 Min. Forecast
How to Profit On the Back of an “Activist Investor”

Dave Gonigam

Since the invention of the "shareholder rights plan" (i.e. the "poison pill"), most companies are relatively immune to hostile takeovers. But according to Dave Gonigam that could all change thanks to one activist investor. And if you're savvy enough, you may just be able to follow his lead for big gains. Read on...


Extra!
Why Americans Shouldn’t Worry About Income Inequality

Jim Mosquera

As the markets have continued to rally over the last several years, more and more people have touted the problem of "income inequality" in the US. But as Jim Mosquera explains, this perceived problem will likely sort itself out with the arrival of one specific market event. Read on...


One ETF to Play Asymmetric Warfare

Addison Wiggin

Almost one year ago, substation telephone cables were maliciously cut in San Jose, CA. In 20 minutes, 17 transformers were knocked out. A year on, similar threats have cropped up. Today, Addison Wiggin explains why these threats are so serious for the safety of the global economy... and shows you one way to play it...


What Small-Caps are Saying About the Current “Bubble”

Greg Guenthner

The big problem with declaring bubbles is that it really does you no good. Unless you're attempting to measure and time market moves, you're also blowing hot air. But if you keep watch for negative divergences, you have a much better shot at figuring out big market moves than the latest bubble-busters. Greg Guenthner explains...


A Simple Strategy for Investing in the US Energy Boom

Byron King

Too often investments are made in a vacuum. But as Byron King demonstrates, the global economic crash... easy money... and technological advancements are all interdependent. In particular, that connection has changed the investment calculus in the resource market. Read on to learn how...


How Gold Will Respond to Declining Discovery

Henry Bonner

Oil isn't the only resource to experience "peaks." Due to a major contraction in gold exploration over the past few years, the mining sector is no longer mining gold at its replacement rate. In other words, the amount of gold above ground is running out. And according to Henry Bonner, it will get worse before it gets better...