July 30, 2014 – Another important day for the financial markets. The Fed two-day meeting ends and a statement is issued. Hundreds of billions of dollars hang in the balance. Each word and comma will have great importance to all the markets. The stocks, bonds, interest rates, the dollar and, of course, gold. The reaction to the release of the Fed’s statement will be instantaneously and quickly discounted. Though the statement by one person, like the chairman of the Fed, should not have so much effect, it does—for a short period of time. Market forces will rule on the long term.
Today’s report offers nothing new. It continues with the policy of obfuscation, it continues to cut QE (quantitative easing) and it keeps interest rates very low to keep Wall Street happy. Today the GDP was up a surprising four percent. Sounds good, but only time will tell if it’s a sign that the economy is growing. Immediate reaction by the big market players is that the dollar will go up, gold will go down, and interest rates will rise and stocks will go down.
Weeks or months from now, the dollar may well go down due price inflation, and gold will go up. At the moment, the markets are saying that if the economy is recovering the Fed will print money slower and less money creation will lead to a lower price for gold. On the short run, what is ignored is that a healthier economy pushes general prices up and, along with it, gold will rise. Besides, the Fed will never cease to excessively print money, and the $4.3 trillion of available Federal Reserve credit has yet to be discounted by gold or general prices.
Shifts in market sentiments[spn-media-asset pos=3 align=left size=thumbnail] are unpredictable as to extent and timing. But with our economy being nothing but a house of cards, we should be prepared for the worst—at any time. Sound, long-term economic growth cannot be sustained by a system of fiat money with a central bank fixing the cost of money and a pyramid of debt created by a deeply flawed system of fractional reserved banking. No similar system has ever been long lasting. Paper is short term. Gold is long term.