UPDATE June 20th: Meantime, in overnight trading (Asia), the gold and silver price have taken an additional dive. Gold is down 4% and silver 7%. It seems that tough times are ahead and the correction is far from over. It also seems that the deflationary wind is gaining strength. It could signal a general crash (implosion in all markets) going into 2014!
Fair or not, like it or not, the US Fed is currently the most powerful financial organization on this planet. Today, during a press conference after a two-day meeting of the Fed (FOMC), the chairman of the Fed took almost all markets down. Precious metals, equities and bonds went sharply lower. There was something going up though: the dollar and the 10 year interest rate. These are the gold and silver price charts of today, June 19th 2013:
What was it that made the markets shake? Based on the most important highlights of what Bernanke said (see below, courtesy of Zerohedge) we assume it was the outlook of the end of bond purchases (i.e., “money printing”). The highlights of Bernanke’s press conference (emphasis added):
- job gains and housing has increased consumer confidence
- most Fed members are not in favor of agency debt
- monetary policy will continue to support the economic recovery
- bond purchases may “moderate” later this year
- bond purchases could end around mid 2014
This kind of outlook is indeed sufficient to disillusion the markets. Only the idea that the “drugs” will be taken away from the addicted economy suffices to generate a significant declining effect in the markets. Imagine what will happen when the day of reckoning will be there. Although we originally expected that gold and silver would withstand the coming crisis it now appears that they will be going down in price as well. Though, suppose deflationary forces will prevail then gold and silver should go LESS down than all other asset classes. But it would still mean lower precious metals prices so be mentally prepared. We still believe that holding a portion of cash is not a bad idea as once in a lifetime opportunities could pass by in the months and years ahead.
Interestingly the gold price in almost ALL currencies went down today, right at the moment Bernanke was speaking. The exceptions include the Australian dollar gold and Brazilian Real gold. Why? Because their currencies are selling off heavily so gold in their currency has been going up lately.
In closing, we would recommend listening to an outrageous Rick Santelli who is for 4 decades in the financial markets. In this video, apart from being attractive as a rant, he really makes very valid points. His main point is the disproportionate influence of an omnipotent US central bank on the markets. Or, in other words, there are no markets anymore.