My view is that the US Federal Reserve and the Bank of Japan “caused” the gold crash. The rest is noise. The Fed assault began in February when it published a paper warning that the longer quantitative easing continues, the harder it will be for the bank to extricate itself.
The report was co-written by former Fed governor Frederic Mishkin, often deemed Ben Bernanke’s “alter ego”. It said the Fed’s capital base could be wiped out “several times” once borrowing costs climb. The window will start shutting by 2014, with trouble then compounding at a “dramatic” pace.
This was a shock. It suggested that the Fed has lost its nerve, and will think long and hard before launching a fresh blitz of money if growth falters.
Then came last week’s Fed Minutes, with hints of tapering off QE earlier that expected. That was the next shock. What they seemed to be saying is that the US economy is groping it way back to normality, that the era of silly money is over, that the dollar will stand tall again.
If that were the case, gold should fall. But it is not the case. The US economy is growing below the Fed’s own “stall speed” indicator. Half a million people fell out of the workforce in March. Retail sales fell in March. So did manufacturing.
Full article: Fed and Bank of Japan caused gold crash (The Telegraph)