Bernanke and the Federal Reserve 12.12.2012

From Goldcore:

On Dec 12, 2012 the Federal Reserve took the bold, some would say reckless step, of linking its monetary policy to unemployment, creating concerns that the U.S. dollar will be debased even more in the coming months.

The US Federal Reserve will keep interest rates at close to zero until unemployment falls below 6.5%. This is a historic and very radical change to monetary policy. It is the first time a large central bank has ever tied its interest rate policy directly to one facet of the economy – unemployment.

The Fed said that it will maintain ultra loose monetary policies for the foreseeable future and the Fed will in effect double the pace of dollar creation.

The Fed announced it plans to buy $45 billion per month in longer-term Treasuries in addition to the $40 billion per month in mortgage-backed securities, as expected.

With the unemployment rate at 7.7 per cent in November, the move signals low interest rates for the foreseeable future, and it replaces the Fed’s earlier pledge of low rates “at least through mid-2015.”

All of this is bullish for gold and we would expect the moves to put upward pressure on gold prices in the coming weeks. There have been a few occasions where extremely loose monetary policy announcements have not seen an immediate rise in gold prices and this will likely be the case again.

In the run up to the year end the fiscal cliff negotiations will put pressure on the U.S. dollar as will the more important $16 trillion and rapidly growing national debt and the $50 trillion to $100 trillion in unfunded liabilities.

The European Union has agreed to give the European Central Bank the authority to directly supervise the eurozone’s biggest banks and intervene in smaller banks at the first sign of difficulty.

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