LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page >> News >> Story  Disclaimer 
Latest Headlines

Is A Run On Comex And London Gold & Silver Occurring?
By: Dave Kranzler

Gold SWOT: Silver Up on Stronger Industrial Demand
By: Frank Holmes, US Funds

Falling Into Place
By: Ted Butler

Social Unrest Rises as Confidence Falls
By: Clint Siegner, Money Metals

Gold Seeker Report: This Week in Mining Issue #15: Mining Getting Back to Normal
By: Chris Marchese, Chief Mining Analyst at GoldSeek

It Doesn't Get More Bullish Than This!
By: Rick Ackerman, Rick's Picks

Precious Metals Update Video: Gold Monthly Chart Riding the Bollinger Band Upside
By: Ira Epstein

Economics in Orbit
By: John Mauldin

COT Gold, Silver and US Dollar Index Report - May 29, 2020

The Comex Has Big Problems
By: Dave Kranzler


GoldSeek Web

Bernanke’s Bind: One Chart Reveals Gold’s Next Move

-- Posted Monday, 14 June 2010 | | Source:

By Andrew Mickey, Q1 Publishing

“I don’t fully understand movements in the gold price…

That’s what Fed Chairman Ben Bernanke admitted this week. But if he were to look at what’s actually going on and every move he has made since 2008, he would understand the price of gold and see where it’s going next.

The Next Move for Gold

There’s no doubt the financial world is facing a lot of uncertainty. The failure of the Euro experiment, ballooning government debts and deficits, and a general economic malaise have all sent investors running into the perceived safety of corporate and government bonds (they seem safe now, but rising interest rates will destroy their value).

This flight to safety has actually been the greatest catalyst for gold prices. Investors piling money into bonds have kept long-term interest rates very low and Bernanke has kept short-term interest rates near zero. And low rates have been driving gold prices higher.

In the “Real” Reason it’s Too Early to Bet Against Gold we wrote:

The main driver for gold prices is real interest rates.

Real interest rates are calculated by taking the nominal rate of interest (what is actually paid) and subtracting inflation.

Right now real interest rates are negative. They’re below zero. And the impact of negative real interest rates is always the same, asset bubble.

And when there’s no predominant “story” like the Internet is going to change the world, China will take over the world, or the world is running out of oil, investment dollars inevitably turn to gold.

One Trend to Make Your Friend

Despite Bernanke’s confusion, this is what we’re seeing play out right now.

The chart below shows gold compared to the yield on the benchmark 10-year U.S. Treasury bond:

There’s a clear correlation over the long run: interest rates down, gold up.

And this trend isn’t about to change anytime soon.

Bernanke’s Bind

There’s just no politically feasible way out in the short-term. All of the stimulus money, welfare/unemployment spending, and other efforts to delay the inevitable debt liquidation have put Bernanke in a bind.

He has two options. He can keep interest rates low, allow the economy to trudge along dipping in and out of recession, and keep investors buying bonds. Or he can raise rates and induce a Volker-style recession to eliminate the capital misallocations.

The choices are killing the economic “recovery” or eliminating the forming gold bubble.

Regrettably, for long-term focused investors, the short-term, politically viable option of keeping interest rates low and hoping everything works out has been, is, and will be the preferred solution for a long time to come.

The Bubble Nears

There’s no way out of the gold bubble at this point. There has been so much money created, the savings rate has increased so much, and it will be nearly impossible to draw it all back in once credit demand returns and the money multiplier effect gets rolling.

Sure, government debts and deficits are getting all the headlines, fears over the tax increases looming next year kicking off the second dip of a double dip recession, and a general lack of faith in fiat currencies has contributed greatly to gold’s rise, but it’s extremely low interest rates that will keep the gold rally going for years to come.

It’s simple really. Bernanke may not get, but we do. And this situation has bubble written all over it so different rules apply.

Value doesn’t matter, price does. Housing, tech stocks, Asia, oil…they’ve all been the same. The more they went up, the more people wanted them. Gold is no different. No one wanted gold at $300 or $500 an ounce. There has been considerably more interest at $1,000 an ounce. The record run-up to $1250 an ounce has only compounded demand. As the trend continues, gold demand will increase exponentially as it rises to $1500, $2000, and beyond.

Unless you’re expecting a bit of honesty and courage from politicians, buy gold and silver for safety and buy undervalued gold and silver stocks for superior gains. Check out our free gold report (get it here) for where the best values are in gold stocks.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

-- Posted Monday, 14 June 2010 | Digg This Article | Source:


Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to >> Story

E-mail Page  | Print  | Disclaimer 

© 1995 - 2019 Supports

©, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


The views contained here may not represent the views of, Gold Seek LLC, its affiliates or advertisers., Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of, Gold Seek LLC, is strictly prohibited. In no event shall, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.