Bailout Ben Bernanke, Chairman of U.S. Federal Reserve, last week demonstrated the intellectual bankruptcy at that institution. No broad based economic need for a 50 basis point interest rate cut was evident. Only purpose of rate cut was to aid investment banks and mortgage brokers. Further, that interest rate cut is now politically impossible to reverse without a crisis in the value of U.S. dollar. This rate cut was a clear signal that dollar, intentionally or due to indifference, would be sacrificed to meet Fed's unspecified agenda. U.S. dollar, as shown in graph, in an undulating bear market, moved to a new low on the Fed's action. If the chart was of price of a stock, most would call it a sell. Federal Reserve's willingness to sacrifice value of U.S. dollar was reflected in the strong rally by Gold.
Despite the U.S. dollar's bear market, confirmed by policy actions of Federal Reserve, foreign exchange markets may have over reacted in the short-term. “Over shooting” is the term used to describe such action by the foreign exchange markets to an unanticipated event. In the short-term, U.S. dollar is over sold, and at a minimum due for a bounce.The Loonie's over extended rally is also a result of this turmoil, and should be recognized as such. As a consequence of these events, $Gold became extremely over bought. $Gold should correct the “over shoot”. As $Gold moves to perhaps $700 or lower, investors should add to positions. We can then begin talking about the $800 level. And longer term, the actions of Federal Reserve make the $1,400+ target more likely than ever to happen.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly.
For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html
Ned will be exploring the Gold Super Cycle at The Wealth Expo in NYC, 19-21 October.
Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here
Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.
Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.
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