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The Bernanke talk had enlightened many a gold bull Buddhas, only that the same was a passing phenomenon. All Buddhas collapsed and bears had the last laugh. The great QE3 lie was not uttered by Ben Bernanke, but ..

05 Dec 2012

By Rakesh Neelakandan
Gold prices may have recovered a bit aided by the uncertainty prevailing in Eurozone area; but investors seem to abandon the commodity in droves as US fiscal cliff issue continues to keep markets on tenterhooks.

While only a handful would predict that US would go off the click, the day-to-day developments in the US political arena is adding to the uncertainty in markets in a big way. When there is uncertainty in the markets, people hardly invest. They would simply sell and markets yesterday saw just that!

“Gold is being sold along with just about everything else in commodities with the worries on the fiscal cliff,” Bart Melek, the Toronto-based head of commodity strategy at TD Securities, said in a telephone interview to Bloomberg. The metal “is usually said to be a safe haven, but the threat to economies globally from the fiscal cliff is having knock-on effects.”

Now, one would be surprised if I say that QE 3 is having a role in this crash. The money supply did improve subsequent to $40 billion a month unlimited QE 3. But the Adjusted Monetary Base of the US Federal Reserve remained flat.

I can explain citing Dennis Gartman.

Many analysts are bullish on gold on wrong reasons, money supply (M1, M2) is expanding but a more crucial variable, the Adjusted Monetary Base of US Federal Reserve remains sideways, said Dennis Gartman Editor of Gartman Letter in November.

US Federal Reserve is buying $45 bn worth Morgan Securities regularly but they are all nearing maturity and hence Fed is not over expansive as many analysts explain, he had pointed out.

This means, what the Federal Reserve bought in effect was not sold!

Now, the latest data from Federal Reserve suggests that the case remains the same. Adjusted monetary base still remains flat.

So, where are the fundamentals supporting gold?

The Bernanke talk had enlightened many a gold bull Buddhas, only that the same was a passing phenomenon. All Buddhas collapsed and bears had the last laugh.

The great QE3 lie was not uttered by Ben Bernanke, but was heard by markets to be so.(rakesh@commodityonline.com)


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