Commodities were up big as the Federal Reserve announced what amounted to a promise to run the printing presses as long as necessary, and the crowd went wild.
Gold is up $4.38 to $1,772.38 after a wild night in overseas markets; silver is up $0.03 to $34.50, for a silver/gold ratio of 49.9.
Basically the Federal Reserve hammered savers and dared inflation by pointing out that people without jobs can’t save any money in the first place. He’s got a point there and the Fed had to act or risk watching manufacturing jobs head back overseas.
By sticking it to savers the Fed hopes to increase the velocity of money in the economy. The basic idea is that if you get a dismal return on the cash you have sitting in the bank that you’ll put some of that cash in the stock market hoping for a better return. Companies in turn are supposed to take that money and use it to expand and hire more employees, increasing economic activity.
Where that breaks down is the stock market is a rigged casino that benefits a small number of people at the top at the expense of everyone else. Companies are taking the money, but they’re using it to pad executive bonuses instead of hiring and then using the free cash to acquire other companies and lay off a bunch of people. The Fed is telling you to play the rigged game because it’s the best deal you’re going to get. Well, sorry, Ben, but I’m not going to put my money in the stock market until it’s a better deal for investors.
Gold and silver investors have another option, one that doesn’t play the Fed’s money velocity game or leave them at the mercy of Wall Street: Take a fraction of your wealth and put it in bullion-priced gold and silver. Precious metals are a debt-free asset that hold some relative value in relation to currency.
Metals are not growth investments, they’re defensive investments that provide a margin of safety against just these kinds of currency shenanigans. Another bonus for holding gold and silver is that the high speed traders and other sharpies on Wall Street can’t find new ways to shave a few pennies off your nest egg. They can and do manipulate the spot price for commodities, but that’s a smaller margin than the ongoing fees you pay on equity investments.
Notice that none of the players on Wall Street or Washington never ask for your money by giving you a better deal as an investor. That’s one of the primary reasons I’ll stick to metals, at least for the time being.