Editor’s Note: This article was written for publication on Monday, August 9, 2010, prior to the Federal Open Market Committee (FOMC) meeting.
Last Friday, the price of gold closed in the US above the $1,200 level for the first time since mid July. It was also the eighth consecutive day that gold had closed higher in US markets than the day before.
What was especially significant about Friday’s increase is that it was the day that the Bureau of Labor Statistics released the monthly job and unemployment report. For more than the past 50+ months, the prices of gold and silver have been knocked down almost every time when the jobs report was issued. This occurrence has become so predictable that a number of professional traders and investors have timed their transactions in relationship to the jobs report release.
This week, the Federal Open Market Committee (FOMC) holds their periodic two day meeting. For the past several years, gold and silver prices have generally not been allowed to rise during such meetings. The US government wants to appear competent at performing its job, and a rising gold price would be a signal contradicting that impression.
The horrible jobs report last Friday is just the latest indicator that the US economy is in the dumps. Instead of letting the economy correct by shaking out malinvestments so that recovery comes faster, the politicians in Washington (and everywhere else, it seems) are determined to make matters even worse by preventing the malinvestments from being digested.
The politicians already know that pushing up the money supply has repeatedly failed to solve economic woes. Doing the same thing again will not bring a different result.
Yet, the federal government has pretty much boxed itself into a corner, where it has no options other than using the Federal Reserve to monetize increasing amounts of Treasury debt, effectively increasing the money supply.
So, at this week’s FOMC meeting, expect to hear the phrase “quantitative easing,” which is the replacement term for “inflation,” to be used repeatedly. This may even be part of the official statement released at the conclusion of the meeting.
However, the public is catching on. Boosting the money supply will not be as effective in the short term as it used to be. If gold and silver prices stay strong through the end of the FOMC meeting, this could be the next major signal that prices are about to take off. If prices drop significantly, that simply means we may have to wait a few more weeks or months before gold and silver soar. In my judgment, the end result is not in doubt. It is not a matter of “if,” it is “when.” Whatever happens this week will provide a huge clue how soon higher gold and silver prices are going to occur.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com