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Will gold and silver help protect against the ”ocean of liquidity” from the Federal Reserve?

*Dow Theory Letters, by Richard Russell, March 18, 2011

”The Federal Reserve has taken the position that its duty is to hold up the world’s financial (banking) system.  Fed head Bernanke has decided that if he creates enough money and loads up the banking system with that money, this ocean of liquidity will act like a ‘monetary tsunami,’ sweeping the US and the world economy to sustainable levels of prosperity.

Bernanke’s objective with money printing was to lift housing prices, re-stimulate the entire real estate sector, and increase employment.  It hasn’t worked, so far.  What has been stimulated is the stock market.

‘But what if Bernanke’s experiment doesn’t work?’ you ask.  In Bernanke’s mind it absolutely must work, and if his system isn’t responding, then that means that he hasn’t created enough liquidity.  And so it will be on to QE3 and QE4.

One thing is certain — if you continue to create ever-more of a specific item, at some point the price or the desire for that item must decline.  This is what has been happening to the US dollar.  As the purchasing power of the dollar declines, inflation is created.  It takes an increasing number of dollars to buy ‘things.’  So far, the items that are inflating in costs are food and energy.  Ironically, these are the two items that have been removed from the government’s ‘core inflation’ index.  So as far as the Fed is concerned, there is no inflation.  And as far as the Fed is concerned, they can continue their ‘printing’ operation with impunity.

From an investors’ standpoint, the area that is inflating is the stock market.  The whole situation has boiled down to utter confusion.  Stocks are surging, food and energy prices are surging, bonds have been erratic but generally rising, commodities have been volatile, and the dollar has been sinking.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Monex Bullion Investor