Wednesday, September 29, 2010

Gold, Bonds, and Currencies Move on Fed Money Printing

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Two-year Treasury notes sold at a record low auction yield on Monday. Gold hit another all-time high on Tuesday. The Australian dollar hit a two-year high on Wednesday. Excess Fed money printing ties all three events together.

The two-year Treasury has hit a series of all-time low yields in the last few months. The yield at Monday's auction was 0.441%. The two-year traded as low as 0.40% around the auction. How much lower it can go depends on how much money the U.S. Federal Reserve continues to print and what percent of that gets recycled into treasury bond purchases. The U.S. has to fund its massive deficits in some way and this is one way it is doing it.

At the same time that money printing is lowering yields on U.S. treasuries, it is raising the price of gold. Just as the 2-year has hit a series of record low yields, gold has hit a series of record high prices. Money printing devalues currency, so more has to be paid for any given unit of gold. A currency losing value is the very definition of inflation and gold is highly inflation sensitive for that reason.

Of all the currencies in the world, the Australian dollar trades closest to gold. Australia is also a fiscally responsible country compared to the debt ridden basket cases of Japan, the EU and the U.S. So the currency should be strong as is. U.S. money printing policy enhances its value however. Overall, the Australian currency should become and remain the strongest currency in the world thanks to the actions of the American Federal Reserve. The same actions are trashing the U.S. dollar.

While the Federal Reserve and its mainstream economist toadies claim deflation is a problem, the evidence points to the opposite. Excess money printing has always led to inflation and things will be no different this time. The other thing that will be no different this time is that the government bodies responsible for creating inflation will deny that it exists and when it becomes so obvious that it can't be covered up anymore, they will then deny responsibility. Before this continues any further, you might want to pick up some hard assets and strong currencies.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

1 comment:

Anonymous said...

Man things getting interesting now, I bought gold at 870 now look where it is. Up over 1300 the investment guy I listen to was right, he called the stockmarket crash back in 2007 and has been spot on with things.

Check out his video below. he is calling for higher prices. When the SHTF then what??. Many most the fat obese people in the US are so asleep. They aint got a chance.