Today’s gold and silver sell-off

The FOMC meets Tuesday and Wednesday this week.  Today’s downside, in my view, is the standard sell-off that generally accompanies Fed meetings these days – irrespective of the expected meeting results.  From what I’ve read, this particular meeting will focus on the manner and method of reducing the Fed’s balance sheet and skirt the interest rate issue, though one never knows.

On the balance sheet issues, I’m still lingering on first base asking the basic question:  Why does the Fed need to reduce its balance sheet?  Why not simply leave things as is given the potential harm that reduction might have on the bond and stock markets, not to speak of the overall economy?  To me, it appears the Fed, for whatever reason, chooses to drive the streets in a truck full of nitro-glycerine.   It is the Fed’s choice to so so, but one wonders why.

Gold’s appeal will likely be enhanced by the market instability such considerations are likely to generate on a global basis.  Already we are seeing reports of major bond liquidations in Japan.  In doing so, it joins China in the on-going liquidations, and just as importantly, a reluctance to buy bonds at the weekly auctions.  Oddly enough, an absence of buyers of U.S. sovereign debt, should it occur, could ultimately lead to another round of quantitative easing, a process we called printing money in times past, and led to the huge balance sheet position the Fed now says it wants to liquidate.

And if all of that doesn’t confuse you, I don’t know what will.

MK

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