Would Gold Bugs Make Sense?

It Wouldn’t Make Sense Not to

A gold bug argues it would not make sense for the Fed not to manipulate the gold price:

• If gold isn’t suppressed, then the Fed would be leaving it to trade in an open and transparent market
• Banks can short-sell with impunity because if they take losses they can “conjure” dollars
• Because “rehypothecation”
• And “shadow banking”
• Don’t forget “latent inflation”

This will all make sense to anyone who has seen Monty Python and the Holy Grail. Remember the witch? How did they know? She weighed the same as a duck.

By comparison, Kid Dynamite points to a single fact. JP Morgan made money on every single day of Q1 2011. Recall during this quarter, silver ran up from $27 to $37. If they were naked short silver, wouldn’t they have taken big losses?

Viewing the Fed as a Hedge Fund

We have been writing about the central banks and the fact that they have balance sheets. Despite belief to the contrary, their balance sheet does matter. As the paper currency is their liability, there will be a very big problem () when the market decides they are insolvent. As the majority of their assets are bonds, they are vulnerable to rising interest rates. Here is a short article with a picture showing the losses so far taken by the Fed as the interest rate on the 10-year Treasury has risen from 1.6% to 2.1%. $115B.

Those #$*&%! Speculators

It is a persistent populist allegation, that speculators drive up the price of food (and oil, etc.) Pater Tenebrarum posted a short article noting that when speculators drop out of a market, it becomes less liquid and more volatile. This does not help the consumer or anyone else.