Surveying the ‘golden’ landscape – by David Levenstein (Mineweb.com – September 25, 2015)

http://www.mineweb.com/

To see what this means for the ultimate store of wealth.

Gold prices retreated on Monday after a strong rebound last week after the US Federal Reserve announced that it will not be raising interest rates.

In what has become the most highly anticipated meeting of the Federal Open Market Committee (FOMC), the Fed announced that it was going to maintain its current policies, and left the policy rate at 0.125%. Yet, the accompanying statement and the economic projections came in more dovish than expected. The Fed showed concerns over the negative impacts of the recent global financial market volatility, as well as rapid slowdown in China and other emerging markets, on growth and inflation outlook.

In her press conference, Fed Chairwoman Janet Yellen made it clear that the U.S labour market is close to full employment, and that she’s reasonably confident that the inflation rate will drift back up to around 2% eventually.

While gold prices were given a boost on Thursday and Friday, after the Fed announced that it will not be raising interest rates, the U.S dollar tumbled but later staged a strong recovery towards the weekly close. However the greenback still closed the week as the second weakest major currency, after Euro. The dollar index dipped to as low as 94.06 last week but recovered to close at 94.86.

Seven years ago on September 15, 2008, the US government’s total debt was $9.6 trillion. Today it’s over $18 trillion… and once they raise the debt ceiling (which is inevitable) the debt will rise overnight to over $19 trillion– twice as much in seven years.

In 2008 the entirety of the Fed’s balance sheet was just $924 billion. And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets.

Today the Fed’s balance sheet has exploded to $4.5 trillion, nearly five times as large. Yet its total capital has collapsed to just 1.3% of total assets. And, its assets are things like US government bonds.

Over the last several years the Fed has essentially printed trillions of dollars and which it has used to buy US government bonds. This has all been done at almost zero interest rates. Currently the Fed is holding some $4.5 trillion worth of existing bonds, most of which they purchased when interest rates were basically zero.

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