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Central Banks "Pushing on a String"by Peter A. Grant
May 30, AM 
Gold pushed definitively back above the $1400 level, establishing new two-week highs above 1412.20. The yellow metal got a boost from safe-haven interest after Japanese stocks took another sharp dive.Movement out of Japanese shares and back into the yen, weighed on the dollar. That dollar weakness provided an additional underpinning for gold. So months after the greatest monetary policy experiment commenced in Japan, yields are rising and the stock market has had two pretty spectacular plunges. I'm thinking this is not exactly what Abe and Kuroda had in mind. "I want to reduce volatility as much as possible to place strong pressure on long-term yields and push them lower," BoJ chief Kuroda said earlier today before the upper house financial affairs committee. Not to worry, as long as there is sufficient paper and ink available, there is no limit to the amount of yen that can be printed and then used to buy JGBs. That has in fact always been the excuse for Japan's lost decades, the QE just wasn't big enough. The Keynsian disciples here in the U.S. have made similar arguments; if only the Fed were more accommodative, the economy would surely be surging by now. Former Fed chairman Paul Volker warned yesterday that the benefits of bond-buying are "limited and diminishing," suggesting that the Fed's QE program is like "pushing on a string." In Japan, the evidence is starting to mount that bigger is not necessarily better. The results of the Abenomics experiment may already be starting to disprove the hypothesis. What then? Do the various central banks concede diminishing benefits of QE, or do they redouble their efforts? Will Abe and Kuroda suggest that a mere doubling of the monetary base was a miscalculation, it really needs to be quadrupled? Whatever path is ultimately chosen, I'd be concerned that it will result in huge disruptions to the market. Trillions have already been committed globally in an effort to stimulate economies and to get businesses and households to not only start spending again, but to follow the lead of the central banks and leverage-up those balance sheets. On some level, I'm pleased that many are not taking the bait. However, this has only prompted the central banks to push even harder against that 'string.' Yeah, this won't end well... NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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