Gold Price Pulls Back As “Bad Actor” Fed Signals Slower Rate Hike Cycle

Monday, February 15, 2016
By Paul Martin

By: Stephen Flood, GoldCore
Monday, 15 February 2016

Volatility, loss of confidence and central bank impotence stalk the capital markets. Gold pulls back in an expected retrenchment. Equity markets are still digesting what the world looks like: absence of a strong Chinese domestic economy, developing economies losing their easy credit, oil prices adjusting to demand levels indicative of economic activity and, most tragically, the continuing proxy wars fought in the middle east as warmongers continue to slaughter innocent civilians.

Monetarily speaking the markets are just not playing to the script. It must be infuriating for the unelected officials at our all-powerful central banks to have to take steps to remind or tell, nay, instruct the markets what is correct and what is not. By enforcing interest rates on the market, the Fed, and by extension every other central bank, has denied the market its internal risk rebalancing mechanism. They have manhandled the markets into short term submission, created unintended bubbles which inconveniently burst and exposed the sheer madness and short-sightedness of the modern Keynesian-based monetary model.

When the markets do not buy the message, central banks summon their proxies to bid up or smack down the markets for debt, equities and commodities. They write the script, provide insiders sight of their plans and coordinate market manipulation to give the script meaning and the impression of their competence and foresight.

In my view these bad actors are not necessarily evil people in the sense that they wish to harm you or I — no, they are far more dangerous than that. They are well-intentioned economic zealots, entrusted with enormous power and an impossible mandate: to deliver stability and growth steadily now and forevermore. This is where the true absurdity at the heart of the matter lies. Economies and markets are naturally cyclical. Blow-offs followed by busts are as sure as day follows night. This cycle is critical as it allows for trial and error, the creation of anti-fragile networks and system resilience — it is the very reason mankind got this far. Unfortunately, it cannot be modelled in a spreadsheet and thus cannot fit in a box. The markets need space to breathe, contract and grow.

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