Gold, Jim Grant, Bernanke, Draghi & A Collapse In Confidence
August 27, 2012
Today four-decade veteran John Hathaway spoke with King World News about what a prominent Fed watcher, and friend of his, warned him about: “Here’s a guy who’s been watching the Fed since 1970, maybe longer, and he said, ‘They are in danger of losing their credibility.’ When you think about it, the dollar, as Jim Grant has always put it, is a ‘faith-based currency.’ The credibility of the Fed is integral to that confidence the world has in the dollar, and the dollar’s value.”
The prolific manager of the Tocqueville Gold Fund also said, “So if that credibility, which I think is shot, once that veil of confidence is removed, you just don’t know what the market reactions could be.” Hathaway also discussed the recent action in gold: “It’s characteristic of bull markets that when they enter their most dynamic reversals or breakouts, nobody is on board. And it almost has to be that way because who is going to buy at the top?”
Here is what Hathaway had to say: “Back in February, he (Bernanke) gave testimony before Congress that said, ‘Further QE is off the table.’ That was a very significant moment because gold got hammered once he made that statement. Since then, there were several other occasions where, either through the Fed minutes or in Congressional testimony, he said, ‘No more QE.’”
John Hathaway continues:
“The market began to think that was it for Operation Twist. Then, lo-and-behold, at the end of June they decided to extend Operation Twist, which is neutral in terms of the Fed balance sheet, but is really designed to put a cap on long-term interest rates. As the summer progressed, the numbers for the economy were lackluster at best.
Here we are going into Jackson Hole, where all of the central bankers get together for a few days in Wyoming, and they are now talking up QE. And this time you are hearing them talk about open-ended bond buying by the Fed….