Fed statement lends support to metals

Things have cooled off in the gold and silver markets, with the former trading in a range between $1,450 and $1,480, and silver moving between $23 and $24. Both metals sold off early in New York futures trading yesterday, but rebounded following the release of Fed minutes indicating that the Fed will consider increasing its money printing efforts upon any signs of renewed weakness in the US economy.

Of course, as the last four years have shown, it’s one thing increasing the monetary base (that portion of the money supply that increases as a direct result of Fed asset purchases), but quite another thing to guarantee that this new money will flow into the broader economy. With banks continuing to sit on huge excess reserve holdings at the Fed, Bernanke is not getting much bang for his quantitative easing “buck”.

In fact, despite the initiation of open-ended asset purchases last September, as Robert Wenzel notes at his blog, the rate of growth in the M2 money stock – the broadest measure produced by the Fed – has declined from the growth seen in 2011 and in late 2012. A rebound – as seen last summer – is of course possible, but further declines would sharply increase the chance of another serious leg down in the US economy.

Strong demand for coins and bars continues to attract media attention, with US Mint sales of gold coins at three-year highs, and reports from Australia of lines of customers 600-yards long outside of bullion dealers. In other news, the state of Arizona has become the second state – following on from a similar Utah law in 2011 – to make gold and silver legal tender in the state, with effect from mid-2014. A dozen other states are said to be considering similar laws.