Charles Goyette: I just saw a report speculating that gold’s performance this year would be “data dependent,” specifically alluding to quantitative easing and the pace of tapering.
Data is always important, but I’m afraid that narrow view is wrong on two counts.
First of all, those who are focused on whether the Fed tapers more or less for the rest of this year are looking a few hundred feet down the road, and missing the monster roaring up on them from behind.
What drives gold is a lot more than meets the eye. For starters, it is not just what the Fed intends to do, the policies that it announces, its forward guidance, that matter. What it says it will or will not do, may or may not materialize.
But what it has already done is done. And it matters.
|The sanctions put in place against Russia spell far higher gold prices.|
Much more important than the tens, or even hundreds, of billions of dollars by which the Fed may adjust its money printing this year are the trillions of dollars already created. Since the mortgage meltdown, the Fed has increased the monetary base by 400 percent. Over five years the Fed has purchased more than $4 trillion in bonds with made-up money.
So far, the consequences of the money the Fed printed to buy a quarter of U.S. GDP have yet to be felt. But when that money leaks into the general economy with a recovery and new bank loans, it will bid up prices that have until now been held at bay.
This is a fait accompli. This $4 trillion genie is already out of the bottle, and no tapering modification can change it.
A second presence has also made itself felt in the gold market this year that is not “data dependent.” It is the spirit of war.
Its shadow looms large over Ukraine.
I estimate that the Ukraine and Crimea crisis was responsible for at least the last $60 of gold’s 2014 rise. That part of this year’s gain has been given back, and we are trading at prices that prevailed in mid-February, a time when the media were already calling Ukraine a “crisis,” but before Yanukovych was driven from Kiev.
But the confrontation that is playing out in Ukraine is not yet over. The prospects for an escalation of the conflict are very real, and the motives of all the participants can be shrouded in mystery.