onegood reason, is a classic, always true - overshoot (happens to the upside, happens to the downside just as well).
In my own career as a consultant - I've seen the transition from amazingly well-run private business to badly run public ones a few times. It really is "the evil shareholders" that cause it, there's nothing the original management can do about it...
Forbes predicted gold to crash to 600 $. But I guess what we should be eyeing now is QE talk this September. The Fed is still printing "like crazy", but what if they reduce it now?
if it goes lower, many will buy more. The physical gold appetite increases as it becomes cheaper. This is what happened in Asia this May, when Asians bought up immense amounts of it.
QE is the Fed's way of monetizing the debt. When the Fed even suggested they MIGHT slow their purchases, rates rose 61% in 8 weeks.
When rates to rise, it's game over. Interest expense for the US government will become so massive, it will destroy the credibility of the currency. Right now it's 7% of expenses and 10% of revenue while rates are effectively 0. At what point do you believe it becomes a farce? 20%? surely 50% right?
When rates rise, the interest expense goes up exponentially. Rates can not be allowed to rise and it's become quite apparent that the only one buying US government debt right now is the Fed.
I was thinking about it, but am not so sure-it really depends, who owns most of the Treasuries. If it is Fed, well, believe or not, the problem isn't that obvious. Why? Because the Fed remits the interest collected on Treasuries back to Treasury (minus some operating expenses, but it will be peanuts in comparison). So in a sense, the Fed recycles interest collected on the national debt back to the government. Of course, it is only Fed, who is so "kind". Privately owned treasuries, will have to get paid, somehow (most certainly, with freshly created money)
So in purely theoretical sense, if they decide buying treasuries in unlimited amounts, than it is possible to 1. Keep the interest rates low or at zero - it is simple, the Fed only needs to print enough fresh dollars, to buy bonds at ANY price. Of course, all that new money, they have NO control over how it is going to be spent, so "the Fed uncertainty principle" tells us, that they can either control interest rates, OR the inflation, but NOT both, simultaneously
So what you are trying to say is they are monetizing the debt
The assumption here is that they can keep rates low as long as they want. If they are buying 100% of the issued debt, you'll see natural sellers of treasuries come into the market (which is what we recently saw) and rates will rise. So if they want to keep rates low, they have to also soak up all the natural sellers. Then that money that was tied up in treasuries starts moving into other assets. That's where things get real interesting.
It still seems like a circular firing squad and nobody can pull the trigger. If other countries dump too many treasuries too quickly they tank their own economies because we are still a major consumer. However, this is likely changing. Then instead of a circular firing squad the game is going to look more like Texas Hold'Em and hopefully nobody calls Bernanke's bluff. It does seem unlikely that the Fed can control both inflation and employment at the same time.
I feel like there is an argument in here somewhere for owning a bit of gold.
... Rates can not be allowed to rise ...
The action in the bond market was frightening to some of the participants because it was essentially crashing and interest rates were spiking. This action was incredibly violent. All of this type of trading was much more threatening to the Fed and to the economy than the gold or silver prices. America is too weak economically to see interest rates spike, so they will have to make the bond market priority number one, and if that means gold and silver rise, to hell with it, they will let them rise.