Wednesday, September 21, 2011

Operation Twist II

Gold has held support at $1775.  In the face of market turmoil this shows how strong gold is.  It is what makes the world of finance go 'round, literally.

Bernanke was forced to loan out a tremendous amount of gold to finance his operations, thus one reason why gold has appreciated so much over the course of his tenure.  The dollar still spins it's wheels at DXY 77, as equities fall down to earth.  The inorganic nature of bonds seems to be the only thing left from turning the system back over to a gold based one.  That day will come soon.

The demand for US Treasuries has soared, which is why Bernanke is the only major buyer now.  If he did not have 14k tonnes of gold to loan then his game would be up.  He will loan gold until the wheels fall off.

Operation Twist II will buy at the long end of the curve, flattening it, and setting it up for a violent move north.  The short term rates always move first, and now that he has focused on the back end he has left the most important part vulnerable.  After all, how many more easing efforts can he do?

Gold has tested support three days at $1775, and three is the magic number.  I would look for gold to move back up to the middle of its range by Friday.  Then we will wait on news to figure out if we are moving higher and testing the recent highs, or if we find support again.

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