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Where the Fed's Taperings Might Lead...




The US Federal Reserve has reduced monthly QE twice in 2014.
Last year's monthly 85 billion dollar easing has first been reduced to 75 billion in January, then to 65 billion in February. And it is possible that we will see more scaling back even of this amount.

Currently, less dollars are being created than a year ago, while the US economy is still struggling with debt and slow pace of growth. The US economy doesn't show strong signs of improvement and money is needed to pay off debt.

It is a risky situation, because the US economy has been dependent upon easing, which helped create the cheap dollars that were required to pay off the debt.

In early 2014 (January and February), the Fed has reduced the QE volume, which automatically means the capacity to pay off debt has been also reduced. Also, the newly created dollars are more expensive than back in 2013, when the QE rounds produced more dollars.

There is less money, the dollar is stronger, but debt continues to accumulate.

Economist, businessman, investment broker and author, Peter Schiff believes that eventually, the Fed will have to stop tapering and resort to increasing the volume of monetary easing, in order to pay off the debt.

Gold and silver prices have been going down since mid-April 2013. The smaller spikes didn't help the metals recover.

If tapering continues, the dollar will become stronger, thus putting more pressure on precious metals.

Tapering would only make sense if the US economy was booming. In the current situation, it will rather have some short-term dollar-strengthening effect, psychological effects as well, but the lack of enough stimulus will most likely (indeed) pressure the Fed to act - then, we might see QE increasing again. And if that happens, it will almost certainly implicate higher gold and silver prices.

It's likely that gold and silver prices will continue to fall in 2014, but as the Fed will decide to increase QE, then the bulls might gain strength.





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