Wouldn’t cutting rates increase the money supply, which should increase the amount of dollars bidding on gold, and drive the price of gold up?
. . . Or is it because everyone sells off their gold to buy stocks?
I think it has to do with the short run perceptions of market players. Remember that alot of the mainstream still believe thats the economic/political framework we operate in is not as flawed as it really is. In thier eyes, when Bernanke signals that he may cut rates, that would decrease the chances of a recession (in the short-intermediate run) by increasing growth (again, in the short run). A lot of the marginal money that has been put into gold is by traders/investors who use it as a hedge against a recession— if there is a recession the fed would REALLY have to print money and debase the currency even more than it is now, but if Bernanke signals he will do what is necessary to head off a recession right now, then a recession is less likely… But if he just sat back and did nothing, a recession would be more likely and the problems worse later on. again that is from the perspective of mainstream market players… so I think alot of it has to do with short run perceptions by market players. Not sure if I explained that real clearly but you get the idea… (I am sure some of the scholars can give a better explanation). Nonetheless, I think the long term bull market for gold is very healthy…
Agreed.
Like jbardacino, I tend to think that most market players have no idea how bad this situation is.
I think most people are still confused, and I would include most “prominent” economists here, about which economic school is real. They think it is quite possible to “agitate” the economy by throwing fiat money at it. They think it might be quite possible to borrow one’s way to prosperity.
The reason that austrian economics is stil not a flagship science is that most people a stupid. The only thing that is going to fix that for a while is a serious economic recession, and even then, it’s not like they will be any smarter, just less trusting. Until then, they are going to consider any sign a good sign, right after the crash, they are going to start perceiving any sign a bad sign.