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Dan Norcini continues:

“As a result, traders read Yellen’s comments two days ago, pushing for additional monetary accommodation, as leading into a continuation of that thought pattern in Bernanke’s testimony yesterday.  So when Bernanke came out with his testimony, again, it caught everybody off guard.

The markets had already moved because China had cut interest rates overnight and there was the anticipation of Bernanke announcing some additional stimulus.  Gold and silver had moved, along with the dollar and bonds and then everyone got caught flat-footed....

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“So we saw a reversal of all of those trades that were put on by various entities in those markets.

Gold and silver gave back the previous gains, and the dollar began to reverse and move higher.  The S&P also gave back some of its gains as well.  The bottom line is it was a huge day of disappointment for those looking for more stimulus, and that’s what we’re seeing in reflected in the trading in these key markets.

In the overnight session we are seeing the US dollar continuing to strengthen, while gold, silver, oil and other key commodities, as well as global equity markets continue to slide.  This is the problem central planners face going forward.  Without additional stimulus, global markets are in an extraordinarily dangerous situation.

Because there was no injection of stimulus, global markets remain at risk of a continued collapse.  So this remains an extremely dangerous environment for investors and traders around the world.  The great fear, of course, is that things could spiral out of control to the downside at some point if we get panic.   

It should be pointed out, however, that Bernanke also did not rule out any option for additional stimulus if it is need.  So the Fed is not ready to pull the trigger on QE immediately, but they will pull the trigger if events warrants that type of action.

This dovetails into what Michael Pento had correctly predicted on KWN, prior to the Bernanke’s comments.  Pento stated that we would not see any QE right now and proceeded to list the conditions investors should look for that will trigger the Fed into announcing additional QE.  I agree with his comments and everyone should read that interview and remember he did that with KWN ahead of what transpired today. 

The reality is that we are going to have to see more trouble in the equity markets, and unemployment continuing to rise.  Those are two of the five things Pento listed that I think are the most important to watch, the level of the S&P and the unemployment situation.

I should add that what Bernenke was very clear about is that, globally, we are now in an environment of extremely low interest rates.  This is an environment in which gold can thrive because interest rates are negative.  People will continue to buy gold because there is no opportunity cost to buy it.

This may not set the conditions for a sharp rally, but it sets a floor underneath the gold market.  When we see more QE, that will be the trigger for a significant rally in gold.  But the fact that central planners are keeping interest rates extremely low for the foreseeable future, this should keep a firm floor under the price of gold.”

Norcini also added:  “What is worrying professionals around the world, Eric, is what ammunition do the Fed and other central banks in the West have left?  At some point they have to realize that the policies they are following are ineffective.  So far we’ve had $2.5 trillion of QE in the US, but what do we have to show for it?  Nothing.  We have just postponed the inevitable, and now we are right back to a continuation of struggling global economies, and markets in turmoil.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with MEP Nigel Farage and Michael Pento are available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include Dr. Stephen Leeb, Don Coxe ($538 billion BMO), Art Cashin ($612 billion UBS), Rob Arnott (oversees $100 billion), Newmont CEO Richard O’Brien, John Hathaway and James Turk by CLICKING HERE.

Eric King

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