Economist Brian Wesbury explains in the above video why the markets threw a tantrum after the Fed announced Operation Twist last week. To see the video, follow the link in the previous sentence (or just click on the photo) and then press the "play" button on the video entitled "The Fed squashes gold bugs."
Mr. Wesbury's analysis is very insightful and we largely agree with his conclusions. In fact, in our previous post on "Operation Twist" we described the reasons why Wall Street and Washington need to be weaned from the baby bottle of Federal Reserve reactions to every economic worry. After that post was published, the markets threw a tantrum on the following day, and we remarked that the markets had screamed for the bottle (more easing) and the Fed had handed them a pacifier instead (Operation Twist), which the markets promptly spit out and then threw a hissy fit.
Mr. Wesbury argues that the realization that the Fed was not giving more easing was the primary cause for the sharp 20% drop in the price of gold, and that gold may have topped after this action from the Fed. We have written many times before about the dangers of trying to time the gold market (and other commodity-based speculation), and why we believe that investors would be better served focusing on the fundamentals of businesses. For those previous posts we recommend revisiting this one, this one, and this one.
We advise all our readers to watch the above video for themselves.
