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When QE2 ends, I imagine the Treasury is going to have difficulty finding foreign buyers at the current rates. Would an interest rate rise see money generally flow out of commodities and into Treasuries as their rates of return rise?

pms and other real assets will go up so long as market or nominal rates are less than the real rate, even if the nominal rate is rising. go back and study the late 70s. it took a double digit rate increase by Volcker to stop them.

mortarman wrote:When QE2 ends, I imagine the Treasury is going to have difficulty finding foreign buyers at the current rates. Would an interest rate rise see money generally flow out of commodities and into Treasuries as their rates of return rise?

That might be the case only if Bernanke decisively raises interest rates by at least 400 or 500 basis points (4% to 5%), which I see as highly unlikely. A more tepid increase of 50 or even 100 basis points would likely be taken as official confirmation that inflation is a concern, while doing very little to address it. This "too little too late" move by the Fed could actually light a fire under PMs and other commodities.

there is concern that Bernank is going to pull some sort of stunt to justify QE3 - which is inevitable anyway - such as letting the stock market and commodities drop. but that is playing with fire. most pm bulls think QE3 is invetible, although possibly not continuous with QE3. i.e. there could be a gap in time. would be a heck of a buying opportuinty

The fed has alot of options to play around with.

depends on your perspective.

as the guy from GATA says, there are no markets anymore, only interventions. So who knows what stunts can occur in the price.

If you own metal unleveraged and don't have an immediate need for liquidity, you are ok. if you are leveraged, or you spent the rent money on silver, you are at risk.

you also have too look at what happens if the price goes down to say $28. Are you going to be upset for not selling? Me, I'm standing pat because i think long term i dont want to get shaked out of my position but i do think we are in for some strong shaking.

stocks are edging down on concerns over the end of QE2. Some think the fed will let the stock market crash to justify a new QE3. I don't know but it looks like its sufficiently possible that folks are selling stocks.

ultimately, our currency has only gotten worse so the value of pm's has only increased, even if their price in FRNs has not.

Lemon Thrower wrote:there is concern that Bernank is going to pull some sort of stunt to justify QE3 - which is inevitable anyway - such as letting the stock market and commodities drop. but that is playing with fire. most pm bulls think QE3 is invetible, although possibly not continuous with QE3. i.e. there could be a gap in time. would be a heck of a buying opportuinty

I'm actually banking on this.

The fed just sold half of AIGs portfolio. This implies they're bailing on the market. What do you know, it dropped below 12000 the next day. I'm expecting the dollar index to go up and commodities to go down short term, and then a larger swing the other way depending on what the fed does, because yes, it would be completely idiotic to not have QE3, but on the other hand, it's like blowing bigger bubbles.

All the Fed has to do in order to keep easing is to continue buying Treasuries with the interest they accrue from their existing portfolio. This will not be "new" money so far as the Fed is concerned so it won't be called QE3, but it will have a similar effect and will buy the government more low-interest rate time.

So, I should sell my silver now, and buy it back in a month or so?

ask me in amonth.

the market has been trending down because it was propped up by the fed and folks don't know if the fed will continue to prop it up or not.

it seems like the calm before the storm. whether the storm is up or down is hard to say. if the market crashes, then folks will sell pm's to cover their losses elsewhere as in 2008. so it seems like patience and prudence is the order of the day. on the other hands, that is becomeing a crowded trade, so a contrarian would go long here.

the one thing i can say with certainty is that rising nominal interest rates by themselves did not stop the pm bull market in the 70s. it continued for several more years, and was not stopped until the fed raised rates above the real rate. this time, uncle sam owes so much that sort of rate increase would bust uncle sam.