I have a slightly different take. In my version of reality the Fed has lost control, or at least is now seen as ineffective, therfore the market responds the only way it knows: sell risk and head straight for treasuries. Ironically this works to keep rates low, thus serving the Fed's purpose.
Problem is, there are no borrowers left, and without them you can't keep the game going. All that's left is a mountain of derivatives (with just about zero liquidity behind them) propping up bank balance sheets that everyone knows (or ought to know) are pure fantasy. To see this you only have to look at the stated book value of the big 5 banks and compare that to their current stock price. If their accounting is correct their stocks are screaming buys, and yet aside from Warren Buffett, no one steps up.
The real fear the Fed faces though is something they truly have no control over: a politically driven solution to the crisis in Europe. That solution would take the form of a major debt writedown, much of which is held by US banks, and winding up some banks altogether. That plus a unified fiscal policy (part of the deal) and the fact they haven't exported their manufacturing base to China puts them in a better place relative to the USA which, as a result, will have to go through 2008 all over again, and still have the issue of bank insolvency in front of them.
That's what keeps Bernake up nights, IMO. Not the price of gold, not the S&P index, or even the price of oil. No, his fear is that Europe does what he knows he can't do: cut the head off the financial monster that's strangling the economy - put them through bankruptcy and then on triial. Unfortunately these are the people he golfs with, so I ain't holding my breath.
Europeans, OTOH, have some history when it come to the effects of economic breakdown. There's plenty of people still alive, many in positions of power, that can see the road the US is on and want no part of it because they know it eventually leads to war. Been there, done that.
Now if you want a more precise prognostication with targets and entry points that's gonna cost you!
<g>
ebear
So the fed has some problems, any real measure of the economy shows major contraction.
It needs to start QE3 but the people say a big NO...so hit their 401k's with volatility and scare them into begging for QE...HAPPENING NOW but people not scared enough yet, i think they will be soon.
It needs inflation to show lower, So smack commodities and gold and silver to print lower [fudge] inflation numbers so the printing[QE] is accepted. This smacking also acomplishes taking some from the metals market never to return, probably should not have been in anyway.
Then come out with this following the timeline to QE3....all a game.
http://www.reuters.com/article/2011/09/29/us-usa-fed-bernanke-idUSTRE78R5QK20110929
Large money printing in the future once all the balls are in place. Qe to infinity is the answer under whatever program or name or sterilization method is used. Gold likely to go down when announces only to recover and be much higher next yr at this time.
We could stop here in gold at 1580 /1600 but i feel lower is inthe cards as we have jobs report coming and some kind of qe to be announced in Europe. Expect crazy volatility.
