As an investor, it is usually interesting, and sometimes worthwhile, to pay close attention to the messages coming out of the Federal government. Government policies frequently influence not only stocks, but also bonds, currencies, and commodities such as the gold price and silver price. Based on the significant, unusual, and quite eventful economic developments of the past few years, the government has taken on the role of reassuring the American public that things will be ok and ultimately return to “normal.”
However, there is a relatively substantial and growing contingent of market participants and economists who believe that the economy has entered a “new normal”, which involves considerably less debt and leverage in the system. That goes for both corporations and consumers. These people cite low interest rates and encouragement of homeownership for all by our government as some of the main causes for the blowup of the debt bubble in 2007 and 2008. And they go on to say that this type of debt fueled economy is not coming back for a long time because of the destruction caused in 2008 with the threat of the financial system unraveling. Instead, a new normal has arrived, consisting of more government intervention in and regulation of the financial markets, coupled with a scared and cautious consumer. They say this because the psychology of the average person on Main Street has changed, after seeing his/her investment portfolio cut in half for the second time in less than a decade, the value of his/her home decline dramatically, and perhaps even his/her job disappear. Continue reading ‘Government Policy Changes the Gold Price’ »