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The Federal Reserve's Silver Lining

Politics / Central Banks Nov 24, 2009 - 04:35 PM GMT

By: Dr_Jeff_Lewis


Best Financial Markets Analysis ArticleThe central bank of the United States, the Federal Reserve, is under intense scrutiny for its unprecedented actions following the 2008 financial crisis.  Amidst the carnage of the financial crisis and real estate crash, Congress has taken a fresh look at the actions of the Federal Reserve on the economy. 

Seeking an Audit

A new bill in Congress would authorize the Government Accountability Office to audit the inner workings of the Federal Reserve and publish the results with a 180 day delay.  The goal of the audit to allow the market to see what the Federal Reserve has done to end the crisis, as well as offer the public an inside glimpse regarding which banks may be seeking additional bailout funds. 

However, the most valuable asset to the audit is the balance sheet.  Should this bill pass, the entirety of the balance sheet will have to be made public to the GAO, which can then identify how inflated the US currency has really become.

A Boon for Metals

Although the Federal Reserve does publish money supply figures, including the monetary base, or the amount of money in reserve at the Fed, it does not publish what agreements it has made with foreign central banks or for-profit banks in the United States.  These agreements could ultimately show that the dollar has been further inflated, or is subject to inflation, if troubled banks demand more capital in order to stay solvent. 

In addition, should the bill pass, the Federal Reserve will have to disclose its open market operations in the stock, commodity, and metals markets – which may reflect changes in positions in the gold and silver market.  Finally, the audit will show the amount of gold and silver owned by the Federal Reserve that has been “leased” to investment banks, as well as quantify to what degree the central bank has manipulated the prices for gold and silver.

An Instant Rally

Opposition to the bill from the Federal Reserve has been unwavering, with the Chairman, Ben Bernanke, saying that an audit may grossly affect market valuations for certain banks, as well as the value of the dollar.  The Fed is afraid that should the public find out about the operations that take place behind closed doors, the public may lose confidence in the banking system, as well as the dollar, ultimately affecting the Fed's control over the economy. 

With the opposition to the bill making such dramatic claims about its negative impacts, investors should expect that an audit will discover far more inflation of the money supply than has been claimed, pushing precious metal prices higher.

Buy Before Disclosure

When the innards of the Federal Reserve are made public 180 days after the audit is complete, investors should expect a dramatic increase in the value of both gold and silver.  This audit could shine light on an ongoing, multi-year investigation into market manipulation, as well as expose just how greatly the dollar has been devalued by inflation. 

If the .25% rates and staunch opposition are any indication, the Federal Reserve has a lot that it may want to keep covered up and out of the eyes of investors.  Precious metals investors, however, have absolutely nothing to worry about, and they can only gain should a full audit be conducted.

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

Copyright © 2009 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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