Lynn: Syria, emerging market crisis will stop the taper

“The Fed will carry on printing money longer than it planned to. It won’t have any other choice.”

The gold price on Wednesday took a breather after three sessions of strong gains that flushed out some of the more ardent precious metal bears.

By lunch-time the yellow metal was trading off its highs above $1,340 an ounce set in early morning trade to change hands at $1,418, as the drumbeat for US strikes on Syrian grew louder.

Boosted by its reputation as a safe haven in times of turmoil and renewed investor interest,  gold has rallied 20% from the intra-day low of $1,182.60 an ounce on hit on June 28.

At MarketWatch, Matthew Lynn, financial journalist and novel writer lays out the case that the new phase in the conflict in Syria and the crisis in emerging markets will stop the US Federal Reserve from winding down asset purchases under the bank’s quantitative easing program.

The timing of the taper of the stimulus program is a huge factor in determining the gold price – as long the the $85 billion a month in easy money continues to pour into markets it boosts gold and hurts the dollar.

Lynn argues the Syria fallout and the turmoil in the financial markets in India, Brazil, South Africa, Indonesia, Turkey and elsewhere are serious enough to convince chairman Ben Bernanke to keep the throttle open:

If the emerging-markets crisis spreads, and if a military intervention in Syria pushes up the price of oil, then the euro zone will be pushed back into recession as well. Very quickly, 70% of more of the global economy could have ground to a halt.

Lynn goes on to say that the Fed should heed the lesson of Japan which found out that “it is a lot easier to start quantitative easing than it is to stop it”:

The Federal Reserve is about to learn that as well. Over the next few weeks, the “Septaper” will be quietly shelved. It may try to end QE in February or March next year — but by then, some fresh crisis may have flared up to blow it off course.

Continue reading at MarketWatch

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