The stock market suffered one of its most drastic falls on February 5, 2018. The price of gold rose but as equities started rebounding after the selloff, gold trended lower.
Gold has enacted a portfolio hedge when markets rapidly swing and the recent pullback was no different. However, something was quite bizarre with regards to the Fed’s balance sheet a week after the market meltdown. Recently published data shows that the Fed’s balance sheet increased by 14.1 billion during the week ending February 14th, 2018.
By the looks of it, the Fed had reverted back to “quantitative easing” by printing money out of thin air by injecting $11 billion into the banking system by purchasing mortgage-backed securities. It’s important to realize, that the cash injected can be leveraged 10x. In other words, the $11 billion injected is $110 billion of leverage for the banks to use for activities such as propping up the stock market.
However, most recently, the Fed’s balance sheet was reduced by $23.2 billion. By the looks of things, the Federal Reserve is serving Wall Street by providing a safety net around volatility. Which, of course, is driven by this ridiculous “wealth effect” policy that it has tried to achieve and preserve the last decade. It’s no surprise though, central banks are going to be central banks and continue to compound on disastrous and failed policy errors by repeating their old ones.