Your friend fails to make an important assumption, one implicit in Hussman's article: QE2 has for all practical purposes already ended. As I recall about 85% of the Fed's gunpowder has been spent so additional QE to end of June will be slowed (and probably has already slowed) considerably.
What this substantial slowing in QE will do to short term rates without the Fed's intervention bears watching. If they remain at present levels, look for the Fed to do nothing. If they go slightly higher, look for the Fed to probably do nothing for the market will be doing its work.
If the go substantially higher, look for Fed jawboning.
The object will be to gradually raise rates without encouraging inflation. I don't think it makes any difference to the Fed if this happens organically or via its policy actions, so long as it happens. If the Fed succeeds in this strategy, gold investors are screwed for real rates will be going up, i.e., nominal rates minus inflation becomes a larger number. With higher oil prices fueling inflation, I don't see how this can happen, but who knows, they can drop, too.
I kinda think this is the basis of the advice you might have been listening too when you sold paper gold recently. It's not bad advice, but I truly think one needs to keep an eye on the actual versus theoretical direction of short term rates before thinking about selling because tea-leaving their direction is not an easy thing. On the other hand, Bernanke could pull a fast one on us and announce a rate increase out of the blue and give us a good screwing that way....won't be the first time. lol |
