Announcement of QE 3 Heats Up Gold Market
Posted by Adam King on March 26, 2012
Ben Bernanke, Chairman of the Federal Reserve, announced a third round of the fiscal stimulus known as Quantitative Easing and the gold market surged on the news. Investors and analysts have been awaiting the announcement of a third round of Quantitative Easing for almost a year and most markets have been up in intraday trading on the news that the official program has been given the go-ahead.
Whether there would be a third Quantitative Easing has not been argued or debated in investment circles as the intervention so far taken by the Fed needs to be bolstered or there would be a risk of losing what economic recovery there has been. The short-term injection of capital into markets is very good for floating nominal highs to stave off stagnation, but it carries significant risks.
Quantitative Easing is inflationary by its nature, and therefore it benefits the gold market. The value of an ounce of gold changes as it is priced in dollars. Before the fiscal stimulus today, gold was trading around $1,660 per ounce. Shortly after the announcement of the round of Quantitative Easing by Ben Bernanke in front of the National Association for Business Economics the price of gold reached $1,690 per ounce.
The effect of Quantitative Easing on the gold market is pretty significant and clear as demonstrated by these numbers. Quantitative Easing is also a very protracted program. Bernanke, who has said in the previous two weeks that the US recovery has been, “painfully slow,” has presided over two official rounds of Quantitative Easing as well as TARP bailout packages in his administration at the Federal Reserve.
Since these programs began four years ago, the price of gold has tripled. There are so many dollars being printed into existence by the Federal Reserve that it is literally increasing the price of gold on a nominal basis. This is one of the fundamental indicators we have been using to accurately forecast a rise in the price of gold for years.
The gold market is literally on fire today with the announcement of the third round of Quantitative Easing, registering over a $30 rise in prices in a few minutes. The news of the stimulus is reason enough for gold to trade higher. As the Quantitative Easing inflationary stimulus works its way through the system, the gold market will benefit even more.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
Categories:
US Gold Market
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