The gold market rallied today on the news that the next round of Quantitative Easing will proceed in April. Markets were floating across the board as the announcement, long awaited, reached markets via the back channels. Formerly, Chairman of the Fed Ben Bernanke had tacitly dismissed a coming round of Quantitative Easing in an appearance before the Congressional Finance Committee. Mr. Bernanke simply didn’t mention Quantitative Easing, and the markets took the omission as a direct delay.
Since that time, gold has been finding its place between $1,600-$1,750. The correction has discouraged some investors who had not understood the long-term aspect of gold investment, but vetted traders have been looking forward to lower gold prices in order to buy for some time now.
The gold market added $10 in intraday trading on the news of a next round of Quantitative Easing alone, but the gains will not necessarily last beyond week’s end. Of course, Easing has come in many other guises over the past two years but an official round of Quantitative Easing will inject liquidity directly into the markets and water down the value of the dollar, causing gold to rise as a store of real value.
The current mini-correction is just the opportunity they had been looking for as gold is more affordable now than it has been in over three months. As the pernicious effects of Quantitative Easing show themselves, investors with an eye to the markets are loading up on gold. Today’s announcement and the subsequent market reaction is tantamount to a display of the market’s addiction to Quantitative Easing. One could, speculatively, take the Fed’s revised position as a bowing to the demands of Wall Street.
The Fed and its subsidiaries did come out the following week, after multi-digit loses in all markets and announced a “sterilized” round of Quantitative Easing, but no investor truly knew what to make of it. Most investors wouldn’t adequately summarize “Quantitative Easing,” never mind “sterilized Quantitative Easing.” The program, intended to ease the effect of rapid money printing programs, involves a rebalancing of bank reserves. The demonstration of the market reaction to the news alone, however, is proof enough that easing in any form will cause a significant gain in all precious metals.
It appears that Quantitative Easing is on its way and the gold market, due to the effect of Quantitative Easing on the dollar, will be one of the direct beneficiaries.
Senior Staff Writer – Certified Gold Exchange