Monday, August 9, 2010

Superior Gold Group - Gold prices looks set to climb as Fed ponders more QE

Many market observers expect the price of physical, dealer gold - as well as futures - to rise in the next few days, as the Federal Reserve reconsiders its monetary policy at a meeting this week. Given the weak state of the economy, particularly with regards to employment, it seems likely that the central bank will consider engaging in further quantitative easing.

QE means that the bank will buy assets - probably Treasury notes or mortgage-backed securities - with freshly-printed dollars, adding to the supply of money and theoretically stimulating demand. Some, however, have compared these efforts to "pushing on a string" - given banks' and companies' current uncertainties about the economy, monetary policy and taxes, many are simply hoarding cash in case they have some lean years ahead.

If that remains the case, handing out more dollars won't do much beyond devaluing the greenback and increasing the threat of inflation.

In an inflationary environment, hard assets like dealer gold and silver are king and queen. Lately, the dollar and gold bullion have been rising in tandem, an unusual situation brought on by the recession. Many analysts, however, expect that relationship to reverse soon, with gold bullion and spot prices rising as the dollar falls.