Gold Moves Sharply Higher

Gold shot sharply higher today, closing above $1600 per ounce for the first time in nearly 3 weeks.

Gold was motivated by a weaker US dollar amid speculation that the US Federal Reserve will institute some sort of monetary stimulus policy, dubbed “QE3” by observers.

Spot gold was more than $28 per ounce higher today as a result.

A further monetary stimulus package would benefit gold for two reasons:

1. It would further undermine the value of the dollar. Since the dollar is the world’s reserve currency of choice, any weakness in the dollar turns out positive for gold. In other words, gold serves as a counterweight to the dollar. By essentially creating more dollars out of thin air when the world is already awash in dollars, the inevitable outcome of a new QE3 would be a weaker dollar and higher gold prices.

2. By pressuring interest rates even lower, investors seeking safety and security would be more inclined to turn to gold, since yields on bonds would in many cases actually be negative after inflation is taken into account.

Now is the time to move into gold–before the Fed announces a new QE3 policy that will send prices significantly higher.

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