Gold Hits 4-Month High On Predictions of Fed Stimulus

The price of gold has surged to a 4-month high in the wake of the release of Federal Reserve Open Market Committee minutes indicating that the Fed is nearly ready to turn on more stimulative policies in an attempt to boost economic activity in the US:

http://ca.news.yahoo.com/federal-leaning-toward-more-stimulus-180827376.html

The policymakers at the Fed are clearly frustrated at the slow pace of economic activity and chronic high unemployment in the US and are also no doubt under intense political pressure from the Obama administration to act soon to boost Obama’s re-election chances in less than 3 months.

What all this really adds up to, however, is a further undermining of the US dollar. These types of stimulus packages have been largely ineffective at boosting economic activity and lowering unemployment to acceptable levels. But one thing is undeniable: they increase the supply of US dollars in a world that is already awash in dollars. This has the impact of reducing the value of the dollar.

That is why investors are moving back into gold in a big way. Gold has historically had a negative correlation with the dollar, so policies that undermine the value of the dollar tend to boost the price of gold.

Because at this point we only have an indication that the Fed has intentions of instituting such stimulative policies, investors have a window of opportunity in which to act. Buy gold investments now, before the dollar declines in earnest and gold prices are much higher.

 

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