We’re Back!…Just in Time for QE with a European Flair

We’ve been away for a while due to Hurricane Isaac and a few other duties, but the Mind Your Money blog is back up and running! We apologize for our absence.

Since we last posted, gold has soared and now stands at a 6-month high. It seems all that talk of gold’s demise was premature. In fact, the price of gold is in positive territory for the year and, if recent news reports are any indication, gold will in fact be up on the year yet again for the 11th straight year. No other asset can boast such a track record.

But gold is far from overvalued, especially this year. In fact, in real, inflation-adjusted terms, gold is still trading well below the levels it reached back in 1980-81, when the nominal price exceeded $800 per ounce.

Among others, there are two major reasons why you should be bullish on the price of gold: QE3 and a European equivalent.

Just in time for the elections, the Fed is turning on the flamethrowers to try to get the US economy moving. Fed Chair Ben Bernanke has alluded to a new round of monetary stimulus (QE3). Whether QE3 will succeed in boosting economic activity is certainly debatable. What’s NOT debatable is that QE3 will undermine the value of the US dollar further still, which is, at this point, the biggest factor impacting gold. On top of this, such monetary policy is inherently inflationary–at a time when gasoline and oil prices are once again moving sharply higher. This too is bullish for gold.

But there is a new factor that was just added to the mix: the European Union just announced that the European Central Bank (ECB) will embark upon a stimulus policy of its own, in the form of bond buying, which will flood the world with more euros, another weakened fiat currency. This adds to the bullish scenario for gold.




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