Gold Soars to $37 to 6-month High on News of QE3

Against a backdrop of turmoil and violence in the Middle East, the Federal Reserve today announced a new round of monetary stimulus to jump start the stagnant US economy.

As a result of this announcement the price of gold shot up $37 per ounce to a six-month high, closing at just under $1,770 per ounce.

Stocks also soared in response to the announcement in hopes that the new Fed policy would succeed better than QE and QE2 in getting the US economy humming along again. The Dow finished higher by over 206 points.

The nature of QE3 amounts to the Fed going out in the open market and buying $40 billion worth of Treasury bonds every month, thus increasing demand for US Treasury securities and injecting more dollars into circulation.

We are not at all sure that this will result in a healthier US economy, but we are sure that it will result in a weaker dollar and higher inflation. Because of that, we expect that the current bullishness in stocks will eventually expire and the bullishness in gold investments will continue. A weaker dollar and higher inflation have historically been bearish for the stock market and bullish for gold.

Flooding the world with more dollars can only mean a weaker dollar and such stimulative monetary policies have historically led to higher inflation. We expect that inflation will make itself felt in the form of higher oil and gasoline prices in the short term and in other areas down the road.

All of this should prompt investors to buy gold investments now because it appears that gold has a ways to run. And the best way to take advantage of higher gold prices is to buy rare gold coins, which have added profit potential due to their scarcity.


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