Gold is a nearly perfect form of money. It is one of the few things on planet earth that contains all of the following attributes; beauty, scarcity, virtual indestructibility, and is also transferable and divisible.Gold always preserves its purchasing power over time and is the best hedge against a currency that is falling down. Gold prices increase when the market presages a currency will lose its purchasing power. The reason why gold reached almost $2,000 per ounce by the year 2011, was because many feared big deficit in the U.S. would soon lead to massive money printing and debt controlling by the central bank.However, the government has also managed to manufacture a temporary “recovery” in the economy by forcing interest rates to zero percent and thus producing bubbles in bonds, stocks and real estate.
Theses asset bubbles led to a consumption , which brought about a resurgence in government revenue.Deficits then fell hundreds of billions of dollars (although they are still gigantic and unsustainable), which has in turn caused the price of gold to make a correction from its long advance and to consolidate at the $1,200 per ounce .
However, there are now only two outcomes for the current fiscal, monetary and economic conditions; and they are both bullish for gold.
The Unlikely Scenario:
The Fed will stop buying $85 billion per month of bank debt . Nevertheless, this will have an big effect on bank lending, money supply growth and economic growth. The continued condition of negative short and long-term interest rates will lead to a rapid expanse of the fractional reserve lending system and inflation. The fear on the part of gold investors about the Fed’s taper will then quickly fade away, as rising inflation sends bullion prices higher,which will lead to higher gold prices.
The Realistic Scenario:
On the other hand, the Fed’s will lead to a longer-term interest rates, falling asset prices and a faltering economy. Those rising interest rates cause the economy to slip back into a recession and deficits. This will force the Fed to adopt a more substantial and protracted QE program than at any other time before, as it desperately seeks to keep long-term rates low in the context of soaring debt and deficits. Money supply growth in this case would be significant because the Fed would yet again be back in the business of monetizing trillion dollar deficits.
In either case the secular bull market in gold will re-emerge in 2014. The yellow metal will approach $1,600 per ounce by the end of next year.
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Theses asset bubbles led to a consumption , which brought about a resurgence in government revenue.Deficits then fell hundreds of billions of dollars (although they are still gigantic and unsustainable), which has in turn caused the price of gold to make a correction from its long advance and to consolidate at the $1,200 per ounce .
However, there are now only two outcomes for the current fiscal, monetary and economic conditions; and they are both bullish for gold.
The Unlikely Scenario:
The Fed will stop buying $85 billion per month of bank debt . Nevertheless, this will have an big effect on bank lending, money supply growth and economic growth. The continued condition of negative short and long-term interest rates will lead to a rapid expanse of the fractional reserve lending system and inflation. The fear on the part of gold investors about the Fed’s taper will then quickly fade away, as rising inflation sends bullion prices higher,which will lead to higher gold prices.
The Realistic Scenario:
On the other hand, the Fed’s will lead to a longer-term interest rates, falling asset prices and a faltering economy. Those rising interest rates cause the economy to slip back into a recession and deficits. This will force the Fed to adopt a more substantial and protracted QE program than at any other time before, as it desperately seeks to keep long-term rates low in the context of soaring debt and deficits. Money supply growth in this case would be significant because the Fed would yet again be back in the business of monetizing trillion dollar deficits.
In either case the secular bull market in gold will re-emerge in 2014. The yellow metal will approach $1,600 per ounce by the end of next year.
Try our demo http://trustcapital.com/demo_account.php
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