Gold - $1672 and climbing – this is just the start

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The Gold price has raced ahead by $32.30 to $1672.80 an ounce today thanks to the release of the last minutes of the meeting of the Federal Reserve Open Markets Committee (FOMC) that showed QE3 is just inevitable. Like we did not know that already. But this is just the start. Phrases involving genies and bottles spring to mind. Q4 2012 and 2013 will not be a time to be short of gold. $2000 an ounce or more lies ahead.

The statement from the Fed is pretty explicit.  “Many members [of the FOMC] judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

Okay. China is crashing. Europe is a mess. The US economy is not exactly supercharged even without these adverse gales blowing in from overseas. So take it as read that there is more Quantitative easing on the way in the US. If it was not for the matter of the looming election it would be underway already.

Meanwhile both China and the Eurozone (and Britain natch) must also engage in QE. This is plain and simple – a race as to who can debase their currencies the fastest. QE3 will not be a marathon or even a middle distance race. It will be a sprint. The one currency that will not be debased is gold.  There are some folks who blather that QE3 is “priced in.” But they fail to recognise that the next batch of QE must be on a scale not seen as yet and must also happen across the globe.

Personally, since I believe in sound money, I do not agree with QE at all. I think that the policy makers have opted for the wrong medicine for a patient who has already overdosed on debt (i.e. more debt) but for the policymakers now there is no turning back. All they can do is up the dosage. That is not discounted. $2,000 (and more) here we come.

Sorry, you ask about genies and bottles? That is inflation ( ie the debasement of a currency as a result of printing). Once the genie is out of the bottle it is hard to get it back in. Folks who say you can have a bit of inflation are like those who say you can get a bit pregnant. Life just is not like that.

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