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Gold Bullion and QE?

May 21, 2012 - Gold bullion is enjoying a slight surge in spot price that some analysts and investors are seeing as a turnaround in the market. This is despite a strong signal that the correction is in full force and may in fact herald a round of Quantitative Easing. Last week gold rose 0.5 percent per troy ounce and silver rose 0.61 percent per troy ounce, but the correction will continue.

QE, or Quantitative Easing, is the Federal Reserve’s solution to economic instability in markets and consists of the injection of several billion, perhaps trillion, dollars into markets partially through the purchase of bonds. Essentially, what Quantitative Easing does is bolster the buying demand in some markets while prices in others in order to make things look and feel good enough for a limited time to stave off worse economic consequences.

There has been a major correlation between Quantitative Easing programs and the prices of gold bullion, which is readily observable during the last five years. With each successive round of stimulus, the price of gold bullion has grown and risen higher. This, partially, has made gold the trade of the last decade. At times, gold has realized a 600 percent return, making it the best performing asset in its class as well as the best investment in some time frames.

Because Quantitative Easing increases the money supply, it necessarily floats the price of gold higher because each time you increase the number of dollars in circulation you increase the number of dollars it takes to purchase an ounce of gold. Each time there has been a round of Quantitative Easing, the price of gold has risen dramatically higher.

Given the current correctional phase in gold, we may be looking directly at a scenario in which the price of gold could skyrocket perhaps even higher than the all-time nominal record in price achieved on September 6, 2011 at $1,923 per troy ounce.

Many key factors will determine whether Quantitative Easing will take place in the near future. To be attended to this week are the US Housing Starts, Housing Sales, and the Jobless Report will which be emerging around mid-week. These will have a short-term effect on the price of gold, but will certainly contribute a great deal to the overall atmosphere.

Gold bullion will continue its correctional movements making gold one of the more interesting investments currently available but also signaling that a round of Quantitative Easing may be in our direct future.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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