November 05, 2010 – QE2, the new stimulus plan, is here and it has already sent gold bullion prices to record highs. The dollar, of course, just as quickly headed in the opposite direction.
The new plan seems to fly in the face of common sense by violating a sacred tenet that keeps central bank policy from becoming too tightly linked with the government’s financial condition. In essence the Fed will print up $600 billion to pay off government debt in the form of treasury bonds with the expectation that the infusion of cash into the economy will put it back into motion.
However, the banking system is already sitting on unprecedented quantities of cash. Printing more while we are perilously in debt bears considerable risk and according to many experts has little hope of creating any meaningful impact on the economy.
Already we are seeing a flood of cheap dollars in the global market posing the threat of inflation and asset bubbles in emerging economies that are closely linked to our currency. Those nations are quite aware of the danger and are watching the impact of QE2 very closely. The potential is high for protectionist actions at the first hint of trouble, and a repeat of the 1990s’ panic is certainly not out of the question.
We are treading on very thin ice, risking the possibility of falling into hyperinflation for questionable gains. Investors who are counting on traditional assets to carry them through the treacherous times ahead are betting blind while those who are strongly invested in gold bullion have an ace in the hole.
Regardless of how QE2 ultimately plays out, there is widespread consensus that investment demand in the gold market will remain strong well into the future, fueling continued growth in gold bullion prices.
