Gold was up big this week thanks largely to events on both sides of the Atlantic, with the biggest boost coming from the U.S. Federal Reserve.
This week the Fed announced it was continuing what are essentially zero interest loans to banks for at least another two years. Such a move by our nation’s central bank raises the spectre of inflation and means a continuation of the same dysfunctional currency policies that got us into this mess in the first place.
Gold reacted predictably by launching through the roof; prices went from $1,649 late Tuesday to $1,718 on Wednesday.
Meanwhile, over in Europe Greece is once again at the crisis point and, once again, negotiators working on a deal to restructure its debt seem poised to announce yet another deal to keep them limping along.
I expect another deal announcement on Greek debt and expect it to fall apart next month, like always. In the unlikely event the Greek debt deal holds together we may see gold running into some strong economic headwinds in the near term.
The economy is getting better in the U.S., not even the most pessimistic economists are denying it now, though many are suggesting we’re in for another fall in 2013. For right now hiring is picking up, production is increasing across a number of sectors and corporate earnings announcements sound like a continuous chorus of “Zippity Do Da”.
Next week expect more good economic news combined with what’s almost certain to be another announcement of a deal on Greek debt, kick in a little profit-taking and we could well see gold prices sag next week.
What the Fed’s monetary policy really means is Wall Street will continue being able to take basically zero interest loans and gamble that money on the secretive and unregulated swaps market, which is more profitable and less trouble than loaning it out to those pesky small business people.
Though the Obama administration will certainly put more pressure on banks to actually loan the money out like they’re supposed to, there really isn’t any enforcement mechanism to make them do it. So, if you believe the big banks will pour money into the economy out of the goodness of their hearts then sell your gold now. Otherwise, you can count on greed and the gambling itch to keep gold prices healthy through the next few months at least.