Gold Higher On QE4 Speculation

Gold was higher Wednesday morning on expectations that the Fed will continue pumping money into the economy with a new round of stimulus the media is calling QE4.

In early trading gold was up $6.30 to $1,715.40 and silver was up $0.20 to $33.15, letting the silver/gold ratio creep up to 51.7.

Do keep in mind the market has already priced additional stimulus into gold prices, so if the Federal Reserve doesn’t come through expect a sharp correction. Also remember the Fed has disappointed investors expecting stimulus in the past, though that seems unlikely this time.

The global race to the bottom on currency valuations is one of the factors that will likely force the Fed’s hand. The same currency dilution on a global scale also bodes well for the future of gold and silver prices.

Many investors are waiting for more signs of inflation before they invest in gold, which is like waiting until the levee breaks to try and buy flood insurance. But inflation has remained relatively tame, a side effect of the debt economy. If anything the economy has gotten a whiff of deflation as hard asset prices have gone sideways at a time the government is printing record amounts of currency.

During the runup to the great crash Wall Street created massive quantities of money by making real estate loans to people who couldn’t afford the payments. In a debt economy debt is a form of money and consumer debt expanded at light speed. After the crash banks stopped lending to try and shore up their balance sheets. Had the Fed not stepped in with massive infusions of cash, we would have almost certainly gone through a brutal and sustained period of hard asset deflation.

Right now the inflation we would expect from currency dilution and the deflation from banks and individuals retiring debt balance out fairly well, but it’s a narrow path for the Fed to walk.

For gold and silver investors there’s no reason I see to change strategy unless deflation becomes a big problem. The Fed is going to keep the dollar competitive on global markets and that means more dilution ahead. Once banks and individuals get farther along in retiring debt, inflation will happen.

So enjoy these calm trading days and the chance to buy gold in the low $1,700 an ounce price range as the calm may not last.