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QE3

QE3 – where will it stop?

Over the last 30 days the value of gold has increased by over 10% with many analysts pointing out that we have only seen the tip of the iceberg.  Whilst the fed has announced its intention to inject another $40bn every month – the real worry is that this particular prescription is an unlimited one.  Some refer to this stimulus topping more than $1.5 trillion and with no end in sight the dollar could lose significant value.

“Even when the unemployment rate begins to come down decisively, we’re not going to rush to remove policy,” Bernanke said at a press conference

Japan has now joined the United States and Europe in mounting more stimulus measures to boost its economy.

As the world continues to print more and more money, currencies will depreciate and inflation will trickle upwards. The two effects together will mean that people’s cash held in bank accounts or otherwise will need to yield more and more interest to break even with the cost of living. Do you see banks increasing interest rates any time soon?

The relevance this has with gold investment is that the dollar has an inverse relationship with gold; as the dollar loses value – it takes more of it to buy the same ounce of gold thereby making gold more valuable. Furthermore as inflation pushes up the cost of goods and services it also pushes up the value of gold and people rely on this trend in order to keep up with the rising costs of living.

As other central banks follow the lead set by QE3, gold’s appeal will strengthen and people will exchange their depreciating cash for gold that’s increasing in value.

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Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

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