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March 11, 2010 – Economists are seeing the impact of Quantitative Easing as the next condition to benefit gold investment. Wikipedia defines Quantitative Easing as “an extreme form of monetary policy used to stimulate an economy when the interbank interest rate, which in the US is called the federal funds rate, is either at or close to zero.”

Wikipedia goes on to explain, “In practical terms, the central bank purchases financial assets (mostly short-term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has created ex nihilo (out of nothing).”

The reason Quantitative Easing benefits gold investment is inflation. Bob Tonachio, CEO of Robert James & Associates, Inc says, “If the money supply grows faster than the economy, that will create inflation as it is impossible for the economy to grow anywhere near the vertical spike in the monetary base, inflation is coming.” Inflation devalues the currency, and then gold prices typically rise.

The signs of inflation are already showing; the Economic Cycle Research Institute's US Future Inflation Gauge is designed to predict cyclical swings in the rate of inflation. It has been indicating the potential of inflation for nearly a year. After ten consecutive months of increases, the gauge dipped slightly in February, but analysts still see the trend continuing higher.

"Despite its first downtick in 11 months, the USFIG remains in a cyclical uptrend, with underlying inflation pressures continuing to trend upward," said ECRI Managing Director, Lakshman Achuthan. Fundamental analysis generally indicates conditions before they arrive. Jim Willie CB of the Golden Jackass writes, “The technical chart of the gold [investment] price shows…the long-term trend is up, seen in the still rising 200-day moving average.”

“He continues by saying, “The 50-day MA offered support in late February. A stealth rally in gold is my forecast. Reaction to broad fresh new economic weakness in both the United States and Europe will trigger a second formal round of Quantitative Easing, the euphemism for grotesque monetary inflation and organized ruin of currencies. When the gold [investment] price moves beyond the upper pennant barrier, it might move quickly.

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Stewart Lawson

Senior Staff Writer - Gold-Investment.info