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QE3 will drive up gold price but won't solve economic problems

Commodities / Gold and Silver 2012 Sep 15, 2012 - 04:34 AM GMT

By: Submissions

Commodities

Paul Brent writes: Gold's sharp price increase in response to yesterday's QE3 announcement compared to a smaller increase in equity prices indicates the futility of more fiat currency expansion, according to Bullion Management Group Inc.'s CEO Nick Barisheff. It confirms what he sees as gold priced at $10,000 an ounce.After yesterday's announcement of QE3, something dramatic occurred in the price of all precious metals. Gold futures shot 2.2% higher yesterday while the S&P was up 1.6%. Platinum, another precious metal, also rose more than 2% and silver jumped almost 4%.


In the lead up to QE3 at the Federal Reserve's Jackson Hole conference last month, US Fed Chairman Ben Bernanke expressed grave concern at what he called the stagnation of the labour market and last week, U.S. job numbers were so awful that they added up to the lowest labor force participation rate in 30 years.

"That's what Bernanke got from QE1 and QE2," says Barisheff. "The fact is the Fed can pump all the money it wants, but there is a massive debt de-leveraging going on, and both U.S. consumers and U.S. businesses will continue to save versus spend the easy money he's pumping into the system. Non-financial U.S. companies currently hold $930 billion in bank accounts, 50% more than before the recession, and the U.S. household savings rate has jumped from zero to 4% and it the rate is 3.6% in Canada."

After QE1 in was announced in March 2009, the gold price was relatively muted throughout the period, there was an assumption that bad debt would be forgiven and/or accounting arrangements made to hide the insolvent state of large financial institutions and sovereign nations.

QE2, announced in August 2010, gold rose and the rise in equities was less than after QE1. The evidence is clear that more money did not solve the problems.

"The idea that systematically degrading the value of hard-earned corporate and personal savings through unlimited money printing is going to produce an economic miracle is not supported by the results of Q1 and Q2, not only in the U.S. but also in Europe," says Barisheff. "The only things that are going up is central bank purchases of gold in countries like China and Russia, they are tired of holding depreciating US dollars and Euros. Other hard assets including silver, platinum, farmland and agricultural products untainted by the mirage of financialization are also rising."

Nick believes that the only way to respond to this massive wealth destruction is to hold and buy gold. Stimulus programs in China, Europe and the US are all different but the result is the same says Barisheff, "They are all effectively devaluing currencies against the real money of precious metals and at the same time central banks continue to buy gold at record levels and China, the world's number one producer of gold is holding on to all of its production, they see the value of gold."

"Gold told us something yesterday," says Barisheff. "The message is that the era of high returns financial assets for both stocks and bonds, as Pimco's Bill Gross has stated, is over, and gold is the primary go-to asset for wealth preservation. QE3 will only serve to accelerate this trend."

Barisheff still expects gold to be $1,900 by the end of this year and Bloomberg reports an even more aggressive view today that analyst's forecasts range up to $2,500 by Q1 of 2013.

Barisheff's book, $10,000 Gold; Why Gold's Inevitable Rise is the Investor's Safe Haven is due out later this year and is available for pre-order on Amazon.com

About Bullion Management Group Inc.

Toronto-based Bullion Management Group Inc. is a precious metals bullion management company with CDN$567 million of Assets Under Management (AUM). The company is an Associate Member of the London Bullion Market Association (LBMA). The BMG BullionBars program is for high net worth clients and wealth managers seeking to purchase Good Delivery, uncompromised physical bullion bars with allocated storage or optional delivery. For more information on BMG, please visit: www.bmgbullion.com.

Copyright © 2012 Paul Brent - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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