The recent pull back in gold price is fundamentally tied to the decision by the Federal Reserve to partner with central banks around the world to lower the swap rate on the US dollar. Posted by James Randolph on December 14, 2011
Investing in Gold to Hedge the Fed
December 14, 2011 – The recent pull back in gold price is fundamentally tied to the decision by the Federal Reserve to partner with central banks around the world to lower the swap rate on the US dollar. This monetary intervention has been regarded with a little distance as the effect of such a move by the most fundamental banks is incredibly difficult to predict. While the action does amount to money-printing, it’s far from a direct intervention and that has confused some investors.
The best thing you could be doing in this market is investing in gold. The reason why is pretty simple: you want to be prepared for any outcome of the Fed decision. If the intervention of the central banks is successful and the markets start improving, you want to have your money where shortages will drive value. If the economy gets worse because of the Fed action, you want to own a real asset with an inherent value.
Gold is the hedge that allows you to do both simultaneously. If the economy gets better, the shortages in commodities will propel the precious metals higher. If the recent intervention fails to stem the problems in Europe, central banks will continue to print money. Printing money, at the end of the day, is their only recourse to any problems in the markets.
Central banks printing money, while it may not necessarily be good for economies, is good for gold. The price of gold is very much a reflection of the health of currencies. It is notable then, that gold has been up 600% in the decade. It is, in effect, a strong signal of the problems in currencies.
It is far more preferable that the central banks of the world work out a deal to help the situation in Europe effectively. However, if they don’t, and so far they have not been able to, it is highly advisable to be invested in gold in order to maintain your wealth and protect your family.
Finally, central banks, the very entities who have been taking these drastic monetary actions, have been buying gold at forty year highs in the third quarter of this year. If the people making the rules are buying gold, investing in gold is clearly what you should be doing now, too.
Senior Staff Writer – Certified Gold Exchange