A Quick Look At Quantitative Easing and What It Means for Gold

Tuesday, 04 September 2012
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Published in United States Economy

“Quantitative Easing.”   It’s a very lofty-sounding phrase, isn’t it?  You may have heard it uttered by a news anchor in a special report or by Ben Bernanke in one of his most recent speeches. 

Or maybe you hit upon QE while surfing the net, and made up your mind to look into what the phrase means when you had a few minutes.  The busy person that you are though, it slipped off your radar.

Now Let’s Call It By Its Real Name

No problem.  Let us help bring you up to speed. First things first:  let’s translate Econo-speak into English.  What quantitative easing comes down to is “easy money.”  Let’s rename it just that then:  easy money.  And instead of using the secret codes QE1 and QE2 to indicate the successive phases of easy money, let’s use lettering more appropriate to our new (English) name:  EM1 and EM2. And when its new day dawns for us very soon, that phase will be known as EM3. Make no mistake though.  Easy money is exactly what we’re talking about here.  QE EM works like this.  After the Fed lowers interest rates to almost zero, if the economy doesn’t respond with robust lending to businesses and a marked decrease in unemployment, the Fed turns to Quantitative Easing Easy Money as a stimulus of last resort.  The Fed launches an ambitious bond buyback program to saturate financial institutions with liquidity.  Let’s look at the dollar figures for the first two phases of Quantitative Easing Easy Money.

Fiscal-Cliff

Fateful Dates of Easy Money

  • QE1 EM1 Implemented  - January, 2009 ……………….. $500 Billion
  • QE1 EM1 Continued       - March, 2009 ………..……….. $1.25 Trillion
  • QE2 EM2 Implemented  - November, 2010 ……………..$600 Billion

Yes, you read it right.  That’s an additional $1.825 Trillion poured into circulation. Dollars grounded by absolutely no new productivity.  Just free-floating paper.  Currency that debases over time because there’s too much of it around, and because it just happens to be Easy Money.  That’s the disastrous news for all of us.

Much Better News For Gold Investors

But for those who own gold, the news is much better.  At times like this, stealthy investors move over to gold.  It’s the asset you can rely on when the value of paper money declines and prices inflate.  Want proof?  Let’s look at those QE EM figures again, this time with respect to the price of gold.

  • QE1 EM1 Announced   November, 2008 ...................................... Gold --- $820/oz                        
  • QE1 EM1 Implemented January, 2009................$500 Billion..........Gold --- $920/oz
  • QE1 EM1 Continued      March, 2009..................$1.25 Trillion........Gold --- $1,118/oz
  • QE2 EM2 Implemented   November, 2010............$600 Billion.........Gold --- $1,150/oz
  • Fed Chairman Bernanke hints at possibility of QE3 EM3..................Gold --- $1,694/oz

    August 31, 2012
  • QE3  EM3 Implemented...............................................................Gold --- $2,000+/oz ?



Make no mistake.  That $1694.40 price of gold on August 31 was neither a fluke nor a mere technical move.  It was a direct response of a wary financial market to Fed Chairman Ben Bernanke’s speech at Jackson Hole Wyoming.  According to HSBC precious metals analyst Jim Steel:

“The tone of his comments was taken as reaffirmation of the Fed’s bias towards further easing.  Mr. Bernanke also said the costs of nontraditional policies appear to be manageable.”

Clearly Mr. Bernanke feels that The Fed has a mandate – a mandate it can implement at its own discretion.  And it all comes down to our central bank’s right to issue Easy Money.  You may have no say in the matter.  But you do have the right to trade dollars for gold.  But don’t wait until The Fed turns on the printing press for QE3 EM3.

To find out how you can benefit from QE3 EM3, call (855) 848-GOLD (4659) and ask for a Goldco Direct representative.  Your financial future hangs in the balance.

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The Gold Informant

J. Keith Johnson is head writer for The Gold Informant, one of the most comprehensive news sources for all things gold and silver related. The Gold Informant is sponsored exclusively by Goldco Direct and his articles can be found regularly on our website.