My Outrageous Gold Prediction…
They did it!
Ben Bernanke and the Federal Reserve dropped a nuclear money bomb on the markets last week. In an all out attempt to stimulate the US economy, the Fed finally unleashed their highly anticipated third round of quantitative easing… QE3.
As you may know, investors have speculated for months on whether Bernanke would actually pull the trigger on this monetary monster. But after August’s remarkably weak US employment report, it became clear the Fed was going to act… and quickly.
And boy oh boy, they went all out this time…
Unlike the first two rounds of QE where asset purchases had a set dollar amount with a defined end date, QE3 is open ended. That’s right, the Fed is injecting $40 billion a month into the US economy for as long as it takes to bring unemployment rates down.
What’s more, the Fed now plans to keep interest rates at exceptionally low levels through mid-2015. In other words, you can expect to earn basically nothing in your savings and money market accounts for another 3 years.
What’s Bernanke’s new plan mean for the markets?
Well, in case you haven’t noticed, stocks are reacting quite favorably to the news. In fact, the Dow has surged over 260 points since QE3 hit the headlines last Thursday.
And by the looks of recent trading, stocks have room to run even higher.
But take a look at this…
The real winner in the Fed’s QE3 announcement is, you guessed it… precious metals. Hard assets such as gold, silver, platinum, and palladium are going berserk thanks to Bernanke’s new plan.
Why?
It’s quite simple really. Inflation expectations are going through the roof. You see, the dollar amounts of the first two rounds of QE were known from the get-go… $600 billion a piece.
But with QE3 the Fed is basically writing a blank check to the US economy. And that has investors worrying excessive inflation is right around the corner.
As a matter of fact, Ben Bernanke even admitted that the Fed is willing to accept higher levels of inflation in exchange for lower unemployment rates.
The question everyone’s asking is… ‘how much inflation?’
Only time will tell how high inflation will actually soar thanks to this new round of money printing. But one things for certain, investors aren’t taking any chances. They’re piling into gold with reckless abandon in recent trading.
Take a look…
As you can see, gold’s surged nearly $175 an ounce since early August. In my opinion, even though QE3 had yet to be announced at that time, investors became convinced stimulus was on its way and started investing accordingly.
But now that QE3 is officially here, the question every investor needs to ask is, ‘how high can gold really go?’
The yellow metal’s already within $150 of its all-time nominal closing high of $1,900 an ounce. But many metals analysts suggest gold will jump to new all-time highs in the not so distant future.
In fact, Bank of America (BAC) recently slapped a $2,400 price target on gold within 24 months.
I’ll take it one step further…
I’ll go out on a limb and suggest the yellow metal will surpass $2,000 by the end of this year. And by December 2013, when QE3 asset purchases will roughly match the $600 billion of the first two QE rounds, gold will likely be in the neighborhood of $2,500.
That’s upside nearly 40% upside from current levels…
Folks, if you haven’t yet bought gold, or at least a few shares of gold ETFs like the SPDR Gold Shares (GLD) or PowerShares DB Gold Fund (DGL), you may want to do so… and soon!
Until Next Time,
Justin Bennett
Category: Commodities
