Gold, Silver Prices Surge After Fed Fires Up QE3
Gold and silver prices blasted to fresh six-month highs as the dollar nose-dived after the Federal Reserve dropped the bomb — a highly anticipated, third round of quantitative easing.
The Fed will print money to go on a $40 billion-a-month shopping spree in mortgage-backed securities indefinitely, until the labor market improves. It also said it would keep interest rates low through mid-2015.
“More QE action by the Fed means higher inflation, and this will be reflected both in paper assets and in hard assets,” Janice Dorn, co-founder of Jtrader.us, in Phoenix.
In the futures markets, gold prices climbed 1.85% to $1,764 an ounce. SPDR Gold Shares ( GLD ) vaulted 2.15% to just a tad below its February high.
Market Vectors Gold Miners ETF ( GDX ) spiked 4.24% to a six-month high and further above its 200-day moving average.
PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the dollar against a basket of global currencies, plunged 0.69% to a six-month low.
Dorn estimates gold can rise to $1,750 to $1,800 an ounce before correcting again, so long as it stays above $1,600 to $1,650.
Gold can hit $2,000 an ounce in the coming months, says said Peter Spina, president of GoldSeek.com, in Littleton, Colo.
“Keeping money at a negative-return savings account or in very low-yielding bonds just does not give much of an incentive to keep your capital as the aggregate amount of dollars increases, ensuring a low or negative rate of return,” Spina said.
“There are plenty of people, investors, pension funds, central bankers, etc. with very little or no gold or silver holdings,” Spina added. “Another portion of this population will realize the risk of such a low or no allocation (to precious metals) and enter into the markets or continue their buying.”
Sam Subramanian, editor of the AlphaProfit Mutual Fund and ETF Newsletters in Sugarland, Texas, also believes gold will top $2,000 an ounce and its September 2011 high. “Gold miners, which have been lagging the metal, should do better in terms of percentage gains,” he said.
Poor Man’s Gold
Silver futures prices surged 3.57% to $34.60 an ounce. IShares Silver Trust ( SLV ) popped 3.94% to a six-month high. Subramanian doubts that silver can regain its 2011 high, though.
“Silver enjoyed a parabolic rise, driven largely by speculative inflows into ETFs like SLV,” he said. “Silver needs to rally nearly 50% from here to set a new high. This can be a tall order.”
Global X Silver Miners ETF ( SIL ) bounded an eye-popping 6.78% to a six-month high.
“The Fed’s thought process is if they can ‘buy’ enough time to prop up assets, people will feel good, spend more, drive up the economy,” said Kathy Boyle, president of Chapin Hill Advisors in New York. “Also, they are trying to get the cash off the sidelines. (There’s) lots of cash for individual investors and institutional and corporations, as everyone faces so much uncertainty. They want liquidity.”