• 287 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Ian Campbell

Ian Campbell

Through his www.BusinessTransitionSimplified.com website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world…

Contact Author

  1. Home
  2. Markets
  3. Other

The Gold Price and Quantitative Easing

If you read and accept the typical Internet headlines on the gold price you will no doubt believe that if the U.S. Federal Reserve and other central banks introduce more quantitative easing in the weeks and months ahead that will spur the gold price to new heights. It may well, but if that does happen an important question has to be: why will that occur?

Many reporters and commentators seem to link quantitative easing (as an ultimate cause) with in the end high rates of inflation (as the ultimate effect). Whether they do this or not, gold viewed as a 'real money safe haven' - terms often used in connection with gold - has to viewed in those contexts as a 'place to be invested' in the case of a cataclysmic financial event or series of events.

It follows, or so I think, that for the financial markets to price gold higher than it now is in the event of further quantitative easing is tantamount to those financial markets in essence saying "quantitative easing in the end will not result in long-term meaningful economic recovery", but rather "will contribute to continued economic decline".

This seems oxymoronic with quantitative easing also resulting in the financial markets generally in recent years stabilizing or improving from current levels. This is because in 'good' theory 'financial market values' are at any given point in time 'the present value of all future expectations'. A very important question: Has financial market practice parted ways from sound market valuation theory? This is something to think very hard about.

While doing that you might want to consider:

  • that today Goldman Sachs has been reported as suggesting the gold price may move upward to U.S.$1,840 by year-end on incremental quantitative easing; while,

  • at the same time to the best of my knowledge Goldman Sachs currently is not predicting a major financial markets downturn.

Consider that the physical gold price arguably ought not to parallel the financial equity market indexes - short of purely being 'traded on the same parameters'. I suggest you think hard about this statement, and determine whether you agree with it.

Recall the negotiation story that suggests that when an American, in negotiation with Japanese businessmen, commented that they were really getting somewhere because they were thinking together 'parallel' the Japanese businessmen immediately terminated negotiations. The reason - parallel lines never meet.

Topical Reference: Gold to remain glued to Bernanke's testimony next week, from Commodity Online, from Sharps Pixley, July 14, 2012 - reading time 2 minutes; and Gold looks bullish, to reach $18,40 by year end: Goldman Sachs, from Commodity Online, July 17, 2012 - reading time 1 minute.

 

Back to homepage

Leave a comment

Leave a comment