Awaiting QE; Why a Dollar Barely Buys You Any Golden Grams
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The Fed meets today and tomorrow. There is a chart floating around on the internet illustrating the fading effectiveness of Quantitative Easing QE, one of the few policy tools left for Bernanke & Co to combat a sluggish, if not contracting economy.
Another scoop of QE might still be effective for a time to lift stocks further. QE is about purchasing assets to push their prices higher and interest rates lower which is why the Fed’s bang for the buck from QE lessens over time.
Last week’s stocks and gold rally, sparked by the vow of the ECB president to do whatever it takes to save the euro, was keyed into not only Draghi’s maverick like comments as he seems alone, or at least not receiving German support, but dovetailed with the Fed’s meetings today and tomorrow. Bernanke has vowed that he stands ready to act on behalf of the economy with more supposed monetary elixir. It’s put up, or shut up time in the view of the market and its mouthpieces (eg. CNBC). Front page on the CNBC web site is the headline: “Wall Street Now Almost Certain Fed and ECB Will Act”. They had better, or the stock market’s gains of last week might very well be undone, in my view. Gold would be punished as well if the Fed fiddles though I believe it has found strong support in the $1550 area. This morning gold is at the $1625 level and has the potential to gallop substantially higher in the short term on desperate monetary moves that seem to be on the way .
For those who are excited about the recent rise in the dollar as measured by the Dollar Index (overly weighted in euros), let’s take a look at this chart from pricedingold.com.
The above chart very
simply measures the dollar versus gold. For $1 you barely receive any
gold – just a fraction of a gram. With about 100% certainty the dollar will
continue to crumble due to on going printing (the Fed has boxed itself in and
can only print to infinity, or see the ‘system’ implode), a dollar will buy
almost no gold within a short period of time.
As I have stated,
there is a 100% failure rate to fiat currencies – the dollar will
not be any different.
Remember, an ounce
of gold contains 31.103 grams of gold. A dollar bill is worth less than a
quarter of a gram. No attention need be paid to the dollar index unless you are
gaming gold or the dollar as a short term speculation. Measuring the dollar vs the euro
is akin to measure crap versus super concentrated crap, so the dollar will
appear to be less toxic; but when the dollar is measured vs gold – it is the
dollar and all other world currencies that look woefully impaired.
All this in a back drop of Germany GDP to debt of 300%, the prospect of the Treasury hitting the debt ceiling earlier than expected (before the end of the year) and needing $600 bln more than anticipated. Greece’s financial reserves are rapidly approaching zero.
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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