Gold Price Hits Fresh Highs at $1,518

GOLD PRICE NEWS – The gold price surged to another new all-time high, touching $1,518.30 early Monday morning.  Following the price of gold, silver spiked as high as $49.79 per ounce overnight – roughly 1% off the record high reached in January 1980.  The momentum in precious metals continues to be strong as the U.S. dollar sinks lower and lower.  The greenback has been under heavy selling pressure leading into this week’s Federal Open Market Committee meeting as market expectations are for Chairman Bernanke to reiterate his commitment to easy money.

As the gold price has posted new high after new high, debate is heating up as to what is in store for the yellow metal and U.S. monetary policy over the balance of 2011 and beyond.  Jim Grant, founder and editor of Grant’s Interest Rate Observer – and a long-time bull on the gold price – recently offered his outlook on what has been one of the key driver of the gold price over the past year, quantitative easing (QE).  Grant discussed the possibility of a third round of QE, a scenario that would likely propel the gold price even higher.

“Almost 30% of the respondents to a poll conducted by UBS a few weeks back said they anticipate a third round of so-called quantitative easing,” Grant wrote.  “We count ourselves among the expectant 30%.”  Grant discussed the prospect of weakness in the stock market and concluded that a fall in equity prices would lead Bernanke to re-start the printing presses.  Bernanke would “be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3.”

As for QE2, Grant commented that “What has I think fired the public imagination is the sheer size of these operations.  $600 billion is an astounding lot of money to be materialized from thin air, and people I think are beginning to wonder so if you can create dollar bills with so little effort, what might they really be worth.”

Finally, Grant discussed his outlook on the gold price.  He defined the price of gold as “the reciprocal of the world’s view, it’s faith in the institution of central banking.” Accordingly, “if you, like me, entertain doubts as to the capacity of Ben S. Bernanke and his confreres to improve our world through interest rate manipulation and money printing, then you will take a shine to gold.”  While he did note that he cannot say whether the gold price is high, low, or in between,” Grant asserted that “I am holding my gold because I think that central bankers will reflexively print more money in case our headlines take an even uglier turn and who’s to say they won’t.”

The Standard & Poor’s GSCI Index, a widely followed commodity basket, has gained 16.5% this year as inflation expectations have risen.  The spread between the yield on the ten-year Treasury and the ten-year TIPS recently widened out to 2.6%, its highest level in over four years.  While central bankers in other nations have moved to squash budding inflation pressures, Bernanke and the U.S. Fed have not budged.  Widening interest rate differentials have weighed on the U.S. dollar and helped to boost the gold price as well as other hard assets.

Asset prices of any and all ilk have surged on the back of weakness in the U.S. dollar.  Risk appetites are strong, partially a result of the perceived commitment from Bernanke and his colleagues to provide easy money to global markets.  The punchbowl is out and investors are feasting.  The consequences?  The Fed will address those another day.

(Source: http://www.goldalert.com/gold-price-hits-fresh-highs-at-1518/)