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On Monday we reported the results of our recent survey, where the majority of you told us that your interest in gold had been sparked thanks to a loss of trust in central bankers.
Bad news, because actually central bankers are the ones you should trust the most when choosing gold investment.
Well, it’s never a nice thing to hear that you’ve lost trust in your best friend but actually, gold investors know that really they can trust central bankers to do the right thing and continue to drive the price of gold.
It’s a well-known fact, and one frequently cited on these gold news pages, that Western central bankers do not like gold.
Every week we laugh at the short sightedness of central bankers who dismiss the gold standard and keep De La Rue in business. But really, they’re doing all of us who have chosen to invest in gold, a huge favour.
Central bankers are one of the most short-sighted entities in the financial world. For the past 40 years they have been at their leisure to mismanage their national currencies to their hearts’ content.
This week, the gold price has been focussed on two major events; today, when the German Constitutional Court will decide whether or not it will respect the Maastricht Treaty and Thursday when the FOMC will decide whether or not to say yes to another round of QE.
The actions of the both the European and US central banks are all for the benefit of today’s gold investor.
Eager-to-please Draghi
Draghi, bless him, is so keen to please gold investors that he has promised to do "whatever it takes" to save the euro. Few realised the huge contradiction in his speech last week when the words "unlimited" and "sterilized" were used to describe the new OMT plan.
There is little hope of the latest plan saving the eurozone, however at present gold shares a positive relationship with the single currency. Given the ECB’s plans and all the eurozone’s political chatter are euro positive this will benefit gold.
By keeping the euro on its feet (slumped slightly) the measures are also ensuring further integration and therefore contagion across the union. Considering the euro was destined to fail thanks to huge discrepancies between EU countries, further measures will merely exacerbate these issues. Whilst a positive euro relationship is good for gold at present a final collapse of the currency will also, no doubt, benefit the yellow metal.
Gene Arensberg, in his latest Got Gold Report, is hesitant as to whether or not the euro crisis will end before 2020 let alone by the end of this year. "With European reliance on socialist central planning, technocrats and anti-productive, highly producer-discouraging tax policies, we seriously wonder whether the crisis on ‘The Continent’ will end this decade."
However, we do not have to just rely on the Europeans to keep our gold bullion investments looking pretty. Over on the other side of the pond speculation is mounting as to whether or not the Federal Reserve will keep up hopes of further QE.
Bernanke drives gold price
Whilst some of the gold price increase has been thanks to ECB speculation, much if it is most likely thanks to faith that Bernanke will do all in his power to drive the gold price and destroy paper money.
Standard Bank believes "gold is now pricing in a further $250bn in QE from the Fed." This is much more than the estimated amount of QE, should Bernanke announce it at all.
The US election is on the 6th November and naturally the government would like data to show the economy looking pretty strong, but instead it’s looking pretty crappy. Unemployment remains at 8% with Bernanke telling us jobs performance is "of grave concern."
Many expect QE will happen, if not this month then it isn’t far around the corner, and don’t forget the inflationary and devaluing impact of the last two rounds are only just beginning to rear their ugly heads. No doubt Obama will be looking for more QE, as Arensberg writes "Why not destroy the currency as long as it results in re-election?"
Central bank printing drives gold
As Bill Gross said late last week, "When a central bank starts writing checks and printing money in the trillions of dollars, it’s best to have something tangible that can’t be reproduced."
A graph which gains a huge amount of attention during times of QE speculation is shown below, it shows gold’s canny ability to anticipate balance sheet expansion by both the Fed and ECB:
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