Why Gold is Up Today (UPDATED)

Why is Gold Up Today?

Gold is up today after poor economic data from Europe and America led the Wall Street Journal to report that the US Fed was close to taking new initiatives (QE3) to boost the US economy.  The Fed’s next policy meeting is to take place on July 31 and August 1^st.

From Bank of America:

The Wall Street Journal is suggesting that the “Fed Moves Closer To Action.”

Originally posted on the WSJ Online late yesterday it helped spark an end of day rally in equities (even with the rally equities finished down on the day) and a bid in Treasuries. Today, the article appears on the front page of today’s Wall Street Journal, Jon Hilsenrath, argues that “Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring. Many officials appear inclined to move unless they see evidence soon that activity is picking up on its own.”

The last statement is important because as we have argued the Fed does not need to see a further deterioration in growth to spark more monetary easing but rather no meaningful pickup from today’s sluggish pace.

Further, Hilsenrath notes that “central bank officials could take new steps at their meeting next week though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.” Overall, this article is very much consistent with our view. In our view, the Fed isn’t quite ready to launch QE3 yet – would prefer to see more data – but could extend forward guidance to reflect the recent string of disappointing data at their August 1 meeting. We continue to expect a rate extension next week to mid-2015 followed by QE3 in September.

See the interview with ADVFN chief executive Clem Chambers who tells CNBC when gold is going to $2000 » Go Long Gold!

Why Does Gold Go Up?

The price value of gold per ounce and our economy are inversely related. Our economy is based on paper currency and all paper currencies are fiat or “faith based”. Many will say that it is only worth the paper it is printed on.

The value of paper currency is only based on the overall economic health of the country.As the dollar continues to weaken, this is a indicator of the current state of the country’s economic system.

Since the dawn of time gold has been used as an international medium of exchange. Gold is recognized as the true standard of value and considered the foundation of wealth around the world. This means it maintains it same value from one country to another unlike paper currency. As the dollar weakens and becomes less desirable, more people begin to accumulate gold to preserve their wealth and protect their assets. The increased demand of gold results in an increase in spot price.

When our economy is struggling and people look for something else to place their trust in – for reasons previously stated gold makes an obvious choice.

Over 60 years ago the United States operated under the Gold Standard. At that time gold had fixed prices and the value of the dollar remained always the same. However in the early 70’s, the US dropped the gold standard but the value of gold did not change. The only factor that truly influences it’s value is our perception of it’s worth, and our perception of it’s worth increases as the dollar weakens.

Paper currency can be inflated or deflated based on the current supply of money, the nation’s debt level and overall economic health. In uncertain economic times gold has always been the fail-safe or safety net for shrewd investors.

» Contact Cornerstone Asset Metals today to learn more about buying gold as an investment.

Past performance is not an indication of future potential values.