Is a renewed up trend sprouting for gold and silver?

In what has certainly become an environment of constant and steady quantitative easing by central banks around the globe, what might properly be termed, the “Age of QE,” the action in precious metals is often seen as a barometer of the trend in fiat money-printing.

When the U.S. Federal Reserve Board released members’ projections of interest rates out to 2014 in their most recent policy announcement in late January the market took this as a clear sign that the QE spigot remains at the ready, if not necessarily wide open.

In a nutshell, the Fed indicated that its members’ believe interest rates will by necessity remain between 0% and 0.25% until at least mid-way into 2014, and the Fed Chairman, in his interview following the policy announcement, confirmed that the Fed intended to remain in an accommodative posture for the foreseeable future.

This can only mean continued quantitative easing with some, among them Fed members themselves, speculating about the Federal Reserve’s willingness to engage in outright purchases of mortgage-backed securities in the not too distant future as a way of injecting further liquidity into the financial system and hopefully provide some assistance to a faltering economy.

Some would argue that QE has already proven to be relatively ineffective in jump-starting the U.S. economy, and that such operations amount to little more than the stealth printing of massive amounts of fiat currency.

However, another crisis in Europe could spur more quantitative easing out of Europe, or Euro-QE. While quantitative easing in general is not good for the long term health of the economy, central bankers are politicians first and foremost. The price of gold is a clue here should it continue markedly higher. But remember, there are many crosscurrents with gold. For example, another crisis in Europe tends to create a weak euro and a strong dollar which acts as a headwind on the price of gold.

Meanwhile, reports point to increased physical demand out of China on gold which serve as a tailwind on gold.

All in all, if central bankers on both sides of the pond are willing to print dollars, pounds, and euros, then the price of gold and silver will have no choice but to trend higher, and this is confirmed by the recent technical action in both gold and silver, as represented by the SPDR Gold Trust Shares and iShares Silver Trust SLV, respectively.

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Posted by Silver Guru on Feb 1 2012. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry