Much to the world’s surprise, the Federal Reserve announced this past Wednesday that it would not be tapering its bond purchases, or what most of us know as Quantitative Easing.
Many expected the Fed to announce a reduction of bond purchases from $85 billion a month, but when the announcement wasn’t what investors had expected, gold, silver, and even stocks rallied.
During the first half of yesterday, gold surged more than 5%, back to more than $1370 an ounce.
At the same time, silver shot up nearly 9%, back to more than $23 per ounce.
According to one report, the 24 hours following the Fed’s Wednesday afternoon announcement marked the largest one-day gain for gold in four years.
Many investors and Fed critics — most notably former Texas Congressman Ron Paul — believe the announcement constitutes an admission by the Fed that the economy is much weaker than initially thought. Over time, continued currency debasement will lead to an even weaker dollar.
And naturally, price inflation.
Since there won’t be any tapering for now, does that mean we’re in for an even bigger gold rally?
Like we’ve discussed in the past, it’s difficult to predict the short-term prognosis. In evaluating the Fed’s surprise announcement, we find a diverse range of opinions on where gold will go from here.
Goldman Sachs feels that this rally, like the one we saw in early August, will be short-lived.
As you may recall from a few weeks back, it appeared gold and silver were positioning for a strong rally into the fall. But as other events transpired — notably upbeat economic news and a cooling of tensions related to Syria — the rally lost its steam.
Kitco.com senior analyst Jim Wyckoff said late Wednesday that after a brief surge, “…the unresolved trader and investor uncertainty of the timing of any Fed monetary policy change again pervades the marketplace.”
One of our personal favorites, famed investor Jim Rogers, says a drop to $900 – $1000 per ounce over the next one to two years isn’t out of the question. He explains that gold has been in a bull market for 12 years, and that a correction is normal and healthy.
However, over the long term, Rogers expects to see gold top its record high of $1948 within the next few years. He anticipates it will probably go higher than that.
An analysis from GoldCore is much more bullish in the near term. The Fed’s announcement, combined with an upcoming debate on the U.S. government’s debt ceiling, will prove to be a strong catalyst for moving gold even higher.
GoldCore’s analysis maintains that the Fed’s announcement to delay tapering indefinitely is incredibly bullish, and that the Fed is desperately trying to prolong the recovery that never really was.
GoldCore’s forecast is the most ambitious we’ve seen. In fact, they expect gold to break its 2011 record sometime in 2014.
We do agree with GoldCore that the precious metal will eventually hit $2400 an ounce within the next few years, but we also believe it may be awhile. This price level is gold’s real record high (from 1980) when you adjust for inflation.
Another analysis from Trefis concurs with many of GoldCore’s assertions about central bank policies and strong physical demand. Yet it adds that tight supplies will contribute to both a short and long-term rally for gold.
As prices have declined in the last couple of years, so have production/exploration budgets for miners. Therefore, when producers invest less in new mining projects, the short to mid- term effect is lower production and less supply.
Of course, only time will tell. While gold’s short-term forecasts are all over the map, the long-term forecasts generally agree that gold will do well over the next few years.
One reason for this according to Rogers, is currency debasement, not only in the United States, but throughout the world.
At no time in history has every single central bank inflated in unison. If we continue to see weakness in the U.S. economy, expect to see continued money printing in an attempt to prop things up.
News that Fed Vice Chairman Janet Yellen is Ben Bernanke’s likely successor leads us to believe that the U.S. Central Bank will continue the same low-interest rate, credit stimulus policy it has been using for several years.
In the long-term, this will provide incredible support for gold.
What are your thoughts?
Is the Fed’s latest announcement the catalyst for a big rally in gold bullion?
Or will gold continue on its course of correction for a bit longer?
Let us know what you think in the comments section below. You can also drop us a line on our Facebook or Twitter page today.
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