Gold and Silver Prices Predicting QE?

With gold and silver prices more solidly embedded in a correctional phase despite a slight uptick in markets, many are looking at gold and silver openly wondering whether the action in the metals markets are harbingers for a further round of Quantitative Easing.

Quantitative Easing, as it is known, is the term employed by the Federal Reserve to denote fiscal stimulus in which they inject many billions, and perhaps trillions, of dollars into markets partially through a bond-purchasing program. Having a general understanding of what Quantitative Easing actually is can be helpful in making accurate determinations about gold and silver prices.

Over the past five years we have generally seen a very strong trend of gold and silver prices rising exponentially higher with each round of Quantitative Easing. The general reason for this correlation is explained in layman’s terms as the increase in the money supply. The more dollars there are in circulation, the more dollars required to purchase gold and silver.

We are currently experiencing what will be a protracted correction in gold and silver markets because the precious metals are on an extremely protracted bull market run. An eleven-year bull run, such as the one gold is currently riding is extremely rare, though not unheard of, and corrections, even significant corrections of 20 percent or more should be expected.

However, there is some indication that the current prices of gold and silver, which were up last week 0.5 percent per troy ounce of gold 0.61 percent per tory ounce of silver. Gold is still under the psychologically important $1,600 level and silver remains below the $30 level.

These prices are in line with a general correction, but given the state of the economy, which is showing cracks since the ebullient attitudes of early spring there are strong questions about a coming round of Quantitative Easing. When precisely this round of easing would occur is unknown, but the prices of gold and silver may be giving the signal that the time is near.

Any Quantitative Easing would snap gold and silver right out of correction and back on a bull market run with prices possibly higher than what we have seen so far. A round of QE could even put gold over its all-time nominal high of $1,923 of September 6, 2011. This may also coincide with the several reports and projections from major US banks that put the price of gold much closer, or above, the $2,000 ounce by the end of the year.

For now, however, the correction is in strong influence and will continue. Investors are taking advantage of gold and silver prices and increasing their positions during this time, possibly even in anticipation of a round of Quantitative Easing.

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