Investor Gold Buying to Resumeand Fed Doubling Their Balance Sheet AGAIN!

By: Chris Vermeulen | Mon, Sep 24, 2012
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A leading precious metals consultancy, Thomson Reuters GFMS, has forecast that investors will buy record amounts of gold in the remainder of 2012. GFMS produces the benchmark supply and demand statistics for the gold market. GFMS forecasts that investors will purchase 973 tons of gold in the second half of 2012, more than during the wild gold market of the summer of 2011. This surge in demand for the yellow metal, GFMS says, will move gold above the $1850 an ounce level, not far from the record high of $1920 hit in September 2011.

GFMS may be right. This past week, gold hit its high for this year at $1790 an ounce on the back of the various global stimulus plans launched by a number of countries around the globe. Primary among the recently announced stimulus plans was the Federal Reserve's QE3 or as some in the market have called it, QE infinity. Philip Klapwijk of GFMS said that, for the gold market, "QE3 has become talismanic".

The Federal Reserve said it would purchase $40 billion a month in mortgage-backed securities indefinitely. In addition, the Fed will continue Operation Twist - the buying of longer-dated U.S. treasury notes and bonds. When all is totaled, the market is looking at about $85 billion a month in government bond purchases for an unlimited period of time.

The main characteristic of QE3 that drives the gold market is the fact that the open-ended purchases of all of these Treasuries will be financed by money that does not yet exist! And it's not just about a fear of future inflation being ignited by all this money creation. It's a very logical move higher by gold based on recent history of Fed actions and gold prices.

Even ignoring Operation Twist, the Fed will add $40 billion a month, or $480 billion a year, to its balance sheet. If one looks at the Fed's own website, you will see that it shows current assets of $2.8 trillion. Add $480 billion annually to that and in about five years the Fed's assets (the foundation of the money supply) will have nearly doubled.

That is exactly what happened in the last five years too...the Fed's assets doubled. And in what should not be a surprise to gold investors, the price of gold also doubled! For the past decade or so, gold has tracked the increase in Federal Reserve's assets. Do not be shocked if that pattern continues over the next five or ten years too.

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/