GOLD UP OVER 7% IN NEW YEAR ON FEARS OF INFLATION
Precious metals have continued to rally on the news that the Fed will not be raising interest rates anytime in the near future, continuing their program “Operation Twist” (swapping short-term bonds for longer-term treasuries). Low interest rates is the Fed’s idea of easing the blow of the financial crisis on our economy just like the European Central Bank did last December, allowing banks a 3-year loan at a rate of only 1%. The combination of these two things, as well as positive news out of Germany, has put a little more faith in the euro, helping it rise against the dollar. This shift has brought risk back into the play. When there is risk there is a lot of movement as investors start to shuffle their portfolios to get the greatest protection and return, pushing gold to back to the forefront as a safe haven investment.
In 2012 alone, gold is up 7% as fears of both inflation and deflation drive investors to hedge their investment. Investors know that one of the only ways out of this financial crisis is by printing money which will lead to higher inflation rates. Michael Gayed, chief investment strategist with Pension Partners LLC, and investment advisory in New York, said, “The only condition that matters for gold is if inflation expectations are rising. Since the first week of this year, there has been a dramatic repricing of inflation expectations.” However, Kevin Mahn, president and chief investment officer of Hennion & Walsh Asset Management, an investment advisory firm in New Jersey, feels that inflation is not the only reason for gold’s upward trend. “A large part of the run in gold is because of the market's perception that China will have a soft landing. That should be bullish for many commodities.”
A side note, in the President’s State of the Union address he mentioned his desire to push the debt ceiling even higher by recommending a $1.2 trillion increase.
At 3:50 (CST), the APMEX precious metals spot prices were:
- Gold - $1,711.70 – Up $45.70.
- Silver - $33.28 – Up $1.22.
- Platinum - $1,586.00 – Up $32.60.
- Palladium - $694.10 – Up $12.60.
« Return to Commentaries