Easy Monetary Policy Brightens Precious Metals Outlook

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There has been a lot of debate over whether or not the Federal Reserve would continue using quantitative easing measures. According to the National Journal, the debate all but ended on February 26 when Federal Reserve Chairman Ben Bernanke gave his semiannual monetary report to congress. During his testimony, he informed Congress that he still has faith in the Federal Reserve’s quantitative easing measures. While that is bad news for the dollar, it certainly improves the precious metals outlook for the next several years.

Why Easy Money is Important for Investors
Quantitative easing measures, which are also known as easy monetary policies, increase cash flow in the United States. The money is typically at a lower interest rate than normal. This puts more money in people’s pockets, but it also leads to inflation. Thus, there are a lot of concerns over the policy. At the same time, an easy money policy actually improves the precious metals outlook.

That’s because when the dollar weakens, people’s interest in precious metals strengthens. This occurs for a couple of reasons.

First, precious metals have an intrinsic value, so they can maintain their value, even if the Federal Reserve pumps trillions of dollars into a nearly dead economy. Second, precious metals are a good hedge against inflation. If all of your investments are backed by the dollar, you could lose a lot from inflation. If you use precious metals as a hedge, you will be able to stabilize your investments.

As people’s interest in precious metals strengthens, the demand goes up. The supply remains the same, though. Thus, the value of the metal goes up as the demand goes up.

Immediate Impact
If the immediate impact of Bernanke’s proclamation is any indication, the precious metals outlook is quite bright. According to Market Watch, gold prices went up by nearly 2% after Bernanke’s statement went public. The immediate increase shows that investors are taking their cues from the Federal Reserve. If the Federal Reserve continues to stand behind its easy monetary policy, precious metals prices will likely continue to increase.

What this Means
People who are interested in investing in precious metals should do so sooner rather than later. The easy monetary policy will likely continue to boost the prices, so people who get in now can save a lot of money.

It also means that people should hold their investments for the long-term. If people pull out too early, they could end up losing some serious profits. Instead of investing and then cashing in, people need to keep an eye on the economic policies used in the United States. That will give them a clear indication on what to expect.

Finally, it’s a good idea to invest in physical precious metals instead of ETFs or mining stocks. Physical precious metals are a safer hedge and will likely provide more opportunities for growth.

The precious metals outlook is good, so it’s important to get in while you can. Start investing so you can ride the boom to the top.