Gold is Still a Good Hedge

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The recent gold price correction spooked investors. While price corrections are normal they can be hard to predict in these non-normal economic times. The Federal Reserve is pumping $85 billion into the economy each month and this is expected to continue for the foreseeable future. Under normal circumstances one would think inflation should be sky high, but it isn’t. This is because interest rates are being kept artificially low. This may be good for those seeking a mortgage, but is not good for investors. This policy has caused gold to go down when it should be high and stocks to set records when the stock market should be in the doldrums. Still, gold is the best hedge going.

According to the FX Empire the US economy is experiencing faster than predicted job growth. This has increased fears that the FED may soon lower or stop stimulating of the economy. Gold likes stimulus because the threat of inflation remains in place. However, FED stimulus is unlikely to end anytime soon which means the precious metals outlook for 2013 remains bullish. Japan too is busy stimulating their economy and this is good news for gold’s outlook. FX Empire goes on to say that gold is down because inflation appears to be in check, despite stimulus. Inflation cannot be artificially kept in check forever and stocks will eventually dip and gold and silver will rise as a result.

Bloomberg reports that gold remains the best store of wealth in uncertain economic times, even though it has lost money in 2013. Still, prices which had dipped below $1400 per ounce in April have rebounded in May to $1471 an ounce. One reason for the increase is the European Central Bank reduced its interest rates. On the other hand, when prices were falling there was a marked increase in gold bullion and gold jewelry buying. If the US economy continues to improve the current buying frenzy will likely slow down. Gold is again nearing $1500 an ounce and this is indeed a high level, making gold a sound investment.

Money Morning states that the current high stock market is a distortion of real economic reality. Peter Schiff the CEO of Euro Pacific Capital says that a fiscal crisis bigger than the one we saw in 2007 is looming. He says, the dollar will collapse and interest rates will soar. The economy which is built on fiat money may completely collapse as a result. Schiff states that the current economic recovery is an illusion, because the deficit is out of control and the FED is running a never ending dollar printing press.

The FED is buying about $1 trillion worth of mortgage bonds yearly, but cannot be sustained. Yet, the FED appears to not have an exit strategy. Stocks will bottom out, bonds will be worthless, taxes will rise, and entitlements will undergo massive cuts. While this sounds drastic we all know how dangerous the national debt is. How long can interest rates remain artificially low? No one knows. However, we do know gold is still the best safe haven going.