Ben’s Gold Touch

Ben Bernanke’s third round of quantitative easing has done little for economic growth, but it has benefited gold, silver and oil trading by cheapening the dollar.

“The dollar is selling off compared to gold because of the market’s belief that the recent round of QE3 is going to cause a weaker dollar with investors bidding up gold prices,” Mark Martiak, senior wealth strategist at New York-based Premier Financial Advisors.

And it’s not just gold. Since the Fed chief announced the latest round, unleashing $40 billion a month to purchase mortgage bonds, the dollar has depreciated 10% against the euro.

Since the Fed began easing in November 2008, gold has risen by almost $1,000 an ounce as the Fed has added over $1.9 trillion to its balance sheet.

“Essentially, gold is a hedge against central-bank fiscal policy and against inflation,” Martiak said. “The market always disciplines politicians.”

Gold is a non-correlated asset class and an inflation hedge for investors. The IMF is forecasting slower growth, so while there was a dip in gold prices, it had more to do with market sentiment and not because investors are lacking confidence in gold as an asset class.

The Fed’s latest actions could support gold since, by historical standards, gold has been the biggest beneficiary of low real interest rates.

Gold bugs are not complaining. They see a rising asset class that could fatten portfolios hammered by poor returns elsewhere.

To read John Aidan Byrne article: Ben’s Gold Touch

Tagged as: Ben Bernanke, Fed, Federal Reserve System, Gold as an investment, Inflation hedge, International Monetary Fund, New York, Quantitative easing