The Fed –And the Best Time to Buy Gold

Matt Insley

The Fed will continue its monthly asset purchase of $85 billion, and will do so until the unemployment rate remains above 6.5 percent, inflation is no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be “well anchored.”

In the meantime, Americans are stuck using paper dollars that are continuously losing value. All that stimulus means dollars are flooding the market. With more dollars hitting the market, each dollar loses its par value.

Because of this, China is getting increasingly worried about its large stash of greenbacks, and is doing everything it can to diversify. It’s been buying energy resources like oil, coal and natural gas, as well as building-block resources like iron ore and copper.

China is also hording precious metals in an effort to preserve its purchasing power.

Indeed, this is a global trend. Many other emerging markets are getting into gold; nations like South Korea, the Philippines, Kazakhstan, Ukraine – along with big players Brazil, Russia and India – have been ramping up gold purchases.

According to the World Gold Council, central banks for the first three quarters of 2012 purchased over 370 tons of gold. That’s a lot of central bank buying, up over 10% from last year.

This central bank action echoes the larger trend of wealth protection. Many emerging markets use the US dollar as their de facto reserve. In an attempt to protect their nations’ purchase power, emerging markets are loading up on the de facto wealth protector: gold.

So when the Fed reduces the value of the dollar by printing as many billions as they choose, you can rest assured that they (or anyone) can’t create gold out of thin air. That’s why gold and silver, as a currency, have withstood the test of time. After all, gold is “the once and future money.”

source: dailyreckoning