QE3 Removes Price Ceiling for Gold and Silver

There is no ceiling for the gold price, because there is no limit on how much money will be printed. The Fed’s latest announcement confirms this theory, and paves the way for much higher gold and silver prices.

The central bank has launched another QE program, showing it is willing to do anything to prop up asset prices and spur a recovery. This time, the Fed will buy mortgage-backed securities to the tune of $40 billion per month, in addition to its current Operation Twist program. The net effect will be to increase the Fed’s long-term holdings by about $85 billion each month through the end of the year. It also extended its near-zero interest rate policy to at least 2015.

QE3 will be open-ended—no limit has been set as to how long the money printing will last. It will also conduct additional asset purchases if the labor market does not improve. Fed Chairman Ben Bernanke said, “We’re looking for ongoing, sustained improvement in the labor market. There’s not a specific number we have in mind. What we’ve seen in the last six months isn’t it.”

The central bank will keep its finger on the print button until well after an economic recovery takes place. “We’re not going to rush to begin to tighten policy,” said Bernanke.

The current Fed has been kind to precious metals. Since Bernanke took office in early 2006, the price of gold has increased from $570 an ounce to more than $1,700 an ounce, and silver has increased from $9.70 an ounce to over $34 an ounce. After QE3 was announced, both precious metals jumped in price. Meanwhile, the US dollar index fell, reaching its lowest level against the euro since May.

With more dollar devaluation on the way and gridlock in Washington, gold and silver prices look set to rise even more. At this point, the sky really is the limit

source: BMG