The Next Leg Up for Gold

Written By Brian Hicks

Posted July 17, 2011

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

Framed by the Grand Tetons to the west, Jackson Hole, Wyoming, is one of the prettiest places on earth.

Looking out over its scenic vistas, it’s no wonder to me this place manages to attract the rich and famous by the private jetload.

Add to that list the powerful. Along with the more well-known names, the world’s central bankers like to come here, too.

It’s here in the high valley “the smartest guys in the room” come every August to ponder how they might solve the world’s problems with the magic of their monetary policy.

Of course, it’s really just hubris writ large. But since nobody seems to notice, the show, as it were, goes on.

The Jackson Hole Economic Symposium has been hosted by the Kansas City Fed since 1978.

And just like last year’s show, the highlight of all this brain power will undoubtedly come down to the keynote address given by Fed Chairman Ben Bernanke.

In that regard, investors with a watchful eye on Wyoming can expect something more like a summer rerun…

During last year’s speech to the bankers gathered in the valley, Bernanke virtually assured he would act again to prop up the U.S. economy to prevent a double-dip recession.

Not long after, QE2 set sail with a $600-billion price tag.

The Day the Dollar Died

Bernanke delivered this speech on August 27, 2010. I like to call it “the day the dollar died.”

Since then, the greenback has lost nearly 10 percent of its value against the world’s competing currencies.

Not coincidently, this also marks the time at which gold and silver broke out in a big way as precious metals investors increased their bets against Bernanke and his printing presses. Take a look:


As for the economy, the rescue plan that trickled out of Jackson Hole last August has failed. In the aftermath of QE2, unemployment is still over 9%; GDP is on par with that of twelve months ago.

The economic data has been so disappointing lately, expectations are now rising for the Fed to signal yet another round of quantitative easing when they meet at Jackson Hole this year. Because when push comes to shove, it’s the only play in the Bernanke playbook. There’s no play that calls for letting things take their course. That kind of thing doesn’t exist in Ben’s world…

Which is why you can expect this year’s speech at Jackson Hole to be a virtual repeat of the one given last summer.

In fact in his Congressional testimony on Wednesday, the Fed Chief actually began his Jackson Hole warm-up, stating:

The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate.

Translation: QE3 isn’t far behind.

Given the current “soft patch” in the economy, the bar for Bernanke to clear on this one isn’t that high. That’s why the market jumped more than 100 points on Wednesday, once the latest wink and nod from the Fed was received. 

As for all the backtracking on QE3 that took place the next day, don’t believe it; guys like Richard Fisher can squawk all they want to, but they cannot stop QE3 — not when Ben Bernanke believes printing money is the answer for everything.

And don’t expect the U.S. dollar to fare well in all of this. As usual, the greenback is on its own.

That’s good news for holders of gold, as more and more investors move into hard currencies. Metals guru Luke Burgess explains why gold will likely jump to new highs, just as it did earlier this week when the latest rumblings of QE3 came across the wire.

This leaves the popular shiny metal firmly entrenched in a solid, QE-inspired uptrend:


In this case, the trend is your friend.

With Jackson Hole looming in the distance, gold could easily make a 20% move higher from here, pushing it to over $2,000/oz. For gold investors, that would be almost as pretty as the sight of those mountains…

As for some other places to start building a lifetime of wealth, check out the week’s top articles from Wealth Daily and Energy and Capital, below.

Have a great weekend.

Your bargain-hunting analyst,

 steve sig

Steve Christ
Editor, Wealth Daily

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