Gold/Silver Bugs Enjoy their day in the Sun but what's Next for Precious Metals (GLD) (IAU) (SLV)
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As the effects of the Fed's QE3 program begins to soak in it is becoming increasingly clear that investors in gold, silver, and other precious metals are the biggest winners today. Winners include investors in precious metals ETFs such as SPDR Gold Trust ETF (NYSE: GLD), iShares Silver Trust ETF (NYSE: SLV), and iShares Gold Trust ETF (NYSE: IAU).
The strong reaction comes in response to the Federal Reserve announcement of plans to expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. They plan to keep the program in place until they see signs the economy is improving and will not rush to tighten policy. In broad terms, the Fed is giving itself plenty of room to maneuver in its use of these tools.
Going forward, traders expect precious metals to remain highly volatile to economic data, especially data related to jobs and housing. In effect, metals have become a faux currency coupled inversely to the U.S. dollar and Fed policy actions, which are coupled to economic data. The key for the Fed and for precious metals is of course inflation, or more precisely, fears of hyper inflation.
The bet, from the view of metals traders, is that the Fed will go overboard in their attempt to spur jobs. Bears, meanwhile, are going to bet on Bernanke's ability to thread the needle on the delicate balancing act between jobs and inflation.
One gold trader is already comparing Bernanke to Rudolf E. A. Havenstein, the President of Germany's Reichsbank during the hyperinflation of 1921-1923.
SPDR Gold Trust ETF (NYSE: GLD) is higher by 2 percent today.
Shares Gold Trust ETF (NYSE: IAU) is higher by 1.8 percent.
iShares Silver Trust ETF (NYSE: SLV) gained 3.9 percent.
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The strong reaction comes in response to the Federal Reserve announcement of plans to expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. They plan to keep the program in place until they see signs the economy is improving and will not rush to tighten policy. In broad terms, the Fed is giving itself plenty of room to maneuver in its use of these tools.
Going forward, traders expect precious metals to remain highly volatile to economic data, especially data related to jobs and housing. In effect, metals have become a faux currency coupled inversely to the U.S. dollar and Fed policy actions, which are coupled to economic data. The key for the Fed and for precious metals is of course inflation, or more precisely, fears of hyper inflation.
The bet, from the view of metals traders, is that the Fed will go overboard in their attempt to spur jobs. Bears, meanwhile, are going to bet on Bernanke's ability to thread the needle on the delicate balancing act between jobs and inflation.
One gold trader is already comparing Bernanke to Rudolf E. A. Havenstein, the President of Germany's Reichsbank during the hyperinflation of 1921-1923.
SPDR Gold Trust ETF (NYSE: GLD) is higher by 2 percent today.
Shares Gold Trust ETF (NYSE: IAU) is higher by 1.8 percent.
iShares Silver Trust ETF (NYSE: SLV) gained 3.9 percent.
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Ben S. Bernanke
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