Global easing programs around the world have greatly shifted the economic outlook by a number of industry experts. For as long as Bernanke and Draghi continue to print money, along with several other big banks, the future will be relatively unpredictable. Some expect a massive fallout once the cash injection into the economy is pulled, while others argue that QE saved us the first time around and it will certainly save us again. At the forefront of all of these talks has been the precious metals sector with a particular interest in gold [for more gold news and analysis subscribe to our free newsletter].
Since the announcement of QE3, gold has been on a tear as investors continue to pour into the asset. The number one reason for the inflows? Dollar debasement. As Bernanke continues to print money, investors fear that the value of the coveted greenback will continue to slide. Gold is one of the most effective hedges against a weak dollar, as many view the yellow metal as a real money and the only true way to measure the performance of the economy. If you go by that standard, we have not been performing too well, as the Dow Jones Industrial Average in terms of gold has sank by more than 80% in the last decade.
Now comes the inevitable question of how high gold can possibly go. The commodity topped out at just over $1,900 per ounce last year when markets went haywire, and it looks as though it is headed back that way. Recently, Marc “Dr. Doom” Faber stated that he feels the sky is the limit for gold. Though he notes that this asset is likely due for a short period of correction, he sees no end in sight for the gold bull market. To find that limit, “you will have to ask Bernanke and Draghi precisely on how much money they will print” says Faber [see also How Warren Buffett Could End The Deficit in 5 Minutes].
But can gold really continue to soar year after year? It seems plausible that our economy will eventually gain some meaningful traction and attract investors back to equities. When that happens, gold will likely suffer as there will be greener pastures across the way. Then again, for as long as inflation exists, it is safe to assume that gold will continue to see gains. To give you an idea of how well gold has performed in recent years, take a look at the SPDR Gold Trust (GLD). The fund was introduced in 2004, and has yet to turn in a negative year. GLD is up 290% since inception and according to some, there is no looking back for this juggernaut as well as the commodity itself.
Disclosure: No positions at time of writing.