QE-Infinity… And Gold’s Standstill
A UWD Special Article
Since Fed Chairman Ben Bernanke announced QE III last month, gold bulls around the world have been on the edge of their seats … waiting for the yellow metal to begin its massive run-up.
After all, the Fed’s promise to create as much as $40 billion in new money every month for buying mortgage-backed securities … and to fill its holdings with toxic assets … seemed like a death knell for the dollar.
And initially, gold DID shoot up to $1,790 per troy ounce.
Since then, however, it has lost $70 and is currently sitting at $1,720 as we write this.
This whole thing surely has you — and thousands of other gold buyers — scratching your head.
If the Fed’s promise to print money into infinity won’t send gold up … then what will?
In this article, we’re going to explain why gold hasn’t made its big move … what will send it soaring … and how you can be one of the few who rides gold’s next move to an absolute fortune.
So, why is gold down … and the dollar up … right now?
The Fed Is Telling Banks to Hoard Their Cash!
This means that, instead of creating liquidity and spurring lending, the banks are putting the cash in a big vault for a rainy day.
Just consider that, in the last five years, consumer revolving credit — money being loaned by banks for things like credit cards — has fallen 16% while the Fed has flooded the markets with more than $1.6 trillion in QE money.
Because consumers can’t get credit, the standard supply-and-demand curve is kicking in. After all, we need cash right now to buy businesses … cars … and plenty more.
Investors don’t realize this yet. The majority think the Fed’s printing is being injected directly into the economy.
Instead, the financial institutions are fattening their balance sheets …
And the Fed is exacerbating this problem by paying banks not to lend!
Since 2008, the Fed has been paying banks a fixed interest rate of 0.25% for excess reserves.
While this doesn’t sound like much at a glance, consider that the Federal Funds rate has recently dipped as low as 0.13% and that GDP growth is projected to be as low as 1.75% for 2013.
All of this makes a risk-free 0.25% appealing indeed.
To top it off, the Fed is keeping a tight reserve requirement — which, coupled with the interest on excess reserves — creates incentive for banks not to lend.
Because that money is helping the financial institutions buoy the markets.
For example … in a recent study, Standard & Poor’s showed a quarterly decline in gross earnings of 2.6%. However, when financials were removed … this number almost doubled to 5%.
And it’s not just here in the United States.
After seven years of increased lending, the euro zone’s consumer credit is beginning a slow decline. Since 2010, credit lending has fallen 6%.
This stagnancy in credit is causing people to double-down on their dollars … and as a result, we’re seeing an overall slowdown in transactions.
The U.S. Velocity of Money indicator — which measures the speed of transactions to buy and sell products — has fallen 16% since 2007. In Europe, it has fallen 14% since 2007.
All of this is temporarily driving up fiat currencies.
Bernanke’s plan here is to maintain a steady rate of inflation offset by mild deflation — however, it’s all hanging by a thread …
All it takes for the financial system to fall apart is investors realizing just how broke the U.S. is right now. The current belief is that America is better off than Europe.
The reality is that at a 100% debt-to-GDP ratio … and with no country in the world having enough money to bail out the U.S. … the situation is more-desperate here than anywhere else.
Consider this: Ireland’s debt only amounts to about to $176 billion. Spain’s is $766 billion. And Greece’s is $399 billion.
The combined debt of these countries doesn’t even equal a tenth of the U.S. debt at a jaw-dropping $16 trillion.
When investors realize that, you’ll see the dollar tank …
And that’s when you’ll see gold shoot for the moon — ultimately hitting $5,000 an ounce.
But Right Now Is Not the Time to Buy Gold!
Knowing this, you might be inclined to go out there and start filling your basement with bullion and bars.
But we think that would be a mistake.
One of our top analysts, Larry Edelson, has the answer.
Larry is known for having successfully forecasted — and profited from — gold’s run from triple digits all the way to up $1,700.
And now he sees a new bottom for gold … one that’s going to trigger what he sees as the biggest buying opportunity of his career, just before gold shoots to new highs.
All of the details are in his presentation …
Click here to view it now.
The Uncommon Wisdom Team