Analysis

Central Banks Will Force Gold to Go Higher
Gold bars are displayed at a shop in Tokyo. The price of gold rose from $253 an ounce in 1999 to $1,895 in 2011. Some analysts say gold is set to rise again and could hit $2,000 an ounce in early 2013 as central banks keep interest rates low through quantitative easing. (YOSHIKAZU TSUNO/AFP/Getty Images)
October 26, 2012
| Economics
| Asia and the Pacific, Europe, The Americas
Summary
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LIGNET Economic Analysis
Prepared by Peter Warburton, PhD.

We are living in extraordinary times, and witnessing something that has never occurred in the history of the world: a coordinated attempt by central banks on three continents to reverse the tide of worldwide recession by controlling the flow of money in the economy. Whether it will succeed or fail is a subject for debate, but its effect on the price of gold has now been firmly established. The more the central banks do to ease up on the supply of money in an attempt to revive the economy, the higher the price of gold climbs and the greater the attraction of owning gold.
Neither U.S. presidential candidate appears to have a credible plan to bring government borrowing under control over the next four years. This implies that the suppression of U.S. Treasury bond yields will remain at the heart of Federal Reserve policy for a long time. Gold, offering no yield but significant potential for capital gain, is a competitive asset in a world of negative interest rates, after taking account of inflation. Modern central banking and the inability of governments to control spending have combined to revive the case for gold as an investment asset. 
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