November 08, 2010 – Why did the price of gold bullion soar to a record high in response to unexpectedly high gain in nonfarm payroll? Well, why not ask the Fed.
It seems most unlikely that the Fed was unaware of the figures to be released two days after it launched QE2. And one would hope that the Fed would not embark on such a risky venture unless it deemed the economic outlook to be dire enough to merit the action. Granted, it is a good bit of news – especially to those who finally were able to get back to work – but the impact on the economy is negligible.
The 9.6% rate of inflation remains unchanged, and according to most experts it represents only half of the real problem. Besides those who have given up hope are vast numbers turning to early retirement despite drastically reduced benefits. The cost to support that population is unknown, but it is certain to put an enormous strain on an economy struggling to recover.
More significant to the strength of gold bullion, however, are the repercussions of our government’s continued policy to stimulate the economy by boosting exports. Taking the shortcut to that end – diluting the dollar – has foreign nations seriously considering protectionist measures that threaten to throw the currency market into chaos.
In addition, despite the short term effect record low interest rates have on holding off inflation, the huge sum of cash being constantly pumped into the economy is a time bomb. Ironically, if the strategy succeeds, all of that excess cash will probably spontaneously combust into runaway inflation.
It will take a lot more than a few jobs and a little growth in production to signal and end to global economic problems. Only after the economy has fully recovered to where it once was can real growth begin. Until then, returns on gold bullion investment can be expected to stay strong.
