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John Murphy
Federal Reserve Policy Bullish for Gold
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Even though gold assets have fallen over the last year, there is a bullish future after the recent speech from Federal Reserve Chairman Ben Bernanke at the National Economists Club Annual Dinner in Washington, D.C., earlier this week that is bullish for Barrick Gold (NYSE: ABX), Wishbone Gold PLC (OTC: WISHY), and SPDR Gold Shares (NYSE: GLD), the exchange traded fund for gold.

In his speech, Bernanke reported that while the American economy was recovering, “we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings.”  That means that the Federal Reserve will continue its monetary policy of quantitative easing that entails buying $85 billion each month in Treasuries and mortgage-backed securities to keep interest rates low, according to an article in The Wall Street Journal.

In the long term, that will lift the price of gold.

That will result from the value of the US Dollar falling from basic supply and demand forces.  The more Greenbacks that are printed, the lesser the value. About $1 trillion in US Dollars are being created every year by the Federal Reserve without the economic growth that adds value to a paper currency.  Over time that will lower the value of the US Dollar and other fiat currencies.

From that, the price of gold assets should rise.  SPDR Gold shares is the most liquid, so it will receive a great deal of investor capital.  But Wishbone Gold PLC (OTC: WISHY) is placed to profit from the increasing demand for gold from China and India.  There was a recent report on the holdings of Wishbone Gold PLC in Australia that were very bullish.  As a result, Wishbone Gold PLC is up in recent trading (chart below).  A recent article on Barrick Gold (NYSE: ABX) in Barron’s was also very positive.

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