Speculators, who have joined the bandwagon of shorting the US Dollar, believe that the United States Government will raise interest rates soon and stop buying gold. The Federal Reserve Asset Purchase Programs (AIP) are inflating the gold price.
Inflation is a form of fad inflation. People don’t want to live by a fixed standard of goods. They will need money.
The Federal Reserve itself has proven to be fad inflation. They are printing the most money in history. The cost of living is increasing by an unsustainable amount.
So where does all this inflation occur? It occurs through the creation of the Reserve Money supply. The government is purchasing assets and the private sector is creating money out of thin air.
The law of supply and demand is applied when the Federal Reserve is trying to inflate the price of gold. When the AIP programs are announced, the sellers of gold will increase the price. The Fed will be unable to reduce the price of gold any further.
This is another reason to consider the Federal Reserve Asset Purchases as a balloon in a housing bubble. The fact that it will eventually pop will cause inflation to run higher than its normal rate. But it’s easy to see how a bubble can expand to such an extent that it never comes back down.
The inflated price of gold will continue to increase until we reach a point where the cost of living begins to decrease. Then the inflation will stop. Where will the new money come from? That’s another reason to avoid using the Fed Asset Purchase Programs as a form of inflation.
While the gold price will continue to climb to an astronomical level, it will not be because of inflation. The central bank will have lost their power to inflate the gold price.
Now, of course, they can over-inflate the price, but why? They can also under-inflate the price, but why?
One reason is that it’s all a form of fad inflation. When you look at the biggest crash in prices, the US dollar had a big part to play in the crash.
That’s because it had lost its real value. The same thing will happen with the American dollar.
I’ve had it with the gold price continuing to rise. I don’t want to take more risk with my money than I have to.