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Helicopter Ben and the Jobs He Creates?
Pinnacle Digest writes: Bernanke has inadvertently, once again, created a perfect environment for gold to flourish. Holmes attempts to answer two questions in his most recent commentary:
1) How can demand for gold and gold stocks continue; and 2) How high can the precious metal go?
In a speech to the Economic Club of Indiana on October 1, Bernanke explained that the Fed is “charged with promoting a healthy economy,” which includes “an economy with low unemployment, low and stable inflation, and a financial system that meets the economy’s needs for credit and other services.”
Ten years prior to this, Ben hinted at the way he might accomplish such goals as a Fed chairman. In a speech regarding deflation, Bernanke shared his position on a government’s means to print money, referring to Milton Friedman’s comment about dropping money out of a helicopter into the economy. He stated, "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." Since then, he’s been known as "Helicopter Ben."
Holmes explains that the Fed’s helicopter is dropping $40 billion per month to buy mortgage-backed securities, as well as an additional $45 billion of longer-term securities per month through the end of the year. Demand for gold will continue due to fear of a continued methodical debasement of global currencies.
The Fed’s money printing practice to help 'create jobs' is only one part of the picture. Along with the growing U.S. monetary base, global liquidity has been growing every year for the past 12 years. This is exactly how long the bull market in gold has lasted. Using this simple fact, it is easy to predict the bull market in precious metals will last as long as the money supply and global liquidity increases.
In response to the questions of - How high can gold go? Holmes comments that, "If you factor in only the Fed’s program to purchase mortgages and Treasuries, Bank of America-Merrill Lynch says that over the next nine months gold could go to $2,000, and by the end of 2014, gold could be at $2,400."
Holmes reminds investors that this target does not include the Love Trade. The Love Trade relates to India and their long last love affair with gold. The rupee has recovered and will allow Indians to begin purchasing more gold.
This improvement in the currency comes just in time, as the wedding season is in full bloom. Every year, about 10,000 weddings are held in India from late September through January, in between the monsoons and the summer heat.
Holmes closes with this statement: Investors now have two strong reasons to invest in gold: the Fear Trade, driven by an expanding monetary base, and the Love Trade, driven by rising gold demand in Chindia.
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