Big Ben Bernanke is still buying bonds. In fact, on Wednesday we found out that he and his merry band of central bankers are upping their monthly ante designed to keep interest rates down and stimulate job growth.
The Federal Reserve chairman announced the commitment of another series of monthly purchases of $45 billion in Treasury bonds. That’s on top of the $40 billion per month in mortgage-backed bonds it started buying in September. Moreover, Mr. Bernanke said the Fed will likely keep official interest rates near zero for as long as unemployment remains above 6.5%.
Now, Fed critics have expressed a lot of doubt as to whether this “more of the same” plan will work. Fed haters (including myself) think this reckless version of money printing will lead to devastating dollar debasement and wealth destruction on a massive scale once the inflation Hydra rears its destructive heads.
Alas, the seeds of sorrow continue to be sown at an even greater pace, and when they sprout—and they will sprout—the fallout will be nasty for us all.
Click to EnlargeSo, now that Ben has spoken what should a smart trader do? Simple, get you some gold.
Consider that over the past four years, since the beginning of the fantasy fix that is quantitative easing, the value of the SPDR Gold Trust (NYSE:GLD) has surged more than 100%. Ask yourself this; do you suspect that more fabricated currency will keep that trend going in 2013? I say the answer is an obvious “yes.”
Will the rise in gold be straight up? No. Will there be trading conditions that send sellers into the yellow metal? Yes.
My colleagues John Jagerson and Wade Hansen recently wrote a very good piece on why gold prices have fallen of late. And while the short-term circumstances causing gold to fall back down below its 50-day moving average are certainly valid, the real cause of gold’s popularity is the Fed’s monetary policy, and that isn’t going to change anytime soon.
Until that policy is fundamentally altered, traders should use short-term pullbacks as a reason to get long the sector.
Recommendation: I would be a buyer here as long as GLD remains above $155. I also would hold the shares until it surpassed the $180 mark, which is just shy of its all-time high.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.