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Gold Closes At Record High

5 October 2010 62 views No CommentEmail This Post Email This Post

Gold closed at a new record today. The price for gold went as high as $1,342/ounce before settling at $1,340.

Along with gold, silver has also been making 30 year highs. It closed the day at $22.81/ounce.  Along with other commodities like copper and tin, these precious metals have been increasing most likely due to fears of further Quantitative Easing by the Federal Reserve. In extremely simple terms, QE is a fancy name for printing more money. For a more explicit explanation we turn to the trusted Wikipedia:

The term quantitative easing (QE) describes a monetary policy used by central banks to increase the supply of money by increasing the excess reserves of the banking system. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.
A central bank implements QE by first crediting its own account with money it creates out of nothing. It then purchases financial assets, including government bonds, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus induce a hopeful stimulation of the economy, by the process of deposit multiplication from increased lending in the fractional reserve banking system.
Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to sit on the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.

According to several Wall Street Analysts, the price of gold is predicted to rise to $1,400 or $1,500 by the end of the year and possibly considerably higher over the next few years.

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