How to profit from the next round of quantitative easing?

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Will they or won’t they? That is the underlying question being asked right now as many of the world’s major economies like Europe head back into recession. The US economy continues to slow and the main economic growth engine of the world – China is struggling to move back into an expansion phase.

Will the various economies of the world choose to run on organic growth (if there is any) or will they continue to run with the monetary printing presses running at full speed? In my opinion, Mr Bernanke and his friends at Central Banks will continue to inflate their way out of the lackluster performance of the global economy for the foreseeable future. Already last month, the Bank of England has injected a further 50 billion pounds into the UK economy, taking the total amount of money printed since it began its quantitative easing program to 375 billion pounds. Now the two most important questions are, who will be next and when?

Two weeks ago, The Wall Street Journal reported that the Federal Reserve was closer to taking new steps to stimulate growth and hiring. The statement indicated that, "amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central bank officials could take new steps at their meeting on July 31 and August 1, though they might wait until their September meeting to deciding whether to act."

Whilst statements like this are nothing new, the fact that it is a presidential election year just adds to the sense of urgency. Especially as Mitt Romney, the Republican candidate has openly declared to, “hire someone new” as Federal chairman if he is elected. Therefore Bernanke’s only chance of keeping his job relies on an Obama victory. And the best way to make this happen would be another round of quantitative easing – delivering a short uplift to the economy just in time to make Obama look good.

Whichever way you look at it, there is a strong case for Bernanke to press the button on the printing press again and of course that will result in renewed buying interest in the world's two most popular shiny metals… gold and silver.

This week Bernanke pushed back easing to a later date, but hinted it will be coming. If he is as predictable as I assume, then he will act at the next Federal Reserve meeting on September 13… conveniently just in time for the election. However, before that, China and the European Central Bank could bow to the pressure of printing money in the next few weeks to rescue their struggling economies.

Looking at things from a global perspective; no country is immune to this crisis. Indirectly America, China and Europe’s problems weigh on other economies too and the Gulf is no exception. Action from The UAE Ministry of Economy to downgrade their growth forecast for 2012 to 3 per cent compared with 4.2 per cent growth seen in 2011, indicates concerns of slowdown in the region.

This is influenced by a combination of external factors, one of them being oil. The UAE is the second largest trading nation in the Arab world and a huge exporter of oil to China. As growth in Chinese manufacturing has fallen to its lowest level in seven months, so has its demand for oil. Another external factor that has potential to impact the region is the US dollar to which most Gulf countries peg their currencies. As the Fed continues to devalue the dollar through quantitative easing, the Gulf is likely to see their currencies depreciate along with it.

Regardless of what you think of the efficacy of quantitative easing, one thing is for certain – money printing drives up the price of assets and offers investors a prime opportunity to profit. In my opinion every investment portfolio should have some exposure to gold and silver.

The current price of gold is $1,604 an ounce, which is an increase of 4.5 per cent from last month’s low of $1,535.  As we approach the festival season of Eid and Diwali gold consumption in the Middle East and India is likely to soar by 25 per cent according to the World Gold Council. Last month, silver also made gains. It’s currently trading at $27.80 an ounce – up 7 per cent from last month’s low of $26.00. The upcoming currency devaluation will inevitability push prices higher, which reminds me of a Far Eastern proverb "Empires may fall, currencies may change, but Gold will always survive."

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Posted by: Adam

Nik you got it RIGHT! I'm amazed at how accurately you predicted QE3, right down to the exact day! Thats simply amazing! Well done, I really hope to read more like this. So i'm guessing Ben Bernanke get to keep his job then, lol?!

Posted by: TJ

This is such an informative post. After reading the article I checked the prices of Gold and Silver and i'm surprised at how accurate the information is. Gold is above 1,700 an ounce and Silver is 33.00 an ounce. I wish I read this article earlier. Thank you for sharing! P.s when you think Gold will hit 2,000?

Posted by: othman

The outcome has already been decided. If you own enough gold, you win! Heres the clue, George Soros and John Paulson, two hedge fund billionaires have both purchased mass quantities of gold this month because they expect central banks to print money again. To me that confirms precious metal prices are going to rise high very soon. If two of the richest and most successful hedge fund managers believe that, its a good reason for me.

Posted by: Stephen

Before the clouds gather for another financial storm, I'm off to buy some gold and silver!

Posted by: Marco

Fasiel you make a valid point and I agree. In light of the money printing crisis that lies ahead we should be seeking an alternative to pegging our national currencies to the US dollar. But I don?t believe the solution is a basket of mixed currency. Look at the Euro and the British pound, none are safe. They all run a risk be becoming valueless the more the bank prints. Why not peg to gold like currency originally was. Gold has held its value for thousands of years and will always do so.

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