Gold News & Info

Source: American Gold Exchange

Austin— Gold rallied more than 2%, silver surged 3.6% to a 9-week high, and the dollar sank as the Fed promised today to keep interest rates at historic lows until well into 2014. The pledge of low rates means dollars will be cheap for at least two more years, which supports higher gold prices because gold is denominated in dollars. In addition, the Fed's decision sets the stage for a third round of quantitative easing. As Marketwatch reports, "The consensus of Fed watchers believe the Fed will soon launch another round of asset purchases with printed money�as early as the next FOMC meeting on March 13." Monetary easing is seen as eroding currency value and promoting inflation while gold and silver are seen as stores of value and hedges against inflation.

At the Comex close: February gold gained $35.60 to $1,700.10; March silver surged $1.15 to $33.12; March palladium picked up $12.80 to $693.35; April platinum jumped $27.20 to $1,579.60 an ounce.

Also supporting gold is growing sentiment that Greek default is now inevitable, and more serious problems for the eurozone are not far off. In recent updates, we've cited influential economists including former IMF chief economist Simon Johnson, Johns Hopkins economist Steve Hanke, Fitch Ratings Managing Director Edward Parker, and Moritz Kraemer, head of S&P's sovereign ratings unit, as saying that current efforts to save Greece are doomed. In an interview with Bloomberg TV yesterday, Harvard's Ken Rogoff, another former IMF chief economist, conceded that "Europe isn�t prepared for Greek default" and besides, Greece is not the only culprit. Other distressed nations like Portugal will need expensive bailouts and debt restructuring.

Indeed, Portugal increasingly looks like the next domino to fall. Portuguese credit default swaps (CDOs), reflecting the cost of insuring its sovereign debt, are soaring. S&P has already downgraded it to below investment grade, and bond yields are spiking up, past 14% last week and climbing. Portugal is even poorer than Greece, so similar austerity measures could easily push it into a death spiral. Huge increases in eurozone liquidity will probably be required to keep it afloat, most likely through an expansion of the Long Term Refinance Operation (LTRO) when it comes up for renewal in late February. This kind of increased monetary easing would be very bullish for gold, especially when combined with the Fed's commitment to near-zero interest rates and the likelihood of springtime QE3 in the U.S.