Monday, October 4, 2010

Bank of America (NYSE:BAC) Says Quantitative Easing Will Pressure Gold

In a recent note to clients, Bank of America Corp (NYSE:BAC) said quantitative easing by the Federal Reserve will put upward pressure on gold prices, as the U.S. economy continues to sputter.

Bank of America said, "Since the first round of QE, precious metals have perhaps become the biggest beneficiary of money printing. In a way, gold is playing out as a second act of the credit bubble, with the first act being the spike in TED spreads that started back in August 2007.

"Just as commercial banks became extremely distrustful of each other's credit profile due to the severe drop in US house prices, Central Banks are quickly becoming distrustful of each other on the back of widening sovereign credit spreads, unilateral policy moves to ease quantitatively or unexpected interventions in the foreign exchange markets."

The Fed continues to hint, through various representatives, that they are ready to intervene in the market again if the American economy doesn't improve. Almost every week as data confirms things will remain slow for some time, someone from the Fed mentions quantitative easing as the remedy.

That will further erode the value of the U.S. dollar, which continues to fall against the euro. That will also push the price of gold higher and increase inflation. All of which is good for investors in gold.

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