The Price of Gold falls as Responsible Monetary Policy appears Imminent

Posted by PITHOCRATES - December 14th, 2013

Week in Review

You can print paper dollars.  And create dollars electronically.  Which is why governments love fiat money.  Money that has no intrinsic value.  Just the government saying ‘let it have value’ gives it value.  Which is why they love it.  Because they can print it to spend when they have no further room to raise taxes.

But printing money creates inflation.  And devalues the dollar.  Which is why some like to buy gold.  Because you can’t print gold.  Or create it electronically.  So it holds its value.  Especially when the dollar doesn’t.  And the price of gold has been on the rise all during the Federal Reserve’s quantitative easing (i.e., ‘printing’ money).  The more the Fed ‘prints’ money the more they devalue the dollar.  And inflate the price of gold.  But once it looks like the Fed is going to taper back on their ‘printing of dollars’ gold investors stop buying gold (see Gold suffers biggest one-day loss since October by Myra P. Saefong and Sara Sjolin posted 12/12/2013 on Market Watch).

Gold futures took a hit on Thursday as concerns that the Federal Reserve could scale back its stimulus next week pulled prices down by more than $30 an ounce for their biggest one-day loss since October.

Investors stopped buying gold not because gold has lost value.  But because they think the dollar will stop losing its value.  For if the Fed stops their quantitative easing the devaluation of the dollar will halt.  As will the rise in the price of gold priced in dollars.  So it will no longer take more dollars to buy the same amount of gold that it once bought.  Like it did under the Fed’s quantitative easing.  And those who bet on a further irresponsible monetary policy that devalued the dollar want to unload some of their higher-priced gold before responsible monetary policy takes effect.

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