With the announcement coming from the US Federal Reserve last week that they would print a further $600 billion in order to acquire longer tern Treasury securities, alternative options such as gold are trading at new highs in dollar terms.
The new injection of US billions is in addition to bringing interest rates to nearly 0% and purchasing more than a $ trillion dollars of Treasury Securities and US backed mortgage securities.
The dual mandate of the US Federal Reserve is to promote a high level of employment and low, stable inflation.
Gold is a safe haven asset and in times of uncertainty, ultra low interest rates, demand has continued to push the price up.
The last real bull run was in the 1970’s when gold started the decade at around $35/oz and peaked at over $850 in early 1980. Most of the price appreciation occurred in the last 2 years of this bull market as the price moved up sharply from $200 at the beginning of 1979 to the $850/oz just over a year later.
The chart below superimposes that rally with the current price starting in 2001, producing one view of the possible further upside for the yellow metal.
Source: Sarasin, Ned Davis September 2010
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