News Header


Analysts Say Fed Liquidity Moves Could Increase Inflation

Release Date: 
Friday, December 2, 2011

The price of gold steadied at two-week highs on Thursday after the Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines by 50 basis points beginning Dec. 5. The central banks will also arrange bilateral swaps to provide liquidity for other currencies. Several analysts commented on the significance of these coordinated bank actions, saying that it is a form of monetary easing that could lead to increased inflation.

"This was bullish because it was inflationary," said Matthew Turner, an analyst at Mitsubishi. "Inflation is positive for base metals and equities and gold...whereas deflation is bad for gold and bad for base metals."

"People are realizing that we've got a world that's hell-bent on printing money," which should boost demand for gold "as a store of value instead of fiat currencies," said Zach Oxman, managing director at brokerage TrendMax.

"There is a twofold impact on gold from the joint policy response from central banks," wrote UBS analyst Edel Tully. "First, a substantial increase in the demand for dollar swap facilities would mean further expansion of the Fed's balance sheet, if lending is not sterilized, and would effectively be another form of easing...The downward pressure this puts on the dollar is clearly to gold's benefit. Second, to the extent that the cheapening of dollar funding costs limits the possibility of a liquidity crunch, it is also beneficial for gold," she said.

(Sources: "Oil, Gold Gain After Central Banks Act," Wall Street Journal, December 1, 2011; "PRECIOUS-Gold hits 2-week highs after central banks act," Reuters, December 1, 2011)

News Footer


†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

You should review Goldine's Account Agreement along with our risk disclosure booklet, Coin Facts for Investors and Collectors to Consider ®, prior to making your purchase. Goldline has a spread or price difference between our selling price, called the "ask", and our buy-back price, called the "bid". That spread varies depending on coin or bar you acquire. Spreads on 1 oz bullion coins, 90% silver dimes and quarters, and one ounce and larger bullion bars are 13%. All other coins have a spread of 28%. There is also a 1% liquidation fee when you sell your coins back to Goldline. The market must go up enough to overcome this spread before an actual profit is achieved. Precious metals and rare coins can increase or decrease in value. Past performance does not guarantee future results. Coins are a long-term, three- to five-year, preferably five- to ten-year investment. We believe precious metals are suitable for 5% to 20% of the average investment portfolio though others may recommend a different percentage.

To receive free information package on gold and precious metals investing, call Goldline at 1-800-963-9798.