Last week, gold prices continued in a consolidation pattern of higher highs and higher lows (see the following chart). Prices closed at $1,481.20 per ounce for the week, above the new $1,470-per-ounce support level.
A bank liquidity crisis has arisen due to previous missteps by the Federal Reserve, as well as new Basel III international banking guidelines that make capital requirements more stringent.
The Fed may launch another round of quantitative easing in the next few weeks if problems in overnight lending force the Fed into emergency action.
According to CNBC, “A fourth version of quantitative easing—often referred to as ‘money-printing’ for the way the Fed uses digitally created money to buy bonds from big financial institutions—would be needed by year’s end to bridge a funding gap as banks scramble for scarce reserves, Zoltan Pozsar, Credit Suisse’s managing director for investment strategy and research, said in a note to clients.
“‘If we’re right about funding stresses, the Fed will be doing “QE4” by year-end,’ Pozsar wrote. ‘Treasury yields can spike into year-end. …’”
Gold’s safe-haven feature can provide a hedge for investors’ portfolios if these aggressive steps roil the markets. With gold’s long-term bullish fundamentals remaining in place, now may be a good time for investors to add gold to their portfolios.
Rick Andrews is president of Avant Capital Management.