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Gold prices are due to climb in 2012, but don't rule out silver and keep an eye on stocks for good value investments, says David Skarica, editor of The Gold Stock Adviser newsletter and author of "The Great Super Cycl..

23 Jan 2012

By Forrest Jones and Ashley Martella
Gold prices are due to climb in 2012, but don't rule out silver and keep an eye on stocks for good value investments, says David Skarica, editor of The Gold Stock Adviser newsletter and author of "The Great Super Cycle."

The United States will likely roll out more extraordinarily loose monetary policies such as quantitative easing, not solely due to necessity, but also to keep the dollar competitive with a weaker euro.

Such easing measures will fuel inflationary pressures, and when inflation even threatens to rear its head, gold rises and shines.

"I think because of the eurozone crisis, the euro is getting a little too weak for what the Fed would like to see, especially if the euro got down to the 1.20 area," Skarica tells Newsmax.TV in an exclusive interview.

The euro is currently trading around 1.29 per dollar.

"I think they'll print money just to try and devalue the dollar to gain an export advantage and, of course, more printed money is more inflationary and it debases fiat currencies even more and then we see higher precious metals prices because they are the protection against debased fiat currencies," Skarica adds.

Under quantitative easing, a central bank buys assets from banks like government bonds or mortgage-backed securities with freshly printed money.

The idea is to flood the financial system with liquidity and send stock prices rising with the aim of avoiding crippling deflation and spurring investment and hiring. Such easing is commonly used when normal measures like interest-rate cuts don't work.

As a side effect, the currency in question weakens and inflationary pressures rise.

Federal Reserve officials have said that consumer prices aren't a problem, and that higher prices hurting consumers at the pump and in the grocery store are due to cyclical factors and not due to any surge in underlying demand.

Such comments often leave markets to interpret that there is room for a third round of quantitative easing if the U.S. economy doesn't gain steam and cut into high unemployment rates (the Fed has already rolled out two rounds so far).

Even if the Fed does nothing, the liquidity left over from the first two rounds remains in the system while debts remain sky high, which means the dollar stays weak and its traditional hedge, gold, continues climbing possibly spiking to $10,000 an ounce.

"I believe we are going to be in an inflationary end to this game and not a deflationary end, and again let me reiterate myself, when I say that $10,000 price, it's not like gold is going there tomorrow, number one," he says. "And number two, it's not like it's going to sit there for years and years. I really believe that will be the blow off of the gold bull market," Skarica says.

In the last bull run for gold, from 1979 to 1980, the metal tripled in a year, shooting up to $800 an ounce from around $270. Today, gold is trading around $1,650 an ounce after breaking $1,920 an ounce in 2011.

"The last move from $3,000 an ounce or $4,000 an ounce to over $10,000 will probably occur very quickly and then come right back down but I think ultimately we will get there as these debt crises unfold in Europe and then in the United States and we see an inflationary end to it."

Source: Money News


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