The wealthy--George Soros and others among them---are shifting their investment focus toward gold as they seek to protect portfolios against the inflation predicted as a result of the Fed’s third quantitative easing (QE3). Gold is viewed as a monetary instrument that is also a hedge against inflation.
This as gold is experiencing the 12th year of a bull run. Gold has already gained 13.5% during 2012 and gold exchange-traded funds reached an all-time high on September 20.
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Investors are growing increasingly worried about the inflation risk, particularly in light of the long-range nature of the Fed’s monetary policy.
It’s predicted that gold will reach a value of $2400 by 2014 if QE3 lasts until then. The Fed stated that it will continue the program until the unemployment rate experiences significant and sustained improvement.
This means that the Fed may continue its portfolio purchases long after the economy begins to improve in earnest.
A caveat could be the slowdown in economies across the globe. Demand for the metal
declined 7.1% during the second quarter. But inflationary fears may cause gold prices to go up enough to reignite investor demand in China and India.
As with any investment trend, shifts in focus in investment strategies must be weighed considering multiple factors. There seems to be enough time to scale money into gold-based investments while so many other economic question marks remain due to the presidential election and the fiscal cliff.