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At this article: http://www.theglobeandmail.com/globe-investor/some-gold-bulls-say-its-time-to-cash-in/article2139949/ What does this mean:

The current environment of low interest rates and a weak dollar remain supportive of gold prices, Ms. Ong said, adding that the potential for further quantitative easing by the Federal Reserve also increases gold’s appeal in the longer term

Why low interest rates will affect gold prices? And also what is quantitaive easing?

Victor123
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It costs money to invest in an asset. That cost is called an interest rate. It is the rate at which you would borrow (e.g. to buy gold), or take out of your bank accounts. Either way, you would buy gold only if you thought its price rise would be greater than the interest rate you'd earn on your money.

Gold prices are believed to rise with inflation, either real or perceived. So the critical relationship is whether "inflation" (actual or perceived) will be higher than the going interest rate. If you subtract the inflation rate from the stated interest rate, you get the "real" interest rate. Ideally, this number should be zero or negative for gold to rise.

Quantitative easing is about the Fed's buying banks' paper assets, and thereby expanding the money supply. All other things being equal, this tends to lower real interest rates, and thereby lift the price of gold.

JTP - Apologise to Monica
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Tom Au
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  • Thanks Tom. But should not lower interest rates make everything look as attractive 'buy's? Moeny is easier to borrow so everything is now affordable. Why just gold? – Victor123 Aug 24 '11 at 18:37
  • @Kaushik: Lower interest rates most help "hard" assets, gold, real estate, oil, etc. – Tom Au Aug 24 '11 at 18:47
  • @Tom: Thnaks. But is tehre a reason why 'soft' assets are not helped as much (stocks) – Victor123 Aug 24 '11 at 20:02