Why Gold Prices Will Soar After the Dec. 12 FOMC Meeting

The research team at Goldman Sachs estimated that the slow U.S. recovery will keep the Fed on this $85 billion-a-month money-printing binge for at least two years.

At that point, the tab for QE3 would be $2 trillion, approximately equal to QE1 and QE2 combined.

A team at Bank of America (NYSE: BAC) came to a similar conclusion, although the team put the ultimate total for QE3 slightly higher, at $2.2 trillion. Add that to the existing $2.8 trillion of debt on the Fed’s balance sheet, and you get a grand total of $5 trillion.

While such runaway monetization could have dire consequences for the U.S. dollar, it will be jet fuel for both silver prices and gold prices. Gold has recently hovered around $1,700 an ounce, while silver is in the $35 neighborhood.

The Fed’s QE programs, which started in January 2009, have helped push gold up 97% in less than four years.

It’s no surprise, then, that major banks see gold prices taking off next year after the Fed accelerates QE3.

Deutsche Bank (NYSE: DB) set a target of $2,000 for the first half of 2013, while Bank of America has projected gold prices at $2,400 by the end of 2014.

The Website ZeroHedge foresees an even greater impact from the QE3 that the FOMC meeting will unleash: gold at $3,350 by early 2015 and oil at $190 a barrel.

Looking a bit further ahead, Money Morning Global Resources Specialist Peter Krauth said the massive dose of QE3 could, by late 2016, have us “looking at $3,700 gold — and silver may be trading at $95.”

And there may be no end in sight.

“I expect lots more money printing, whose inflationary effect is always kind to silver and gold. My long-term target for gold still remains $5,000,” Krauth said. “As this bull progresses, I think we’ll see the gold/silver ratio move down closer to 20, which would imply that silver eventually reaches $250.”

Making the Dec. 12 FOMC Meeting Pay Off

Best of all for gold, the Federal Reserve’s profligate money-printing is typical of central banks around the world, undermining fiat currencies everywhere. And the less valuable fiat currencies become, the more gold, silver and oil prices will rise.

Because it’s not always easy for retail investors to buy commodities like gold and silver directly, those seeking to profit from the QE3 bonanza spawned by the Dec. 12 FOMC meeting need to look at mining stocks and exchange-traded funds (ETFs).

Some attractive gold mining stocks include: IAMGOLD Corp. (NYSE: IAG), Tanzanian Royalty Exploration Corp. (NYSE: TRX) and Golden Star Resources Ltd. (NYSE: GSS).

One of the top silver mining stocks is Silver Wheaton Corp. (NYSE: SLW).

Gold ETFs include ETFS Gold Trust(NYSE: SGOL),SPDR Gold Shares (NYSE: GLD), ProShares Ultra Gold (NYSE: UGL), and PowerShares DB Gold Fund (NYSE: DGL).

Silver ETFs include Global X Silver Miners ETF (NYSE: SIL) and the iSharesSilver Trust ETF (NYSE: SLV).

Capitalizing on QE3 by investing in oil is a bit more complicated. For more details, click here.

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• Forbes:
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