Los Angeles, CA – The price of gold dropped this week after the Fed’s announcement and the continued turbulence in the Eurozone. On Wednesday, Federal Reserve chairman Ben Bernanke announced “Operation Twist” – a plan for the Fed to sell $400 billion in shorter-term securities to buy longer-term holdings in effort to boost the weak U.S. economy. The Fed’s plan to boost U.S. growth pushed up the U.S. dollar on Thursday, which pummeled the commodities complex causing the dip in gold and silver.
‘Twist’ Gets Less Than Warm Welcome
The Fed’s plan to reduce rates on mortgages and other consumer/business loans was taken skeptically by investors. Financial analysts speculate that the plan will only modestly help the grim outlook of the economy, while others say the plan will not help at all and could cause inflation.
The Dow Jones Industrial Average was down sharply in response to the Fed news on Thursday, dropping almost 4% due to the negative reaction to “Operation Twist”. “It seems the market doesn’t believe operation Twist is enough to kick-start the sputtering economy,” IG Market Strategist Ben Potter said. “A very downbeat outlook… seems to have unsettled markets even further.”
European Debt Concerns Add to Global Recession Worry
The European debt crisis has added additional worry to investors’ outlook on a market recovery. Standard and Poor’s (S&P) cut Italy’s credit rating Tuesday, causing concern that borrowing costs for countries in the region will continue to rise. In addition, investor concern that Greece’s debt crisis is worsening is exacerbating the global economic outlook. “The markets are saying the odds are very high of a Greek default,” said Frederic Dickson, market strategist for D.A. Davidson & Co.
Unique Opportunity to Buy Precious Metals
With worry of a looming 2nd recession, now is the time to buy gold. Gold is a time-tested hedge during economic turmoil and is heading for its eleventh consecutive annual gain. With economists and financial analysts alike both predicting gold to exceed $2000.00 an ounce by the end of 2011, the drop in gold prices proves an excellent time to convert your dollars or paper assets into gold and silver.