The price of physical gold soared yesterday following the Federal Reserve’s announcement of its quantitative easing plans.
Gold rose 6% in a day and continued in upwards this afternoon as investors flocked to what is called “a safe haven” by Nicholas Brooks, the head of research and investment strategy at ETF Securities.
He says the Fed “caught people off guard” by announcing it would be buying up government bonds and putting more money into the bonds of Fannie Mae.
“There is the view that this is the beginning of quantitative easing, which is non-conventional policy. If a government starts to move towards quantitative easing it is negative for the currency and as the UK and Japan are doing it, and Europe are aggressively easing their money supply, people just do not know where to put their money.”
He adds that gold is benefiting from a “debasement of the major currencies” as it is viewed as a store of value, because there is a limit on supply, unlike in the case of currencies.
Although Brooks says he does not think the gold price will continue to rise in a straight line, he does say it will continue to move higher as the severity of the financial crisis means quantitative easing must continue.
Yesterday the gold price went from $890 an ounce to $948 an ounce. This afternoon it had risen to $960 an ounce.