More Gifts coming from Bernanke to Gold and Silver Investors (GLD, SLV, AAGC, LSTG, NEM)

According to a front page article in today's Wall Street Journal, Federal Reserve Chairman Ben Bernanke is "considering three unconventional steps to revive economic recovery," all which will most likely lead to higher prices for gold and silver stocks and exchange traded funds such as SPDR Gold Shares (NYSE: GLD), iShares Silver Trust (NYSE: SLV), E: SLV), All American Gold Corp (OTCC: AAGC), Lone Star Gold Corp (OTCC: LSTG) and Newmont Mining Corp (NYSE: NEM).

The article, "Fed Prepares to Act," states that Federal Reserve fears about inflation have eased.  There is greater concern about the sluggish US economy, as recent data has been gloomy.  From the "Beige Book" of the Federal Reserve, seven of the twelve districts "reported some form of weakening economic activity."  Some form of QE3 appears inevitable, if it is not underway already.

Earlier in the year, Bernanke admitted that Quantitative Easing II was a failure and that some variant of Quantitiate Easing III would be considered if the economy did not improve: it has not.  Quantitate Easing II was the Federal Reserve program of buying $600 billion of Treasury bonds from November 2010 to June 2011 to finance the United States Federal budget defict, keeping interest rates low.  By keeping interest rates low, it was hoped that the US economy would be stimulated, with more jobs being created and more houses being sold.

Well, one out of three worked: interest rates were kept low.  Job creation and house sales lagged.  But the prices of commodities such as gold, silver and other commodities did not: all spiked sharply upwards as a result of Quantitative Easing II.  As a result of Quantitative Easing II weakening the US dollar by flooding the market with greenbacks, prices for gold, silver and other commodities rose as investors sought the safety of "hard assets" as faith was lost in paper money.  With the price of the base commodity increasing, the prices for companies such as Newmont Mining and exchange traded funds such as GLD and SLV naturally soared.

Bernanke has promised low interest rates through mid-2013, which weakens the US dollar and strengthens gold and silver.  The three actions being considered are shifting the holdings of the Federal Reserve from short-term to long-term securities to push down interest rates, reducing or eliminating the 0.25% the Fed pays banks to keep cash on reserve to encourage more lending, and for Federal Reserve officials to be more explicit in their goals, so markets will follow.  All of these actions being considered serve only to admit to the failures of previous Federal Reserve actions, making gold and silver more attractive to speculators and investors who obviously have lost confidence in American economic decision makers and in the value of the US dollar.