The Federal Reserve is on the short list to buy your local foreclosure! In a statement released last week, the Fed stated that they would increase their purchasing of agency mortgage-backed securities from the initially projected $300 billion to $1.25 trillion.

This is great news for the buyers who plan on seeking foreclosure once their option ARMs readjust soon.

Its not great news for taxpayers.

Among the auto industry, banking, and a multitude of stimulus programs, the federal government’s commitment causes the editor of CBS Money Watch to ask, “How does the government turn off the economy’s life support systems without killing the patient? And yet how does it prevent the inflation that will surely result from keeping the spending going too long?”

While we may not know the answers to those questions, one way the average tax payer can sharpen their defenses against the coming inflation is to invest in gold. The nature of gold as a hedge against uncertainty can offer a safe place for money to grow or retain its value when the economic future looks bleak.

Where is gold heading in October? This month (September) saw some huge swings in the price of gold. On September 10, 2009 we saw a rather large jump of $20, from $990 to $1010. Then between the 15th and 17th of September 2009 we saw a swing from around $990 to $1020. In total from low to hi gold went from:

$955 to $1020 – finally beating the $1000 threshold

That’s a 15% gain, in one month!

Gold did phenomenal. But, there is reason to believe that gold’s price will continue to rise as macroeconomic events put into motion years ago, causing the bubble and burst of the housing sector, as well as the actions taken to avoid recession will continue to take away the value of the dollar and alternatively grow the price for gold.

What prompted this post was an awards dinner I attended last week. One of the area’s prominent real estate broker and agents was there. I immediately began discussions of the real estate market. I won’t bore you with every little detail, but this man was under the impression that:

a) prices hadn’t fallen all the way

b) lots of interest, but few actual consumer buyers (lots of auction sales however)

c) option arms, other confusing mortgages, and foreclosure delay hadn’t hit yet

d) commercial market was in the first throws of the recession/depression

Prices hadn’t fallen all the way – I am actually interested in purchasing a place locally as right now prices have come so low, that it is actually less expensive (with taxes and HOA fees) to own then to rent – 100% of the time! But, fear has kept me from doing so. Because of the following three items in the list however, prices have yet to hit rock bottom.

Lots of Interest - This is a positive sign, however, again, because of fear, impending larger tax breaks, and general uncertainty in the market few consumer purchases are being made.

Another Bust Coming – According to many reports, there are a number of loans that will be ballooning shortly, causing yet another waive of foreclosures, again flooding the real estate markets with inventory.

Commercial Market Crashing – This is definitely reflected when you drive down the street locally. There are TONS of buildings with 0 occupancy – no business tenants. And yet, because of past obligations, they continue to build. We’ve watched prices per square foot drop from $40+ to $0 (only cam) in a matter of 2 years.

So where is gold heading?

These facts, coupled with the OTHER debt elements of the economy (car loans, credit cards, etc.) leads us to believe that the dollar will continue to decline and gold will continue to rise.

So, we’ve had a pretty crazy week with Gold about to edge past $1000/ounce, to levels not seen since April. The question is why. A lot of people are somewhat dumbfounded, but one person that is sticking his neck out and believes he has an answer (or at least an idea) is good ole’ Peter Schiff. We listen to his vlogs everyday where he share information on markets stock and occasionally commodities, and although Peter is a fan of Gold, it is rare that Gold is such a large part of his news and commentary. But, this past week saw some major gains in the price of gold both Wednesday and Thursday totaling nearly 15% and the question is why?

Video Blog from Wednesday September 2nd, 2009

Video Blog from Thursday September 3rd, 2009

Basically, Peter explains that many conventional stock and commodities investors believed that, much like the boom and bust in the early part of this decade, that gold would at first soar and then weaken, as the market rallied back and the dollar stayed strong – circa 2000.

In anticipation many people sold off their gold or shorted it (betting that it would go down) and so prices lowered (explaining the dip since April). But, unfortunately the magnitude and nature of this boom and bust, as well as the drastic actions that were taken to correct it (pumping money into the system) has caused the market to rally only slightly and has caused a decrease in the value of the dollar. And, when those looking for the previous cycle sold, there were a number of buyers ready to snap up the sales throughout the last six months. The dollar, unfortunately, continues to weaken, meaning those on welfare or those with fixed incomes will find it harder and harder to make ends meet as prices soar. But, gold will continue to move opposite the dollar’s decline.

Two days of absolutely crazy gold price increases. Just watched a video by Peter Schiff who mentioned the 2-day 15% increase in gold prices is equivalent to a 1400 point gain in the entire market (if this same growth was applied everyone else). Gold prices are up, Gold Stocks are up (ETFs, mining, etc.). Personally I’ve been watching some gold mining companies that I wish I would have looked at now. Here is a short list of some of the best articles today:

News Alerts

Stocks buoyed by banks and gold Sydney Morning Herald The gold price continued its rally overnight, nearing the $US1000 mark for the first time since February amid caution by financial market players and … See all stories on this topic

Gold Trades Near $1000, Heading for Best Week Since April Bloomberg The “proximity of the gold price to the $1000 mark means that speculative demand is likely to stay high in the short term.” Platinum for cash delivery … See all stories on this topic

Commodities: Gold price nears four figures ShareCast LONDON (SHARECAST) – The price of gold on the futures market topped the symbolically important $1000 an ounce level, with the April contract ending the … See all stories on this topic

Calcutta Telegraph Gold gets a price polish Calcutta Telegraph In the international markets, gold price has been surging since August 27. On Thursday, it touched an intraday high of $989.50 per troy ounce on the COMEX … See all stories on this topic

International Business Times The Road to Eldorado International Business Times 730-1030 plus and/or minus $100 -if certain trends materialized- was the gold price projection. Now then, We will not mince words when asserting that the … See all stories on this topic

DAWN.com Gold hits all-time high of Rs30,000 DAWN.com By Aamir Shafaat Khan A jeweller changes the price tag at the rate list of his shop as the gold prices reached the highest level in the history of Pakistan. … See all stories on this topic

September Gold season sees precious metal close on $1000 per ounce RT “I think, high volatility mostly caused a jump in the gold price. Some large world economies threatened to stop their stimulus plans, thus causing fears of … See all stories on this topic

Gold Rises to Six-Month High as Weak Dollar Spurs Metal Demand Bloomberg “Gold prices continue to surge higher as safe-haven buying pushes prices,” Suki Cooper, a Barclays Capital analyst in London, said in a report. … See all stories on this topic

Gold, silver mining stocks up as metal prices soar Reuters NEW YORK, Sept 3 (Reuters) – Shares of gold and silver mining companies rose on Thursday as the price of the precious metals rallied, with gold hovering … See all stories on this topic

Has Gold Lost its Luster? ETFguide In 2008, gold rose 4.32% as calculated using Kitco’s London PM Fix prices. In August, Europe’s largest bank, HSBC Holdings increased its gold price forecast … See all stories on this topic

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