Why The Price of Gold Per Ounce Is Going To Soar

As I'm writing this article, on June 26th, the current price of gold is up $30 to over $900 an ounce. At 12:18 p.m., the gold futures price (for August delivery) was trading at $31.10. That's a rise of 3.5 percent! And if gold manages to close at that level, it would be the biggest percentage gain in 16 months! So, why is gold surging after languishing since March, when the metal hit its all-time high of $1,033.90 an ounce?

The Fed Is All Talk and No Action

Yesterday, the U.S. Federal Reserve kept interest rates at 2 percent, even though they acknowledged that inflationary expectations were rising. People are starting to worry that the Fed might be behind the curve. Expectations for a rate hike have diminished with the Federal Reserve saying that they believe inflation was likely to moderate later on in the year. On the one hand, you've got the Fed saying that they are concerned about inflation. But on the other hand, it appears they aren't going to 'walk the walk' and do anything about it. That's why gold is going ballistic today.

Oil is Moving Higher

Another reason for the surge in gold today was oil prices. Today, you had Algeria's Oil Minister - Chakib Khelil - come out and say in a French television interview that an Iranian conflict could cause oil prices to rise over $200 a barrel. And perhaps even as high as $400 a barrel!

On that note, the price of oil surged to $138.95, which is just a bit below the record high of $139.89 that was set on June 16th. Why? Because Iran just happens to be OPEC's second biggest oil producer and proven oil reserves owner. Gold reacted big-time to those comments.

On a long-term basis, the price of gold is going to go even higher. Here's why:

Gold is typically purchased to protect against the loss of purchasing power. The Federal Reserve seems to be suggesting that they are more concerned with protecting the growth of the feeble U.S. economy and that inflation is the lesser of the two evils. The best way to combat inflation is through higher interest rates. Other central banks seem to be taking the rise in inflation much more seriously. The value of the dollar has fallen dramatically since the Fed began aggressively cutting interest rates in. If the Fed is seen as being 'behind the curve', the dollar is going to sink further.

This will drive investors out of bonds and equities and into either foreign assets or hard assets such as gold and silver bullion.