Gold Up!Silver Up!Stocks Up!What's Up?

Needless to say, with gold knocking on the $1400 per ounce door and silver cracking the $26 per ounce barrier, there's some excitement out there over precious metals.Then you say, "but stocks are up too!What's up with that?"

It's simple!It's sinking in that recent Fed moves to buy up to $900 billion in treasuries ($600 billion between now and mid 2011 plus up to $300 billion of profit from other Fed investments) is going to create demand for alternative investments.As these Treasury purchases take place, those selling out their positions will need some alternative place to put their money.A consensus says some of that money will move to gold, silver and other precious metals.Yes, some will make its way into the markets as well, as wiley investors continue to diversify.

Also spurring today's investor rush, are comments made by the President, suggesting Bush tax cuts may stay in place for everyone.As we head into a CHRISTMAS Season, the optimism scale just broke a spring.For months, the question was raised almost daily, "will there be a double dip or not?"At this time it is believed, Not!I say, "not yet!"

Sure, everyone feels a little richer today, at the prospect of being able to keep more of their money.I think most people realized, that even though it was said the middle class would not be affected by expiring tax cuts, there really was no escaping higher taxes in one form or another.Now a little bit of hope is going a long way.

Hope is the key word here.Let's keep in mind it's unlikely that any of that $600 billion has even hit the markets yet.Hope alone appears to be enough to drag some of the reported sideline money into various investments.Imagine what will happen when a few hundred extra billion actually gets spent.

I can hear the inflation warning sirens now.No sooner do we get confirmation of QE2 than speculation over QE3 and even QE4 begins.It could go on forever.But just as we have witnessed already, the effects may not be permanent.Between what the Fed did at the outset of the credit crisis and the subsequent government bailouts, it is estimated some $10 trillion of stimulus was pumped into the economy.A year later, all we heard was whether or not we would double dip.

Today, all markets are expecting inflation and lots of it as there appears to be no limit to how much money the Fed is willing to print to keep the markets alive.Sure, that's positive news for stocks as well as precious metals.Even real estate is likely to get a boost.What you have to ask though, is what happens when the stimulus ends?

Answer:Same thing as if it doesn't.

Last time when the effects of stimulus began to wear off, we got a flash crash, a flash recovery then a slow crash, fewer jobs and even lower real estate prices.It was only precious metals that seemed to rise steadily as they turned from inflation play to safe haven and now back again to inflation play.

I believe the relationship between inflation and gold is just now revealing the true potential of gold and other precious metals.If gold demand remains as steady as it has, either due to its role as an inflation hedge or as a proven safe haven, perhaps you should own some.

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