If the Fed is successful at turning the U.S. economy and credit crisis around, it will only be because it flooded the system with hundreds of billions of paper dollars, creating wild inflation.
If the economy were to pick up on top of that, between inflation and resumed economic growth, global demand for gold would soar.
Of course, the media mavens would then argue that when the economy turns back up, the Fed will jump in with both feet to head off inflation by aggressively raising interest rates, choking off the bull market in gold.
That's also hogwash. In fact, look at the recent record. From late 2004 to mid-2006, the Fed raised interest rates 17 times, in steady quarter-point increments to 5.25% from a low of 1%. And over that period, gold surged 127%!
Look at it this way: Even with the U.S. economy in a bad funk - gold demand hit a record $79 billion in 2007.
Most of the increased demand - no surprise here - came from Asia and the Middle East. Demand from No. 1 gold customer India rose 7%.