Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude market...
One Clear Answer Is Gold
10/17/2012 8:45 am EST
There remains a great deal of uncertainty in the markets across the globe, but in all this tumult one opportunity is becoming clearer: gold is going to make another run, write Mary Anne and Pam Aden of The Aden Forecast.
It was another very volatile month. That goes for the markets, as well as what’s been happening on the world stage.
Think about it for a moment: Just over the past month, the Fed launched a massive QE3 program that’s going to last indefinitely. The ECB has a similar plan in the works, buying bonds of the weaker Eurozone countries and doing all it can to save the euro.
Riots and violence swept the Middle East. Protests also continue to engulf many of the worn-out European countries. And the US election has been full of surprises as it nears the final stretch.
We all know the economy is struggling, and this too was reinforced several times in recent weeks. The first signs of inflation also popped up, but they basically went unnoticed. Concerns about the global economy and the election intensified too.
These factors and more moved the markets. For the most part, they were biding their time, but that isn’t the case any longer. The markets are moving with uncertainty.
Another Historical Round of Liquidity
Even though QE3 is now old news, we want to touch on it because the actions and implications will be long lasting, affecting all of us.
Most important, QE3 is unlimited. In other words, the Fed will do whatever it wants for as long as it wants until it decides when enough is enough and it’s satisfied. They’ve already suggested this will likely take years.
The Fed will buy bonds, mortgage-backed items, and whatever else they decide on. The upside is literally open-ended. As we’ve often discussed, this unprecedented “printing” policy will fuel inflation. The money supply has already tripled in recent years thanks to the Fed, but it’s going to surge a lot more, and that is indeed inflationary.
Nevertheless, the Fed has vowed it’ll keep QE3 going until the unemployment situation is better. With the exception of the latest surprising report that unemployment fell to 7.8%, it has stayed above 8% for the past three and a half years. That’s the longest 8% stretch in more than 60 years. But can the Fed really help?
Most interesting, Bernanke himself admitted, he “doesn’t think it (QE) will solve the problem.” He’s worried about the fiscal cliff and the inaction of Congress and the President to do something about it.
Inflation on the Horizon
Inflation is another story. It will rise as a result of the Fed’s actions, and it’s already picking up.
This month, for example, consumer prices rose the most in over three years. And producer prices have surged to double digit annualized levels for the last two months.
As for interest rates, the Fed also vowed to keep short-term rates near zero for about three more years. This alone is going to be very bullish for gold.
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