What an open-ended QE could mean for gold
With the amount of QE that had been priced in ahead of September’s FOMC meeting, the only way for the Fed not to disappoint the markets was to take a step further and do something that was never done before. And it did. The Fed’s new policy is unprecedented in three ways; it is open-ended, it is targeted at the labor market and it is not tied to new weakness. The fact that it is open-ended means that the burden of proof falls on those want to halt QE, rather than on those who support it. The explicit link between quantitative easing and jobs has never been seen again not only by the Fed, but neither by any other central bank. Last but not least the Fed avoided the downbeat note by suggesting that the policy is not based on a dark outlook for the economy, but rather on the desire to improve faster. Market received the news very well, with gold and silver being the biggest winners and the Dow and the S&P 500 reaching new highs. There is no doubt that this is a whole new era and it is worth taking a look at the numbers to figure out what the implications could be in the gold market. The Fed balance sheet is likely to grow to over $4 trillion by the end of the 2013. Looking back to QE 2, gold had priced in all the Fed balance sheet expansion within six months from Jackson Hole, suggesting that gold could reach $2250 around the end of the first quarter next year.
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