Gold : A big move imminent, and a buy either way. (after a fall that is)
Gold will very likely make a huge move in the near future. It’s either 2000 or 1350 in our mind, and it’s up to Bernanke.
If he goes ahead with QE3 and expands the Fed balance sheet by another US$ 1 trillion or so, and does not sterilize the debt as with Operation Twist, the end result will be gold at or near 2000 if not higher, oil back at 110-115 and stocks to new multi year highs. A weekly close above 1690 on gold will set the stage.
We have trouble with this scenario. It’s just too soon, and too dangerous for the Chief Beard (Bernanke). It will be seen as outright support for Obama, meaning the Fed chairman will be all in for his re-election. If however the Fed holds off until after November, they can go for QE3 regardless of who wins the presidential race, either of whom will welcome such stimulus with open arms and much talk about how great America is (was)
So our bet is for at best an extension of Twist, possibly out to 4-5 years on the curve, but not a full scale QE printing exercise – that will have to wait for Thanksgiving (late November)
Now if we are right the markets could easily fall 8-10% in a week or two, and that is without factoring in anything to do with Europe. So much can go wrong, and the people in charge in the west have generally lost the plot because they do not really understand or have lived through a debt crisis, unlike many in Asia, and elsewhere.
Much has been written about Europe, but at this stage the track record of current political leadership on the continent looks to be making all the mistakes necessary to fuel a full blown crisis with the worst economic and social consequences post WW2. Only Germany can solve it, and by only one move – leaving the Euro and going back to the DM, leaving the rest to devalue to about 23-28 baht to the Euro.
Now back to gold. If QE3 is delayed until November or later, if Europe continues to crumble under debt (guaranteed) but there is no outright QE from the ECB in the form of Eurobonds or directly purchasing national debt, gold could break the triple bottom support at 1520 and face a steep decline right back to 1350-1400 or so. The only question in our minds is … Will Europe wait until the football is finished before going in to full meltdown mode, or will the June 17 Greek elections be enough to freeze credit markets, which by default (!) will lead the way south for risk.
Now add in a yellow and red dimension in to the local mix and we have ourselves a situation where 2 or 3 weeks’ holiday may well be the best call.