Gold Bears... Be Afraid, Be Very Afraid

Bill Gross just put out a warning in the form of an investment in QE3.  The past QEs have been very good for gold.  So gold bears would do well to pay heed.

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This guy has placed a $133 billion bet QE3 is going to happen

Frik Els | April 20, 2012

After failing to scale the psychologically important $1,800 an ounce bar at the end of February, gold has taken a few hard knocks on the way to its current trading level of around $1,650.

The spikes downward have all been thanks to Ben Bernanke and the US Federal Reserve and the fortunes of the precious metal seem increasingly linked to monetary policy in the US.

At the start of April for instance gold dropped some $60 an ounce in a single session when Fed minutes appeared to indicate a third round of so-called quantitative easing was off the table and its policy of zero interest rates may be coming to an end sooner than previously thought.

If the Fed stops flooding markets with cheap money, gold’s allure as a storer of wealth and an inflation hedge is diminished. Tighter monetary policy also strengthens dollar, further hurting the yellow metal.

Quantitative easing has been a massive boon for gold. The Fed’s new near-zero interest rate policy and purchases under QE1 kicked off on 16 December 2008. On 15 December 2008 an ounce of gold cost $837.50. Late on Friday, June contracts in New York changed hands for $1,642.80.

That’s a 96% improvement for the precious metal on the back of QE1 and QE2 (first mooted in August 2010) and ‘Operation Twist‘ (started in September last year and set to expire at the end of June). Before QE1 the Fed’s total assets were below $1 trillion. It is now closer to $3 trillion.

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