Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Britain's Hyper Housing Market - 27th May 22
Lower Copper price due to Chinese lockdowns is only Temporary - 27th May 22
How the United States Conquered Inflation Following the Civil War - 27th May 22
Greater Depression Now!? - 27th May 22
Stocks: Is the Really Scary Part Just Ahead? - 27th May 22
The Dark Side of the Internet - Cybersecurity - 27th May 22
Why Ray Dalio is WRONG About China - Principles for Dealing with the Changing World Order - 24th May 22
Globalists Convene to Plan Central Bank Digital Currencies - 24th May 22
After Recent Highs, What’s Next for the Gold Junior Miners? - 24th May 22
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

QE Dysfunctional Implications for Gold and Silver

Commodities / Gold and Silver 2012 Apr 06, 2012 - 03:39 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleSome investors seem disappointed with the Federal Reserve’s apparent failure to endorse another round of quantitative easing. While the fragility of the EU continues high, the ECB also seems to have no taste for another round of quantitative easing. All of this is causing great unhappiness. Reality seems to have clashed with the child like expectations of so many investment strategists. That is understandable, for the whole house of cards and fantasies of much of the hedge fund industry are dependent on a continued flow of easy money. The rest of us should be somewhat more pleased that the Federal Reserve is not pursuing QE-Dysfunctional.

The above chart plots long term wealth indices for the price of $Gold, red line, and the total return on the S&P 500, solid black line. This chart allows us to assess the success or failure of U.S. monetary policy over the past twenty years. That period includes two of the most inept monetary regimes ever to run the central bank of a major economy.

On balance, over the period shown Gold, that archaic anachronism, has performed nearly the same as the equity of the largest economy in the world. This dead asset has done as well as an investment in the entire U.S. economy. That comparison alone demonstrates the dysfunctional nature of Keynesian mythology, and dubious wisdom of the high priests of that theology. U.S. investors and the citizens of that nation might have done better with Clifford, the Big Red Dog, in charge of the Federal Reserve.

Perhaps a more important message is shape of the black line, the total return on the S&P 500. In the beginning, the easy money policy of the Greenspan era did enhance returns. The total return line rose to the first high in the chart. The literature of finance does say that leverage, borrowed money, will at first enhance return on equity.

However, each successive round of monetary sorcery, quantitative easing, did nothing but increase the volatility of an investment in the equity of the U.S. Investors have essentially earned nothing net over much of the last decade or so. Rather, the value of their investments has done nothing more than move up and down in violent fashion. More recently, consequences have been to again fund investment fantasies such as that of AAPL reaching $1000, which is likely to happen when Clifford, the Big Red Dog, begins to fly. All in all, the Federal Reserve has clearly demonstrated again that its policies truly are QE-Dysfunctional.

What might be some implications of the end of the anticipating QE-3? For one, the dollar is not going to crash, at least this year. Gold is not going to $2,000 and Silver is not going to $100 this year. Proponents of those forecasts will again have to change the date for their arrival, as they have been doing for years. More realistic is that $Gold will first test the $1,600 level before testing the $1,530 low. Silver will, due to its high Gold beta, test the $27 low. At those prices we are likely to become far more aggressive in recommending their purchase as much of the impact of the QE nonsense will have been removed.

On of the bigger risk during in the immediate future may be in the above chart of the index for junior mining stocks. For some time it has been failing to make new highs while making new lows, the classic footprints of a bear. It this week broke to a new low, validating again the bear market for junior mining stocks. This is an investment group headed for gut wrenching pain this Summer. However, we expect that in August some true bargains will develop.

Oscillator in the above chart is a stochastic. It seems now to be doing what so many indicators do in a bear market. Most indicators will in a bear market give repetitive over sold readings that makes their use risky. The very nature of a bear market is to over sell things, and that naturally influences the indicators. In a bull market, the reverse happens. The indicators in that environment give repetitive over bought readings. So, as we warn our readers, be careful how one responds to these readings.

In sum, now is the time to be build cash for coming opportunities to buy. For remember, in a bear market future returns are being created. By end of Summer some very nice future bull market returns may have been created.

By Ned W Schmidt CFA, CEBS

Copyright © 2011 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to

Ned W Schmidt Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in