Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Gain About 1%
By: Chris Mullen, Gold Seeker Report

Northern Vertex Files Preliminary Economic Assessment Report for the Moss Gold Mine in NW Arizona
By: Northern Vertex Mining Corp.

Does The CoT Structure Prohibit A Rally?
By: Craig Hemke

Harry Dent’s Gold Prediction Invalidated
By: Przemyslaw Radomski, CFA

SELLING OUT OF PRECIOUS METALS AND BUYING BITCOIN…. Very Bad Idea
By: Steve St. Angelo

The Bitcoin Bubble Explained in 4 Charts
By: Jake Weber

VXX Sends an Awesome Message from Another Galaxy
By: Rick Ackerman

Geopolitical Risk Highest “In Four Decades” – Gold Demand in Germany and Globally to Remain Robust
By: GoldCore

Asian Metals Market Update: November-22-2017
By: Chintan Karnani, Insignia Consultants

Gold Seeker Closing Report: Gold and Silver Gain With Stocks
By: Chris Mullen, Gold Seeker Report

 
Search

GoldSeek Web

 
What Does the End of QE3 Really Mean?


 -- Published: Tuesday, 2 December 2014 | Print  | Disqus 

So it finally happened. The Federal Reserve ended its Quantitative Easing program on October 29, 2014 due to concerns that keeping QE for so long could fuel excessive risk-taking by investors. The U.S. dollar continued to conquer new heights, while gold did not welcome this central bank action. Its price fell in November to $1,142, a four-year low. This is not surprising given the fact that as we wrote (in the last Market Overview), the condition of the U.S. dollar is one of the most important drivers of gold prices.

 

However, the future (in the medium term) of the yellow metal’s price in the post-QE world is unclear. So much is unknown. When will Fed hike the interest rates? Is the U.S. central bank going to get rid of the enormous level of assets it bought? How and when does it plan to do so? How will the financial market perform without stimulus? Is the end of QE really a sign of a strong U.S. recovery? Some analysts agree, forecasting that gold will fall towards the $800-$900 level, while other economists fear that without Fed’s bond-buying program, a market crash may be on its way, leading to renewed investors’ interest in gold. 

 

          As a result, markets are confused right now. In this edition of Market Overview we try to clarify concerns about the impact of the end of QE3 on the U.S. economy and gold market. But first, let’s analyze what the recent halt of QE really means.   

 

          The quantitative easing was an unconventional monetary policy of buying financial assets from commercial banks. It increased the monetary base, Fed’s balance sheet and prices of purchased assets, decreasing their yields. The third, and for now the last, round of quantitative easing was announced on September 13, 2012 without stating the end date. Initially, the program involved purchases of agency mortgage-backed securities at a pace of $40 billion per month, but was extended to purchases of Treasuries involving $45 billion per month. In this largest asset-buying program, the Fed purchased assets worth around $1.6 trillion, expanding its balance sheet to about $4.5 trillion.

 

Graph 1: Fed’s assets (in millions of dollars) from 2002 to 2014

 

Theoretically, the halt of QE3 means the end of the multi-year asset purchases. However, not completely, because the “Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,” as seen in the statement released by the Fed on October 29, 2014. It implies that although the Fed discontinued expanding its balance sheet, it will not allow it to shrink, at least for some time. And we are not talking about small amounts. According to Treasury Borrowing Advisory Committee estimates, if the Fed decides not to roll Treasuries (large amounts of them start maturing in 2016) over into new debt, the Treasury would be forced to borrow an extra $675 billion from the public over a three-year period. Therefore, the end of QE3 does not imply the end of quantitative easing. To use a metaphor, ending QE is not putting on the brakes; it is just easing off the accelerator.

 

However, even the complete reversal of QE3 would not mean the abandonment of the quantitative easing concept. The asset-buying program has become an established part of the Fed’s policy that could be implemented again in times of crises. Fed Chairwoman Janet Yellen has already said explicitly that she would not rule out more assets buying if needed. It is not coincidence that we have witnessed three rounds of the quantitative easing. We hope you remember that after the end of QE1 in March, 2010, there was a substantial correction in stocks (just under 20%), leading the U.S. central bank to start QE2. Then, after the halt of QE2 in June, 2012, there was another important stock market decline (about 20%), and that was the reason why the Fed launched the third round of QE. Given the fragile nature of the global economy, if asset prices fall or economic growth falters, we could witness QE4, especially since the Fed’s actions are data driven.

 

We focus on the U.S. central bank’s policy and its implications for the gold market in our monthly Market Overview reports and we invite you to check them out. We also provide Gold & Silver Trading Alerts for traders interested more in the short-term prospects. If you’re not ready to subscribe now, we still encourage you to join our gold newsletter. It’s free and you can unsubscribe in just a few clicks.

 

Thank you.

 

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor


| Digg This Article
 -- Published: Tuesday, 2 December 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.