-- Posted Wednesday, 12 September 2012 | | Disqus
Quantitative easing round three (QE3) by the Federal Reserve has been more or less factored in by the markets. There is also expectation that there will be a downgrade of US economic growth prospects. Gold and silver and commodities have risen on expectation of QE3.
If QE3 does not happen then gold prices can fall to $1681 and $1648 before the next leg higher to $2035 and $2250 over the coming months.
Gold’s price rise from $878 to $1923 has been primarily due to interest rate reduction by developed nations central banks and continuous increases in money supply by these central banks.
My question is what will the Federal Reserve and other central banks do if monetary easing fails? If QE3 does not work then will there be QE4 or QE5 or QE6? QE’s have resulted higher commodity price inflation which has affected most low income people across the world. The net disposable income has always fallen on every QE. More QE implies higher real cost of living. For me any further QE by the Federal Reserve or any further liquidity injection either by the European central bank or bank of England or by bank of Japan will result in a stagflation like situation leading to sustained recession across the globe. QE is an indirect way of currency devaluation which in turn will lead to more protectionist measures by every nation. Further QE is not good for the global economy and is only good for gold and safe havens.
Japan is the best case study where zero interest rates have never worked. Still no lessons from Japan are being taken by developed nation’s central banks. There is frustration among people over QE. With mobile interest across the world, information is available to everyone. There will be change in political leadership due to QE.
Prices of food and other survival necessities have risen the highest in the past century between 2005 and 2012. (In India and in every country in the world). If the current pace of rise of food and other survival necessities continue then every central bank measure will be useless. The percentage of expense on food and other survival necessities as a share of total income has been on the rise. This will result in consumers delaying their purchases on new mobile phone, delaying TV set replacements, reducing the numbers of visits to restaurants, reducing vacation with family among other curbs in expenses. Ultimately every industry is related to consumer spending. Defense industry employment can never be the engine of growth for a nation.
Central banks are resorting to QE mainly due to political pressures. Central banks are not independent as they should be. There is a global coordination on policy matters among developed nation central banks. This implies that if Europe fails then the USA, Japan, UK and Australia will simultaneously be affected in a big way. This trend will change over the coming years and central banks will adopt their country specific policies instead of vaguely following their global peers. Central bank now lack policy innovation which was there two decades back and before.
To conclude
Quantitative easing or flooding the markets with free money will only result in long term pains for one and all. Only gold and safe havens will benefit. Please note that in my view treasuries are not a safe haven. If you have any queries or a different view on the above do mail a reply at insigniaforex@yahoo.com
PRE US OPEN -- BUY OVER AND SELL BELOW CALLS
(To be done on which ever trading call is executed fist)
COMEX
GOLD DECEMBER 2012: Buy gold over $1754 for $1762-$1769-$1789 OR Sell below $1737 for $1729.50-$1718.10-1709.10
SILVER DECEMBER 2012: Buy over $3420 for $3453-$3479-$3603 or sell below $3377 for $3349-$3325-$3267
COPPER DECEMBER 2012: Buy over $374.00 for $377.60-$387.50 or sell below $360.20 for $356.50-$347.50
NYMEX CRUDE OIL: Buy over $98.20 for $99.20-$100.90 or sell below $96.40 for $95.40-$94.40
MCX
GOLD OCTOBER 2012: Buy over 32170 for 32220-32308-32570 or sell below 31870 for 31940-31840-31595
SILVER DECEMBER 2012: Buy over 64706 for 65211-65619-66027 or sell below 64050 for 64800-64650-63900
COPPER NOVEMBER 2012: Buy over 456.30 for 459.20-464.70 or sell below 450.80 for 447.90-445.80
NICKEL SEPTEMBER: Buy over 942 for 956-976 or sell below 928 for 919-904
CRUDE OIL: Buy over 5425 for 5475-5558 or sell below 5370 for 5333-5285-5220
LEAD SEPTEMBER: Buy over 118.20 for 119.20-123.20 or sell below 116.20 for 114.80-112.20
ZINC SEPTEMBER: Buy over 112.20 for 113.20-115.20 or sell below 110.40 for 109.45-107.60
NATURAL GAS SEPTEMBER: Buy over 172.10 for 176.20-186 or sell below 159.50 for 156.10-153.50
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Website www.insigniaconsultants.in
NOTES TO THE ABOVE REPORT
PLEASE NOTE: HOLDS MEANS HOLDS ON DAILY CLOSING BASIS
PLEASE USE APPROPRIATE STOP LOSSES ON INTRA DAY TRADES TO LIMIT LOSSES.
PLEASE USE A STOP LOSS OF MINIMUM RS.5000-RS.8000 PER LOT ON ALL INTRA DAY TRADES
ALL PRICES ARE IN INDIAN RUPEE UNLESS OTHERWISE SPECIFIED
APPROPRIATE STOP LOSSES PER LOT IN INDIAN RUPEEES ON THE TRADING CALLS GIVEN IN THIS REPORT
-- Posted Wednesday, 12 September 2012 | Digg This Article
| Source: GoldSeek.com
