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Will QE Tapering Derail Gold's Recovery?


June 3, 2013
Ron DeLegge, Editor

Is QEternity finally nearing its end?

Dennis Lockhart, president of the Atlanta Federal Reserve, told Fox Business today that tapering the pace of bond purchases by the Fed, also known as “quantitative easing” or “QE,” may be fast approaching.

Since the 2007-09 financial crisis, the Fed has devoured over $3 trillion in mortgage (NYSEARCA:MBB) and Treasury bonds (NYSEARCA:IEF) in an effort to cut unemployment and boost economic growth.

Lockhart suggested it may be time for the central bank to put the brakes on QE.

According to a Reuters report, he had previously said policymakers could consider cutting back on its $85 billion monthly bond purchases sometime in the second half of this year.

The bond market, particularly long-dated debt, has sold off hard. ETFs linked to U.S. Treasuries with 20+ maturities (NYSEARCA:TLT) fallen around 5% over the past month. 

What about Gold?
We know that gold has thrived in this unprecedented era of multi-trillion dollar QE. Gold prices have surged 80% since the end of 2008, just as the Fed began ramping up its massive QE stimulus.

However, gold has been in correction mode for almost two years now.

The SPDR Gold Shares (NYSEARCA:GLD) have fallen 25.52% since hitting their peak on Aug. 22, 2011.

Although global central banks added 109.2 tonnes of gold to their reserves in Q1 2013 for a ninth consecutive quarter of net purchases, it hasn’t lifted gold prices higher. And over the past year, gold investment demand is -51%, according to the World Gold Council.

Sentiment towards Gold is Rosy
The bullish sentiment toward gold is once again heating up.

Bloomberg reports:

"Hedge funds raised bets on a gold rally by the most in two months. Speculators raised their net-long position by 35% to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier."

Bullish sentiment, in conjunction with price action and technicals, tells us on which side of the market to be. Never mind the ridiculous forecasts of $10,000 per oz. gold, focus on the facts.  

Profiting from the 2013 Gold Shock
Contrary to what the very wrong gold experts have said all along, the ETF Profit Strategy Newsletter alerted its subscribers that the real money in gold and silver would be on the short side.

In our Weekly ETF Pick from Feb.14 we wrote:

“Despite a modestly rising stock market, the Market Vectors Gold Miners (NYSEARCA:GDX) has lagged both the broader U.S. stock market along with the SPDR Gold Shares (GLD) by a very significant margin. At present, GDX trades around $41.50 and is well below both its 50 and 200 day moving average. Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST) at these levels. A double digit slide for gold would likely translate into a 20%+ loss in mining stocks. This scenario offers some big upside potential for bears.”

Since then, DUST has surged +71.63%. Also, inverse linked gold ETFs (NYSEARCA:GLL) have gained more than 27%. 

The next phase of the Great Gold Shock could turn out to be one of the biggest investment themes the experts never saw coming. In a post-QE world, how will gold react? And which is the right side of the gold market to be on?

The ETF Profit Strategy Newsletter and Technical Forecast cuts through the daily reams of misinformation by telling subscribers what to buy, what to sell, and when to do it.

Since the start of the year, 78%* of our Weekly ETF Picks have turned a profit and our biggest winner was a +525% gain. Our no bull approach is world famous.

*through 6/3/13 market close

CommentsAdd Comment

Magno said on September 30, 2013
  agree with you 100%. Sorry about that. Poeple are looking at VIX leevls as an absolute, but it is not an absolute. Implied volatility is always relative. 20, 30, 40, etc., it's all realtive. People need to be careful when drawing a line in the sand at a specific number.That's my .02USD or .01BP.-Sam
David said on June 04, 2013
  factoring in a time frame is the key. Gdx went from circa 25 to 30 in the last week or so. So is gold on the way up? Maybe... Maybe not. Market dynamics (qe tapering, strength in usd) should push gold lower. But it's been up. What happens in 2 to 3 weeks time?
Etf purports price is they real driver. Makes sense. But how do you get in front of the price?
grant8 said on June 03, 2013
  The only problem with your thesis Ursula is that the very same #1 USA has racked up a $17 trillion credit card tab. I certainly think gold is still a good hedge against a systemic collapse. But I'm still waiting for an ideal entry point. Also, I'm a very satisified subscriber. Chad and Ron have made some excellent ETF trades this year.
Ursula said on June 03, 2013
  USA #1 in gold reserves! And don't forget it baby.
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