Buy Gold On QE Exit News

After the 1929 crash, the US Treasury & the Fed worked together.  They revalued gold, and began a program of Quantitative Easing (QE).

Eight years late in 1937, the Fed started tightening credit by raising interest rates, and America plunged back into economic depression.

After the 2008 crash, America entered into a very severe recession, and the Fed began a new quantitative easing program.

Recently, the mainstream media and bank economists have been quite emphatic that the economic recovery is solid enough for the Fed to begin reducing the size of the QE program.

While it’s unknown whether a reduction or exit from QE would create an economic crash like 1937, institutional owners of gold have been selling hard, and shorting it.  They believe that a reduction in QE would cause gold prices to fall, regardless of whether the economy faltered or not. Sentiment data shows that most gold analysts are very negative now.  They are convinced that the price of gold is likely going much lower, and maybe it is, but I’m not so sure about that.

The timeless market adage, “Buy the rumour, and sell the news!” may be something to carefully ponder, at this point in time.

Here’s why: A lot of the anticipation for a reduction in QE may already be factored into the current gold price. 

The question you may need to ask yourself is, have the bears dropped the ball, by overplaying their QE reduction card?

The daily charts of both gold and silver are beginning to show some bullish signs.  On Sunday night, silver plunged about two dollar an ounce, but there wasn’t much volume, which is bullish.

On Monday, Moody’s warned they would chop America’s credit rating if more action is not taken to reduce government debt. That caused a “skyrocket” move in silver, and all of Sunday night’s losses were recovered.

Monday’s trading volume was truly enormous, and there is now a “key reversal” day apparent on the daily silver chart.

Look at that volume bar!

Note that while the price of silver went to a new low on Sunday night, my stokeillator did not, and the two lines are beginning to show signs of a “budding buy signal”.

There is also a potential inverse head & shoulders pattern forming on this chart.  If it is completed, silver could blast all the way to $30.

The daily gold chart is equally impressive.  You can see that the lead red line of my stokeillator has arrived at the 20 level, and is beginning to display a bullish hook.

There is also a classic double bottom forming, and I’m sure that many technical analysts at the major banks may soon begin talking about it, in their daily commentary to investors.

For this double bottom pattern to “activate”, gold must trade at $1490, but if it does, the technical target is…. $1680!   There are probably very few gold investors who believe such a move is even possible, let alone likely, but markets have an odd habit of doing what is least expected.

There is a big wall of technical resistance in the $1500-  $1550 area, but if most of the QE-exit news is already priced into the market, is it possible that gold’s upside action could shock a lot of people?  I think so.

Traders can sell lightly at $1400, $1420, and $1440, if the price gets there.  It’s good to take regular profits, like pruning a tree, regardless of how high any analysis suggests the price will go.

Please see above chart for the short term price action for gold.  That’s the one hour bars chart, and you can see that a possible inverse head and shoulders pattern is forming now.

You are looking at the 2 hour bars chart for GDX.  Most investors in the gold community own a lot of gold stock.  GDX must rise over the highs at $31.27, to trigger technical buying from momentum traders.

There may be an inverse head and shoulders pattern forming, which could help push GDX to the early April price of $33.71 this week.

Is it possible that just as QE itself is producing “diminishing returns” for the US economy, QE-exit news will soon have minimal effect on the gold price?  I think so.  Any further QE exit news may be a buy signal for gold!

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Stewart Thomson

Graceland Updates

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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

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