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Open-Ended Rally in Gold, Silver, and Stocks?


Even though the expectation for stimulus was already priced in to a certain degree, precious metals went on a binge.

There was plenty of hoopla last week. The Federal Reserve's announcement Thursday of a third round of quantitative easing sent investors scrambling for gold and silver. The Fed injected a liquidity fix by announcing the purchase of an additional $40 billion per month in mortgage-backed securities, increasing its holdings of longer-term securities by about $85 million each month through the end of the year, as well as keeping interest rates "exceptionally low" until 2015. In a race to debase, The Bank of Japan joined the party this week, announcing an asset buying program intended to stimulate spending. This month, European Central Bank President Mario Draghi gave details on a plan to buy debt of member states, while China approved infrastructure spending. As Milton Friedman once said, "Only government can take perfectly good paper, cover it with perfectly good ink, and make the combination worthless."

In a recent interview, Peter Schiff was asked how high the price of gold may go. He answered that there is no ceiling for the precious metal, because there is no limit on how much money will be printed. He's right again. In its latest announcement, the Fed basically said as much. Let's keep in mind that no market moves in a straight line up or down, and the above only refers to the long-term trend.

The thing to note here is that QE 3 is open-ended; in the words of the Fed, it "will remain appropriate for a considerable time after the economic recovery strengthens." In other words, the Fed is promising that it won't start raising interest rates as soon as the economy looks like it is recovering, but will wait until the economy is actually prospering.

Apparently, this is the first open-ended QE program in the Federal Reserve's history.
No positions in stocks mentioned.
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