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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.

While Keynesians and Austrians may debate the pros and cons of this new round of QE, it is clearly good news for precious metals investors. Even though the expectation for stimulus was already priced in to a certain degree, precious metals went on a binge.

The Fed standard operating procedure for dealing with a weak economy is to buy short-term US government debt from banks, which adds to bank reserves and enables the banks to lend money to consumers and business. This is supposed to give the economy a booster shot. The former QE rounds didn't work because the banks had little incentive to lend money due to the low interest rates that they can earn. So they prefer to sit on their reserves. But the Fed announcement is supposed to change that.

In his recent column in the New York Times, Paul Krugman explains this nicely:
The idea here is that by indicating its willingness to let the economy rip for a while, the Fed can encourage more private-sector spending right away. Potential home buyers will be encouraged by the prospect of moderately higher inflation that will make their debt easier to repay; corporations will be encouraged by the prospect of higher future sales; stocks will rise, increasing wealth, and the dollar will fall, making US exports more competitive.

Let us now proceed to today's technical part and see how the announcement of the open-ended QE impacted the general stock market (charts courtesy of After that, we will move on how this can impact the precious metals prices in the following weeks.
No positions in stocks mentioned.
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