The First Two Rounds Of Quantitative Easing (QE) Of The Fed Are Really Good For Gold.

Although the US economy is expanding at present, it is still impossible to rule out the possibility of a sharp slowdown in the next few years. We bet that these new and increasingly unconventional policy instruments may be more profitable, because monetary policy is now facing diminishing returns, while other options are more complex and controversial. In other words, gold may be one of the biggest beneficiaries of monetary policy. Some analysts argue that the Fed will use no ammunition in the next crisis. Sunshine Profits analyst Arkadiusz Sieron does not seem to be so.

As to what monetary policy tools the Fed may use to boost the economy in the wake of the next recession, and the impact of these measures on gold prices, the agency makes the following analysis:

Sieron explains:

First and most obvious, the Fed may abandon any plan to further raise interest rates, or even cut interest rates. However, given that the federal funds rate is still close to zero, this will not significantly revive the economy. The Fed's stance change should be good for gold. The recent tightening of monetary policy by the Federal Reserve and the forced us dollar forced gold prices.

Second, the Fed or continue to use the forward-looking guidance, so that investors believe that short-term interest rates will remain low for a long time to drive long-term interest rates lower. Although the move may be a little helpful, the market expectations for future interest rates are already low. Dove signals should be good for gold.

Third, Federal Reserve It may be possible to restart quantitative easing (QE), perhaps in an extended form, as the Janet Yellen chairman Yellen hinted at Jackson Holzer, and policymakers should explore the broader assets. At the moment, the European Central Bank (ECB) is buying corporate bonds, and the BOJ is buying shares. Now it seems that the Fed may also be open-minded about this, but investors should bear in mind that the law does not allow the fed to do such purchases. In addition, given that the Fed has bought and held large assets, the next round of QE will not be as big as the previous rounds. In fact, the economy has been submerged in liquidity. The resumption of QE in the United States will end or at least narrow the policy divergence between the major economies. This will ease the upward pressure on the US dollar. And the fourth round of QE will be much more bleak. economic environment Coming out, so it is better for gold.

Fourth, unlike the measures that affect short-term interest rates, the Fed has begun to aim at long-term interest rates. The Bank of Japan adopted a similar policy in September this year, promising to maintain its 10 year bond yields near zero. The Fed will no doubt pay close attention to the effectiveness of the Bank of Japan's policy, and it will be copied by the us someday. The important point is that the move is not unprecedented. The Fed has pegged the long-term US bond yields from 1942 to 1951. Long term interest rate declines will obviously support gold prices.

Fifth, the Fed may introduce a negative interest rate policy. Assuming that this helps the economy, some economists regard this as a tax on bank reserves, and the tax is not very stimulant - its supporting role will be limited because excessive negative interest rates will lead to hoarding of cash. It is for this reason that some radical economists call for the abolition of cash. Fortunately, it is unlikely that the negative interest rate policy will be launched in the foreseeable future. If the negative interest rate policy is implemented, this will push down the real interest rate, which will be beneficial to gold. In addition, concerns about the consequences of negative interest rates will also increase. Gold price 。 However, Yellen seems less keen on the negative interest rate policy (she did not mention the policy in the speech delivered by Jackson Holzer about the future tools of the Federal Reserve).

Sieron pointed out that if investors believe that the Fed will not be helpless, and can effectively control the economy, then market uncertainty and demand for gold and other hedge assets will be reduced. However, there are signs that the monetary policy of the United States and other developed countries has begun to reach its limit. This is why more and more economists are calling for fiscal expansion, helicopter money pouring and more aggressive abandonment of the current monetary system.

When this voice dominates the market, every newly introduced monetary policy tool may be interpreted by investors as a sign of despair. The lack of confidence in the central bank policy has become an important driving force for the gold bull market. Just as the Fed's first two rounds of quantitative easing (QE) is really good for gold.