Unlimited quantitative easing, unlimited dollar weakness


The Federal Reserve has launched an unprecedented level of quantitative easing. In essence, the Fed has said it will do whatever it takes, for as long as it takes to effectively produce economic stability. This in turn will lead to as strong a recovery as possible, thus limiting any lasting damage. At the same time, their task is to keep their inflation target at 2%.
In a July 29 press conference by President Jerome Powell, he said: “At the Federal Reserve, we remain committed to using our tools to do what we can, and for as long as it takes, to bring relief and stability, to make the recovery as strong as possible and to limit the lasting damage to the economy ”.
If you read between the lines, the Federal Reserve has committed to an unlimited and infinite amount of quantitative easing for as long as needed. Currently, the Federal Reserve’s asset balance sheet has grown by an additional $ 4 trillion. Moreover, they continue to add to their balance sheet with spending amounting to $ 120 billion per month.
It’s not hard to extrapolate that the Federal Reserve’s continued action to add to its balance sheet will continue to create a weaker US dollar. The Federal Reserve amassed a balance sheet of $ 4.5 trillion at the conclusion of QE 4. In the years since the conclusion of quantitative easing, they were able to reduce their balance sheet from $ 4.5 trillion to 3. , $ 7 trillion. However, that balance sheet has stuck and now with the additional purchases totaling $ 3 trillion in this final round, the Fed’s balance sheet is now closer to $ 7 trillion. Another distinction between the 2008 financial crisis and the global pandemic is the massive amount of aid that was needed to help keep the roughly 30 million unemployed in the United States solvent. To date, the United States Department of the Treasury has spent an additional $ 3 trillion.The actions of the United States Department of the Treasury and the Federal Reserve have been in unison with other major central banks reacting very similarly by providing liquidity, near zero interest rates as well as aid. to its citizens in need. The net result of these combined actions was that the majority of the base currencies associated with major central banks were severely devalued. Collectively, this devaluation has created huge favorable winds for the prices of gold and silver to reach higher values, regardless of what currency they are paired against.
Although there is enormous pressure from several companies to produce a vaccine, and the technology to achieve this goal has become increasingly streamlined to shorten the lead time. Currently, many medical experts believe that a viable vaccine will not be available until the end of this year, and possibly as late as next year.
Until the pandemic has run its course, central banks will do little more than put their finger in the dike. The truth is that central banks have no preconceived idea of ​​the spending that will be required to stabilize the economy of their country. Even less of an idea in terms of the time needed to effectively stabilize the economy and then begin reconstruction.
With that in mind, it is quite understandable that gold and silver are increasing in value at an almost exponential rate. Investors are so keen to allocate more capital from their portfolios to the safe haven asset class. As such, any recent drop in prices has been encountered with market participants offering both higher gold and silver. While most analysts predict gold and silver will continue to trade higher, there is a wide range of forecast targets. In the case of gold, we are in uncharted territory, so the formula for predicting how high the gold might go becomes extremely difficult.

That being said, it seems highly unlikely that gold will not move to higher prices by the end of the year. Currently, our technical studies predict that gold could reach between $ 2,200 and $ 2,300.
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Wishing as always, a good trading,

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept guilt for any loss and / or damage resulting from the use of this publication.


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