Is QE3 Already Priced Into The Market?

From Bloomberg:

Record-low yields on U.S. Treasuries show traders expect Federal Reserve Chairman Ben S. Bernanke to signal as soon as this week that the central bank will begin a third round of asset purchases to boost the economy, a scenario the world’s biggest bond dealers said is unlikely.

Barclays Plc said 10-year yields indicate traders have priced in $500 billion to $600 billion of Treasury purchases by the Fed. Citigroup Inc. said current rates can only be justified by more central bank bond buying or assuming the economy will shrink by 2 percent.

“The market is pricing in another round of large-scale asset purchases, looking for confirmation possibly as early as the Jackson Hole symposium” in Wyoming this week, Anshul Pradhan, a fixed-income research analyst at Barclays in New York, said in an interview last week. “The probability of that is low. If the Chairman does disappoint, then there should be a reversal in the outperformance of 10-year notes.”

From Bloomberg:

Gold’s rally to a record near $1,900 an ounce pushed the metal to overbought levels according to technical analysis tools, as economist Dennis Gartman said prices will go “parabolic.

Bullion’s relative strength index has topped 70 since Aug. 5, a signal to some investors who study technical charts that prices may be set to decline. Gold hugged its upper Bollinger band most of this month, which may signal possible resistance, while a moving average convergence/divergence indicator and Elliot Wave patterns show prices are overextended, said Ross Norman, chief executive officer of London bullion brokerage Sharps Pixley Ltd.

Bullion climbed as high as $1,894.80 in London today and is up 15 percent in August, set for the best monthly gain since 1999. The metal has advanced as concern about debt crises and slower economic growth spurred investors to diversify their holdings away from equities and some currencies. Gold has climbed to record prices in euros, pounds and Swiss francs.

“I think we’re overextended in the short term,” Axel Rudolph, a technical strategist at Commerzbank AG in London, said by phone. “I wouldn’t be surprised if we were to fail around $1,900 to $1,922 and retrace a lit bit for a few days or so. It’s still very bullish longer term. Longer term I think $2,000 will definitely be hit.”

Prices may slip to the Aug. 11 high of about $1,815 if gold stays below $1,925, which is near a 60-minute point and figure target, Rudolph said. The metal may move “sideways to up” if a decline doesn’t occur in the next couple of days, he said.


As the two articles from Bloomberg indicate, a high level of anxiety remains in the market. While I anticipate a bounce for a few days, the longer term trend for the S&P does not look good, particularly if QE3 does not happen.

In the meantime, gold remains strong and is pushing hard against its upper channel.

Will it go parabolic?
Will some political event cause an extreme move?

With the sovereign debt crisis heating up in Europe, it is becoming a stronger possibility.

One thing to consider is that what rises very sharply, can also fall sharply, even if it is gold.


  1. Those bozos, they don't anything about technical analysis, except from what they've read in some investing book. An RSI reading over 70 and Gold hugging the upper Bollinger Band is a very bullish sign. Short of a spike gap, the only signal to sell would be a close below the 20 day moving average of the bands.

  2. I think you are correct Mecury4. I am not suggesting we sell our gold, but keep the bigger picture in perspective. Anything that moves up rapidly tends to pull back at some point. I would feel more comfortable here if gold would consolidate some of its gains before the next upward move.

  3. PW, thanks for your reply. It seems the consolidation that has occurred in the past few days is over, as gold made a very bullish close yesterday having bounced nicely off the 20 day MA.

    When Buffet buys 5 billion worth of B of A this must be an inside sign that a QE3 announcement is all but a given tomorrow, so bank shares will be on another tear. That criminal can only make money from government bailouts these days.


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