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Goodbye QE3 Hello QE4

Stewart Thomson
Sep 25, 2012

  1. The gold consolidation may already be over. Please click here now. On this one month chart, you can see that since QE3 was announced on September 13, gold has essentially moved sideways. That “trading box” is likely a consolidation pattern.

  2. Please click here now. You are looking at a two day chart for gold. A small but significant head & shoulders pattern has formed, implying that the gold price will rise above $1800, before a correction occurs.

  3. Many technical indicators and oscillators are overbought on the daily chart, but they can stay that way, while gold marches higher.

  4. Investors who hold solid core positions in gold, silver, and gold stocks should stand their ground. Traders could lighten up a bit, in the $1775-$1825 price area.

  5. Please click here now. A beautiful channel has formed on the GDX daily chart. A “non-confirmation” is highly likely now; GDX could move higher, while the technical indicators move lower.

  6. I would suggest that traders focus their attention on the green HSR (horizontal support & resistance) lines that I’ve highlighted on the chart. The indicators and the trend channel are exciting to watch, but they don’t offer the same precise entry points that HSR does.

  7. Longer term investors should probably focus their buying around the important HSR at $48.72. That point is also the “neckline” of a double bottom formation.

  8. Please click here now. The technical target of the double bottom is the $56-$58 price zone. A rally towards that area would provide a great profit booking opportunity.

  9. Gold has climbed about $270 from the lows, so keep in mind that any further strength is only going to make gold much more technically overbought than it is now, in the short term.

  10. The $1775-$1825 area should be viewed as the “wild card zone”, because anything is possible. Gold could shoot quite a bit higher, or careen lower.

  11. Intestinal fortitude is going to be more important than charts or economic reports, during this stage of the gold bull market.

  12. Sell-offs are likely to get much more frightening, and price spikes could become enormous. Unless the gold price arrives at one of your pre-set buy or sell points, try to ignore all the intra-day “stage drama”. The drama is nothing more than static noise interfering with your golden symphony.

  13. Please click here now. You are looking at the daily chart for oil. Lower oil prices and higher gold prices tend to make institutional money managers very excited about gold stocks.

  14. The cost of operating a mining company drops when fuel prices drop. Oil is also wealth itself, so I’ve drawn in some buy zones on the chart, highlighted with green lines.

  15. Aggressive traders can buy oil in the $90-$95 area, while passive investors could focus on $75-$80.

  16. I’ve highlighted 3 areas to book some profit, with black lines. The $97 target has already been hit.

  17. QE3 has only barely started. Some analysts have noted that defensive healthcare stocks are performing well, and they worry that this means another recession is coming.

  18. I think it’s far too early to call for a new leg down, especially when QE3 is only 2 weeks old.

  19. I’ve suggested that the current $40 billion a month cap on QE3 mortgage security purchases could grow substantially, and already Morgan Stanley’s chief American equity strategist is predicting QE4!
  20. “QE3 will likely be insufficient to significantly boost equity markets and we wouldn’t be at all surprised to see the Fed dramatically augment this program (i.e., QE4) before year-end, particularly if economic and corporate news continue to deteriorate as they have over the past few weeks." – Adam Parker, chief U.S. equity strategist for Morgan Stanley, Sep. 24, 2012.

  21. It’s hard to see any fund or retail investor who is short gold, or out of gold, being very comfortable reading Adam Parker’s statement. Major banks around the world are calling for much higher gold prices before year-end, and I believe the reason is because they anticipate QE3 being replaced with QE4.

  22. The key Employment Situation Report will be released by the U.S. Department Of Labor on October 5, and you can be reasonably sure that Ben Bernanke will have his eyes glued to it.

  23. The weekly jobless claims reports are not showing a noticeable drop in unemployment. This means the Fed is more likely to accelerate their QE program.

  24. It’s possible that Dr. Bernanke holds the view that if the employment situation improves, it is because of his QE actions. He could then press even harder on the money-printing accelerator pedal. I expect QE3 to morph into QE4 very quickly, creating a surge in the gold price to record highs. The gold correction is interesting, but new highs is where your real excitement lies!


Sep 25, 2012
Stewart Thomson
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