Will Gold Soar With EU QE?

When QE3 was announced in 2012, everyone cried in unison “gold is going to the moon.”  However, we cried “short it like there is no tomorrow.”  And, now, as silver has lost as much as 75% of its value, we clearly understand that QE did not have the effect the market believed it would have on metals.

Now, 3 years later, the EU is talking about expanding its quantitative easing, and, amazingly, we are hearing renewed cries of “gold is going to the moon.”  I literally sit here dumbfounded.  But, while I am not yet ready to suggest shorting gold aggressively, I am still not in the crowded camp that maintains that gold has certainly bottomed.  So, we may yet see another event where QE preceded a large drop in the metals, while investors are confidently looking the wrong way.  Therefore, we may be quite close to that decline commencing.

Also, I would like to digress to make one further point about this market. In a recent interview I did, I was asked about how the dollar will affect my perspective of the metals.  My answer was that the dollar is a different chart and has to be analyzed on its own, just like the metals have to be analyzed on their own.  We have seen times where the metals will move opposite the dollar, and have seen times when the metals have moved with the dollar. So, while I have been strongly suggesting that the dollar is about to rally – which it did this past week – the metals have held support and still have the potential for a higher high before they drop to their lower lows.

At this point in time, we have approximately 30% of our funds deployed (since we only see an estimated 30% probability that the market has bottomed), which we commenced exactly at the bottom of the GDX in September of 2015.  Right now, we are waiting for a confirmation that a bottom is in for the complex, or for a lower low, in order to deploy the remaining funds.  But, we have clearly noticed that a number of stocks could have potentially formed a long term bottom, with Seabridge Gold (SA) being one of the examples of our holdings since September, as we are up over 50% in our position since that time.