I think the Fed’s move to extend the twist until the end of the year was probably the worst thing that could have happened for gold bulls and today’s gold price is confirming it. Even though they left in the part where “the committee is prepared to take further action as appropriate to promote a stronger economic recovery…,” I doubt the Fed will make any moves any time soon.
When Operation Twist was first announced September last year, gold crashed and for the next two quarters, gold bulls were hoping for bad jobs numbers in anticipation of QE3. But one of my smart colleagues told me, the Fed won’t do anything for a while. They have to allow monetary policy to take place. Otherwise they’d lose a lot of credibility.
It made sense but I was still skeptical at the time. Nonetheless, gold bulls would go through the two most disastrous quarters of everyone’s career (Obviously not all due to US monetary policy). In regards to QE3, I’m worried Bernanke will try to hold off as long as possible, and in doing so, all risky assets are likely to take a beating. Including gold. Including oil (which by the way is already at $80). Including stocks. I hope I’m wrong.