Thursday, October 28, 2010

Gold Soars as the Fed Contemplates More QE

It's obvious after looking at today's trade that the market is obsessed with the Fed's QE2.  The market violently responded to last night's news that the Fed was asking the primary dealers about what they feel the demand for treasuries will be moving forward.

The market responded to the news by crushing the dollar thinking that a larger QE2 is now on the table.

I read it the same way.  You know what the banks answer to the Fed's inquiry: "Umm...Mr. Bernanke, we don't think the demand is going to be very high at all.  We think you need to increase the QE."

Why would they say anything else?  The banks are all insolvent and dying for more QE because it fills up their empty coffers.

The market read it the same way.  The dollar got crushed following the news:

Gold then soared:

The 10 year bond then soared as the market speculates that the Fed may increase QE2:

What I find interesting is the market sold off on this news.  The consensus thinking has been that the larger the QE the better it will be for stocks. 

From the looks of things so far it's had the opposite effect.

Until later.

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