QE3 Soon to Arrive Even After Employment Gains

Despite what the media may be reporting, today’s employment gains (243K new jobs, unemployment rate falls to 8.3%) are irrelevant to policymakers. The main reason they are effecting gold and silver today, gold fell about $20 and silver ~$0.60, is because speculators presume the fiscal authorities and the Federal Reserve will need to enact less stimulus given the lower unemployment rate. The reality, however, is less stimulus is not an option for either branch of government. Obama’s Campaigning Efforts Will Ensure Continued Spending For the US administration its an election year and keeping the economy buoyed is priority number one with polls showing its the most influential voting issue at present. Its also a historically tested fact known in academia as the “political business cycle” which accounts for the consistent record of overspending and money printing leading into elections. The Fed’s Hands are Tied Moreover, there is ample reason to feel confident that the Fed will continue down the path of QE3, their next money printing program, no matter what employment gains ensue. For starters, the Fed’s Chairman has reminded us twice in the last couple weeks of their likely intentions to move forward on this program – once before congress and once during his press conference following their last interest rate decision. The next two high ranking members at the Fed, Janet Yelle and Bill Dudley, have both touted a new mortgage buying program as being essential to re-boost housing in their view. Beyond these verbal commitments, and more importantly, the Fed is bound by a technical constraint which will force them to not only keep interest rates ultra low, but also to continue expanding their balance sheet perpetually. I recently wrote an article titled “Why the Fed CANNOT Raise Interest Rates” which outlines the fact that the Fed has insufficient capital to raise interest rates and their assets are so vulnerable that the only way to protect them is to accumulate more. Few realize the Fed, at a ratio of 54 to 1, is levered much higher than Lehman Brothers or MF Global before they went bankrupt. The marked difference between the failed banks and the Fed is the Fed can print money to protect themselves and, therefore, will. Effect on Precious Metals Any declines in precious metals following this employment report will translate into strong buying opportunities because markets will be surprised when the Fed does not reverse course as they are expecting. Few have realized the technical constraints of the Fed, and this leaves present gold and silver buyers who clue in with an informational edge. Today’s news is an opportunity to buy, and by no means a thorn in the long term gold and silver bull markets.