The Fed Just Guaranteed $6 Gas & $4000 Gold

10/23/2012 08:45

by Damon Geller

Now that QE3 has arrived, it’s more obvious than ever that a few powerful men have hijacked our economic, financial and political structure. And here’s a news flash: They aren’t socialists or capitalists. They’re criminals. The latest round of stimulus policy by the head printer-in-chief, Ben Bernanke, and the Fed is stunning in its size (in that it has no limit), stunning in its time-frame (as there is none), and even more stunning in the lie behind what it’s designed to accomplish. The bottom line? The Fed has just guaranteed $6 gas and $4000 gold.
Let me explain. In this latest round of “monetary stimulus,” the Fed will be buying $40 BILLION a month in MBS (Mortgage Backed Securities) until the “labor market improves.” That is on top of the already large treasury purchases they make. That means, assuming the labor market doesn’t improve, the Fed will expand its balance from an already insane $2.8 trillion to an inconceivable $4 trillion by the end of 2013.
Bank of America analysts are saying the Fed’s balance sheet may pass $5 trillion by the end of 2014 sending gold to $3550 and oil $190 a barrel. While that may sound insane, the simple math behind the US treasury’s debt projections also place gold at over $3800 as debt swells to over $28 trillion by 2018, so BofA’s projection of $3500/oz. at that time is right in the ballpark.

So, how do you make sound wealth-preservation decisions in a world of fiscal illusion? It’s a tough question. Reggie Middleton answered it best recently; “You don’t have to an optimist or a pessimist, you have to be a realist.” In order to be a realist, you have to be able to look at real data and real information and then you simply have to use common sense. Numbers don’t lie, politicians do. I  will help you with the mathematics of all this because that’s all it is. Then you can decide for yourself if you believe in math, or if you believe in magic.

Let’s start with a dose of cold, hard reality. It’s really tough to make good financial decisions when you’re being lied to. And you are being lied to. You are being lied to by our financial leaders. You are being lied to by their media. You can feel it. You can feel it when you listen to politicians and their promises on TV. You can feel it when you watch the government use scripted measures like CPI to gauge inflation that do not include food or energy, just so they can tell you there is none. You can see it in the policy decisions the powers-that-be come up with under the guise of “helping the people,” when in reality those policies are back-door bank bail-outs. You are being lied to about money and wealth protection. You are being led to financial slaughter by a pack of sociopaths at the Fed whose dual mandate is scripted as “keeping inflation in check and people employed,” but their policies say loud and clear that the dual mandate is instead to “punish savers and save too-big-to-fail banks.”


So, what is the end result of the Fed’s latest round of quantitative easing? Every month in 2013, the Fed will increase its balance sheet by $85 billion, consisting of $40 billion in MBS, and $45 billion in 10-30 year treasuries, or the natural monthly supply of longer-dated issuance. The Fed will therefore monetize roughly half of the US budget deficit in 2013.

Putting it all together, the Fed’s balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013.

A total increase of $1.17 trillion.

And here is the price of gold relative to the Fed’s balance-sheet:

As clear as day, these charts illustrate that QE3 is truly the gift that keeps on giving if you are a holder of gold.

They call it “Quantitative Easing.” And this would be round three. The reason QE is like the gift that keeps on giving for a holder of gold is because it blatantly debases the US dollar. Allow me to illustrate:

Round one (QE1) started November 25, 2008 and ended March 31, 2010. During that 17-month period, a gallon of gas rose from $1.75 to $2.75 and gold rose from $725/oz. to $1125/oz.

QE2 was started Nov 3, 2010 and lasted seven months until June 30, 2011. During the seven months of QE2, gas prices rose from $2.80 to $3.60 and gold from $1325 to $1700. QE2 was also marked by massive global food inflation and global riots. QE2 ended June 30, and we have had no further ‘major’ balance sheet expansion until mid-September 2012.

In the last few weeks leading up to QE3 and the week after, gold rose 15%. The proof is in the numbers.