Unlimited quantitative easing, unlimited dollar weakness

The Federal Reserve has initiated an unusual level of quantitative easing. In essence, the Fed has stated that it will do whatever it takes, as long as it takes to produce effective economic stability. Which in turn will lead to a recovery that is as strong as possible, thereby limiting your permanent damage. At the same time, their job is to keep their target inflation rate at 2%.

During a press conference held on July 29 by President Jerome Powell, he stated, “At the Federal Reserve, we continue to use our tools to do what we can, and as long as it lasts, some relief and to provide stability, to ensure that recovery is as strong as possible, and to limit lasting damage to the economy “.

As you read between the lines, the Federal Reserve is committed to an unlimited and infinite amount of quantitative easing for as long as it lasts. Currently, the Federal Reserve’s asset management balance sheet has swelled by an additional $ 4 trillion. Furthermore, they add to the balance sheet with expenditures of $ 120 billion per month.

It is not difficult to extrapolate that continuing action by the Federal Reserve to add to its balance sheet will continue to create a weaker US dollar. The Federal Reserve accumulated a balance of $ 4.5 trillion through the conclusion of QE 4. In the years following the conclusion of quantitative easing, its balance sheet could decrease from $ 4.5 trillion to $ 3.7 trillion. That balance remained, however, and now with the additional purchases totaling $ 3 trillion in this final round, the Fed’s balance sheet is now closer to $ 7 trillion. Another difference between the 2008 financial crisis and the global pandemic is the massive amount of aid needed to help keep the roughly 30 million unemployed people in the United States solvent. So far, the U.S. Treasury Department has spent an additional $ 3 trillion.

The actions of the United States Treasury Department and the Federal Reserve have been in agreement with the other major central banks, which have responded in a very similar way to providing liquidity, close to zero interest rates as support to its citizens in need. The net result of these combined actions has been that the majority of the core rates associated with the major central banks have been strongly devalued. Taken together, this devaluation has made huge gains for price of gold and silver to move to higher values, despite the currency it opposes.

While there is enormous pressure from multiple companies to produce a vaccine, the technology to achieve that goal has become increasingly streamlined to shorten the timeline. Currently, many medical experts believe that a viable vaccine will not be available until the end of this year, and perhaps even as late as next year.

Until the pandemic runs, central banks will not put much more than a finger in the road. The truth is that central banks have no preconceived notion of the expenditures needed to stabilize their country’s economy. Even less of an idea in terms of the time needed to effectively stabilize the economy and then rebuild it.

With that in mind, it is quite understandable that both gold and silver have gained value at an almost exponential rate. Investors are so hungry to allocate more capital from their portfolios into the safe haven class. As such, all recent price dips have been met with market participants offering both gold and silver higher. While most analysts predicted that both gold and silver would trade higher, there is a wide range of predictive targets. In the case of gold, we are in uncharted territory, so the formula for predicting how high gold could go becomes extremely difficult.

With that said, it seems highly unlikely that gold will not move to higher prices by the end of the year. Currently, our technical studies predict that gold can reach anywhere between $ 2,200 and $ 2,300.

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Wish as always, good deal,