I think gold is now basically in the middle ground, probably will trade lower & equity markets higher.
The taper is an interesting one.
Does winding up QE send the message that the FED has confidence in the recovery so equity markets rally or is the market hopeful for an extension of stimulus so winding up the remaining $15Bln creates gloom around the withdrawal of stimulus? Personally I think the Fed does wind up QE3.
So far markets have handled the withdrawal relatively well with some large swings back in fourth & I think this continues as its a reflection of the large amount of money on the sidelines & that is there to catch the falling knife. Every time equities have looked like capitulating they have rebounded. Perhaps at some point that wanes, however if corporate profits continue to rise then equities should do ok. When I say ok I think the DOW is very toppy above 17k so will continue to have large swings back & fourth.
Risks, Ebola (minor in my view but it does create fear), ISIS on US domestic soil (perhaps) & the main one that no one has priced in is the reigning in of corporate tax dodging.
This is the elephant in the room & the pile of dung is growing.
How do governments get out of their debt hole without hitting voters.
Get corporates to pay their fair share of tax. Obviously it will hurt earnings & also PE ratios so equity markets will be further over valued.
Other swing factors for Q4 will be the impact of the stronger USD & offset of lower energy prices.
Gold is a concern at least in USD terms anyway.
We are now almost halfway through the physical demand season & its only $40 off the lows.
It needs a good run from now through February, otherwise it could be in trouble next year.
I try not to look too far ahead & much will depend on the strength of the USD.
Overall I remain bullish of gold, however it may not be out of the woods yet & I have always thought we probably needed to see a little blood before we see a bottom & I think we are yet to see that.
