Ready for next leg up, page-333

Hi there Martin

The distinction that the author makes between QE1-QE2 and QE3 is based on the assumption that QE1-QE2 were "actually" good for the price of gold, when they were only "perceived" to be good for the price gold.

The only QE program that was genuinely different was the "Twist". In that case, the Fed used the sale of short dated bonds to fund the purchase of long dated bonds (where the other programs used reserve deposits and the proceeds of specie sales).

My own view is that all the US QE programs were cash neutral and that the price of gold should have been indifferent to QE. But the market bought the lie that the Fed was "printing" and it took until 2011 for the market to start wondering where all the money had gone.


The ECB isn't going to print money either. They will use bank reserve deposits to pay for the securities as did the US Fed for the most part. So European QE should also be neutral for the price of gold.

Will the ECB QE program help stimulate the European economy? I am not optimistic.

The ECB purchases of ABS will help free up capital for European banks which in theory will give them capacity to lend and stimulate the economy. The question is whether the European banks have the will or capital capacity to lend.