why $1trillion qe3 will continue to q2 2014

Hey Gold Bugs

This week's sell off in gold, although it has already started to bounce back, was due to comments made by some US FOMC Members discussing the possibility of stopping QE3 earlier than planned.

The US Fed has confirmed that they will continue to print $85Billion per month until the US unemployment rate falls to 6.5%. The official US unemployment rate stands at 7.7%, but what this hides, as in all recessions, is that the true number of people unemployed is much higher than this.

You can see it in the Labour Force Participation rate chart below, it is sitting at record lows of 63.6%, down from 66.3% before the GFC. This 2.7% points reduction may not seem like much, but when the US labour market is sitting around 154Million, it adds up!

The Labour Force Participation rate fall shows that 4.158Million AMericans stopped looking for work. As the economy improves in the coming 12 months, they will reentre the labour market thereby slowing the unemployment rate fall to the targeted 6.5%.

The Total Number of employed Americans is around 143Million.

The Official NUmber of unemployed Americans is around 12Million.

Therefore the Total Labour Force stands at 154Million.

2.7% x 155Million = 4,185,000 people who have stopped looking for work.

Add the 12Million officially unemployed Americans to this 4.185Million and you get 16.185Million true unemployed or an unemployment rate of 10.5%.

Well Mr Bernanke's targeted 6.5% Unemployment Rate until QE3 is stopped. The US economy will have to create 230,000 to 260,000 new jobs per month, every month to achieve this.

The Fiscal Cliff negotiations on January 2nd where taxes were increased on the wealthiest Americans, and Capital Gains tax was increased will reduce economic growth by 0.2%. The budget deal in a couple of months which will lift the Debt Ceiling will require cut backs in social spending which will reduce GDP by a further 0.3%.

All in all, the US economy needs the $1,000,000,000,000 QE3 to run for the entire 2013 and well into 2014 to help offset this drag on the US economy.

Question is what will this do to the price of gold? :)

When the US Fed printed $480Billion in 2009 the price of gold rose from $650/Oz to $1200/Oz, when it printed another $480Billion in 2010, the price of gold rose again from $1200/Oz to $1900/Oz.

The current price of gold is at $1650/Oz, where will it rise to now that the US Fed will print $1trillion this year?

The price of gold will break $2000/Oz in 2013!

Cheers Nectar
IDC.AX