Gold And The Next Great Monetary Easing

Tyler Durden's picture

Gold's rise over the past few years has been driven by a number of factors. Aside from the unprecedented monetary easing and skepticism over the global financial system in recent years, Morgan Stanley notes that 1) a persistent increase in investment demand, 2) acceleration in producer de-hedging, 3) a decline in net official sector sales, and 4) a persistent failure on the part of the mining companies to respond to the incentive of a steadily rising price and materially lift production; all also impacted gold's premium.

 In 2012, gold’s investment premium was driven by investors seeking a safe haven from widespread fears of a hard landing in China, systemic risk to the European single currency posed by the possibility of a Greek default and risks to US recovery posed by the impending Fiscal Cliff and Debt Ceiling. A re-evaluation of gold’s security premium followed from the various mitigations of the numerous risks to global growth.

However, as they note, a decisive break lower heralding the end of the bull market has not appeared and they believe we are about to witness the third installment of the Great Monetary Easing that started to play out when the credit bubble burst five years ago and that the gold bull market will enter its strongest phase.

Decelerating liquidity surprises have limited upside over the past year. With the benefit of hindsight, this sideways trending price pattern appears to be consistent with an environment where upside surprises in central bank liquidity creation and financial market stress have slowly declined. As this has happened, gold has returned to what BCA Research Inc has called its default setting – a tick-for-tick correlation with a range-bound US dollar in TWI terms.


In the past, these periods of particularly strong and close correlation with the USD have proven to be consolidation phases before the next upside gold catalyst has appeared.


But more monetary easing is coming. We are about to witness the third installment of the Great Monetary Easing that started to play out when the credit bubble burst five years ago and the gold bull market entered its strongest phase. This third phase is being driven by central bankers’ concerns over excessive non-yen currency appreciation as Japan works to fight deflation, and worries about a further significant rise in bond yields and the implications for private and public sector debt sustainability. In this environment, the priority of monetary policy is to avoid excessive exchange rate appreciation as the yen continues to depreciate and alleviate the debt burden of the private and public sector. The implicit continuation of low interest rates in an emerging cyclical recovery argues quite strongly, in our view, for a potential upside surprise in central bank liquidity creation, something that in the very recent past has been positive for gold prices.



In these circumstances, we believe that gold has demonstrated considerable technical strength, offers good value at current prices both as an entry level to the trading range between US$1,540/oz and US$1,800/oz and as an option on any remaining upside surprise above this range that might result from the third part of the Great Monetary Easing.


Source: Morgan Stanley

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Abraxas's picture

The bubbles are caused by capital dislocation caused by printing. I don't know when, but they will get what they want eventually - inflation (that they will not be able to put back in the box). Gold will be in a bubble. There will be many more rides up and down, but the peaks will be wider appart. The croud will run there for cover, only to realize it was an artificially inflated cover, so they'll run back, only to realize that it was better to stay over there. The process will be repeated until the clear winners emerge who will then call the shots, and the losers (most of us, with or w/o PMs) will abide.

Bam_Man's picture

I think Sinclair will be proven correct - Gold will trade at $4-5,000 within the next 2-3 years, but bulls and bears will both be wiped out three times in the process of getting there.

BaBaBouy's picture

Mother Goose Berranky Will Give Us...


GOLD $50K ...

Pladizow's picture

Bye Bye Fiat, Buy Buy Gold!

Boris Alatovkrap's picture

Buy buy Miss Amerikan (Cow) Pie!

Boris Alatovkrap's picture

Boris is see what you do there! Not is real cow, but fraudulent horse substitute! Now pardon while Boris clean vodka from nasal passage.

Chupacabra-322's picture

@ Plasdizow,

It's definitley been a buying time the past 2, 3 weeks, like a blessing.  Keep stacking!  Precious PM's, Lead for the Criminals and other natural resources. 

Pack a Gun & Pay NO TAX.   

Cognitive Dissonance's picture

I always abide by whatever Biden says. He's my man. If he can't do it, nobody can.


<Just in case there's any confusion about my comment.>

Boris Alatovkrap's picture

Boris is hear of 59% (some report is say 76%) of Tuna not is real Tuna. Food Manufacturing Industry instead is use Escolar, cheap white meat comprising of indigestible fatty solids, like Olestra. Side effect is uncontrolled anal leakage. Boris is also learn of profligate money printing by Central Bank. Boris is think, maybe is not coincidence, that is called Quantitative Easing. Maybe QE and anal leakage linked, no?

In close, Boris is write lyric...

Once is bank run by Brothers Lehman,

Put in margin squeeze by Jamie Daimon,

Destroy free market for hell of it,

Now can't find real halibut,

But non-soluble long chain fatty acid  is make for oil slick in gastro-intestinal tract of population for to make embarrassing moment of unaware dining citizenry during seemingly harmless fart when in fact is discharge into underpants, similar to unfettered monetary expansion of diarrhetic central bank system.

(work in progress)

TruthInSunshine's picture

In Russian that was potato in vodka of former USSR, caviar sold by street vendor marked as Beluga, Osetra or Sevruga, cause intense oily anal leakage.

Boris need to guard against counterfeit caviar from Escolar, Tilefish & Seahorse.

Boris Alatovkrap's picture

Once is eat fish sandwich in Odesta,

But full of insoluble Olestra,

Think is eat cod,

But really is fraud, 

In shorts have unmitigated disaster!

thisandthat's picture

What!? Sea weed is not real weed?

keninla's picture

You won't be wiped out if you buy physical and ignore the volatility.


MassDecep's picture

so should I sell my gold that I bought for 890 an oz, and my silver for 12 an oz?


Charles Nelson Reilly's picture

how many freakin times can these clowns ease until the sheep wake up and realize its worth as much as monopoly money?

CPL's picture

We've all asked that same question since 2007. 

Believe me on this.  Don't bother educating anyone except yourself on the subject, it doesn't work.  People have to come to their own conclusions and rationalizations.  Or you'll just give yourself a headache trying to get people smarten up (which isn't happening that fast).


Once WTI Oil breaks 120 and stays there, that's the point that people will understand fully and totally how deeply screwed they are and not a moment before unless they've sought their own answers.

Charles Nelson Reilly's picture

I swear to god, if I went out on the street today and held a 1 oz. gold eagle in my right hand and $500 cash in my left and asked the sheeple which one they would rather have, 99% would take the paper.

Ghordius's picture

don't try this outside the US - particularly not in continental europe, russia or china

Ghordius's picture

I forgot to say: in India even the lowest peasant would be able to quote you the daily price in two or three currencies - I'm exaggerating, but not much

Boris Alatovkrap's picture

Maybe is most time correct, but if Boris in woods to defecate, much is prefer paper, even fiat paper, for clean up. So dollar is have some valuable.

Sigep0612's picture

Well put.  I kid you not, go to a watering hole and ask the average person about QE and they think your talking about Queen Elizabeth.   The Economist magazine had an article (Feb 16) recanting that a majority of Americans can not do simple math.  I would venture to say that "that majority" is very comfortable with handouts from the defunct US Gov.  As soon as the handouts stop, then and only then will they put down their I-phone and ask themsevles.." WTF?"  

Look at the Banking industry.  The hotest product they're selling on the retail front is "Reloadable Debit Cards."  People can't handle checking accounts so employers give their employees debit cards and each payday they load money onto the card.  When the employee swipes his card and there isn't enough $$ on the card to buy smokes, he then realizes he's broke.  

GubbermintWorker's picture

That's all they would get by selling that GAE to the "We Buy Gold" store.

DCFusor's picture

You gotta give the man props for guts.  I'd have been within a few percent on any given day, and taken his coin.

natronic's picture

I totally agree i've been trying to educate my family and it is like talking to brick wall.  I give up

natronic's picture

I totally agree i've been trying to educate my family and it is like talking to brick wall.  I give up

TheFourthStooge-ing's picture

Bubble, bubble, toil and trouble,
Paper assets turn to rubble.

kralizec's picture

And one, two, three or more,

HP's in theiving heads galore!

Boris Alatovkrap's picture

five, six, seven, eight, (Trillion:)

is fiat money not so great!

Hongcha's picture

Gold about to go red on the day, on the way to $1,500.  $1,500 is within hailing distance and they will take it out.

CPL's picture

It might be spot, but like Silver, try finding someone willing to sell it if it's been tested, validated and tungsten free.


Inflation makes more than prices outrageous.  It also cheapens everything so caveat emptor always with silver and gold now.

Boston's picture

The problem with taking out ~1500 is that this is the bottom of the range, or a huge line in the sand, that if broken, could send gold plunging lower, much lower.

As a long-only investor in gold, I don't like what this would do to my existing portfolio, but I've got to be realistic and prepare for keeping dry powder available to buy more gold at lower prices.

1250 is my downside target (and this does NOT violate the long term uptrend, if you start around the year 2000). Despite this target, I'm still a long-term gold bull.

1250 is about 35% below the 1900+ peak, which is similar to the sell-off % in the 2008 collapse.

1250 is roughly a measured move from the bottom of the channel, using the delta between the top and the bottom of the channel.

Am I highly confident this will happen? Nope. But I'm mentally and financially prepared if it does, and if it doesn't go all the way down to 1250, my plan is to buy down every 50 dollars, to take advantage of any discounts that do materialize.

Bay of Pigs's picture

$1250? You will have massive shortages of gold and silver if that happens.

e-recep's picture

do you have any idea about the mining cost of gold?

JOYFUL's picture


That's why, if they pull the chute all the way down to $1200, they will require an equally speedy and decisive return to above $ least. The Beagle Boys are heavy players in the miners, and will need that sector of their full spectrum dominance to be boosted up after the shake down of the remaining dupes. Gold and silver miners will be supported. Nothing could be less true than the myth that 'central bankers don't like gold' ... they luv it...

Inflict maximum damage, fill pockets, inflate market. Nothing new under this ol sun.

yours truly,

Jamie("I like to Hurt People")Dimon.... = (1985, Not Rated, 83m. Wrestling Superstars Collection DVD )

akak's picture

Only if you're digging it from the ground.

DosZap's picture


my plan is to buy down every 50 dollars, to take advantage of any discounts that do materialize.

$50.00 barely covers the premiums,not worth it.

BUT, like you if it even gets into the 1300-1400 range I am backing up the truck.

This biatch is going to ultimately be used in the NEW currency, and the prices will be  LONG term bullish, until it happens

youngman's picture

Todays move in the DOW is like winning the 100 meter dash...but doing it by just does not feel and silver have to be being bought up....somehwere...I just can´t see how printing money to infinity is going to work long some point it becomes trash paper...

mayhem_korner's picture



Must print moar...must break the chains of the yen manipulation...

(why is Morgan Stanley breaking meme-ranks with its brethren?  Inquiring minds want to know...)

JOYFUL's picture

These guy always take turns playing both sides of the market.

Bankster brethern JPM's sidekick Barrick Gold is in big trouble*...and in need of a boost of investor confidence\aka fresh blood...the scammers only get rich when they can entice new money in, to shake down later. As investors have been running for the exits(as in much of the mining sector)pickings have been getting too thin lately.

No broken ranks here...tag team the muppets, wash and repeat.

* ///classic limited hangout....analyst tries to stem really bad damage tidings by offering a partial glimpse of reality...but fails to come even close to using the actual cash cost numbers which

by Barricks own admission involve an upward revision 4th quarter to $941

-50% higher than the numbers they were purporting to use in the previous three! But the fun doesn’t  stop there;  that’s 49% higher again than the numbers they were using for the same three quarters in the two years previous.  During that same time frame, gold rose 35%. No pocket calculators needed!

IamtheREALmario's picture

Gold is the honey trap set for China ... just as real estate was the honey trap set for Japan. Because Japanese were historically and culturally real estate challengted, due to living on an island, it was easy to destroy the upcoming master race by enticing them to buy foreign real estate and then at the appropriate time deflating the value of the real estate and trapping them as debt slaves to the global banking system.

China has some of te same weaknesses. Real estate not-so-much, but they love gold and food and the appearance of wealth and liesure. Gold could be pr become a trap for the Chinese. Entice them to buy the barbarous relic and then deflate the price, trappening them hugely underwater on their gold holdings. Even though China may have the ability to use all of their reserves to buy gold, they do not seem to be taking the bait.