In Case Of NEW QE, Gold To $1,900-$8,500 Says SocGen

Tyler Durden's picture

In a previous post we showed how, despite Goldman's best wishes, the market may have just priced itself out of a treat from the Fed tomorrow, and right into a trick. That said, in case the Fed has in fact succumbed to the pleadings of its superiors (read Primary Dealers) and does proceed with some seriously unsterilized dollar mauling, the next question is what is the best hedge. SocGen asked the same, and provided several strategies to take advantage of central planners exhibiting a rare case of Einstein's definition on insanity... over and over. Their "Strategy #1: Bolster Positions In Gold Ahead of QE3." Why? Because once the next round of the gold juggernaut is unleashed, gold may go to anywhere between $1900, just shy of the all time nominal high, and $8500... just a tad higher than the nominal high.

From SocGen:

  • USD 1900/Oz: To close the gap with the monetary base increase since July 2007, gold would have to rise to $1,900/oz, assuming full transmission from the monetary base increase to the gold price
  • USD 8500/Oz: If gold catches up with the increase in the monetary base
    since 1920 (as it did in the early 80s), its price would rise to USD 8500/Oz.

The latter scenario is the price only catching up with where it should be. Add another $700 billion - $1 trillion for a potential NEW QE, and you get a 5 digit (and increasingly more meaningless) number.