Citi: If NEW QE, Then Buy Gold

Tyler Durden's picture

Some very curious thoughts ahead of tomorrow's FOMC announcement from none other than Citigroup:

Why QE3 FX impact may fizzle


There are several major differences between QE3 now and past QE. The one that is least remarked on is that the world outside the US is much less attractive now than in March 2009 or August 2010 when previous QEs were announced. In earlier QEs, EM was much more attractive, having shrugged off the debt crisis, there was an attractive destination for the liquidity the Fed was injecting into the global economy. Now the term ‘global leadership’ is linked to the US with its 2% (plus or minus) growth rate, and pessimism over Chinese, Brazilian, Indian and other major EM economies. So the downside risk is that the new liquidity sloshes around the banking system rather than being used for investment abroad.  The outcome would change if China embarked on a major stimulus programme, though for now investors are not positioning themselves for such an expansion.


In addition, we are struck by the somewhat skeptical reaction of investors and colleagues to the Fed’s analysis of the benefits from past rounds of QE. In particular the Fed’s benefit calculation explicitly assumes that the level of stimulus is a function of the size of the Fed’s balance sheet, so keeping the Fed’s balance sheet fixed would not result in any diminution of stimulus. Most clients and traders feel that rates would back up significantly if the Fed were to stop expanding the balance sheet. In that world, subsequent rounds of QE just keep rates where they are rather than lower them and the cumulative benefits are much less pronounced. There is a strong view in markets that 1) the Fed have to do a big QE, given the expectations that have been built up, and 2) the added liquidity will have a marginal effect.  Taken together this raises the risk that the assets that will benefit are those sensitive to liquidity, such as money substitutes and Treasuries, rather than assets that are sensitive to real business cycle expansion.

Two things here: Citi has finally figured out that the Fed will be unable to herd cats and instead of investors positioning to buy the assets that the Fed demands they should buy, i.e., stocks with a 100X P/E, a far simpler trade will be the one that has worked for years - to simply frontrun the Fed in what it will buy, as explained here months ago, when we showed why the performance of the long-bond has surpassed that of the S&P by a factor of almost 200%.

Second, and more imporantly, let's recall that "money substitutes" = gold. So... Citi basically said that tomorrow Ben Bernanke is about to (again) become a goldbug's best friend.

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Ruffcut's picture

New QE is another layer over old QE.

Turn that money to shit as fast as you can.

Kitler's picture

Gold: "A barbarous relic for barbarous times."

Get yours while you still can.

DoChenRollingBearing's picture

Bari, Italy...

They still want to buy gold from the Italians...  Just wait until I am back and can tell the story and show lots of photos.  YES, I know pawnshops in America (and mall kiosks) are also buying gold, but not like what is happening here.

And the German court just said it was OK to monetize Europe...  This will not end well, not for Europe, not for America.

Stackers's picture

All in on BitCoins. Next to wooden sticks with notches carved into it, its the best "money substitute" ever invented

jimmytorpedo's picture

I have a hundred acres of money sticks.

They grow taller every day.

Qualitative Easing

The new new QE



(and 50 lbs of brown rice)

Papasmurf's picture

Buy beanie babies.  They are more valuable and a better store of wealth than bit cons.

Half_A_Billion_Hollow_Points's picture

+1 on the bitcoin thing.  Best investment last year.  140% up this year.  And block reward is halving in 80 days, ASICs are arriving, and the bitcoin mastercard, if it materializes, wil change everything.  


Fuck TBTF, fuck the Fed, Fuck Bernanke.

lasvegaspersona's picture

somehow having your feelings 'hurt' over a movie and the slicing of throats for the pure joy of killing non-Muslims does not seem equal. One must wonder how the world of Islam and the rest of the world can co-exist. I realize that the violence is by a small number of individuals but there seems to be no central authority to control the masses. At least when the Catholics go on killing rampages with swords and submachine gun the pope can calm them down.


StandardDeviant's picture

Yes, just as he did so promptly and decisively in Northern Ireland (1960s-1998?), and Byzantium (12-13c), and Germany (1939-1945), and-- Oh, wait...

I do share your misgivings about Islam, LVP; but, as usual, I suspect that a strong central authority would not suddenly make everything go well.

madcuban's picture

OR Citi is in on the fact that the Fed wont announce anything tomorrow, and is shorting into this rally.  Another scam on the muppets.   It won't last forever though.

Bay of Pigs's picture

Exactly, fuck these asshole bankers. They cannot be trusted to ever tell the truth about anything, and especially gold and silver.

Gold needed no "QE" for many years of this Golden Bull market (2001-2008), and it doesnt need it now to move higher.

ZIRP and inflation are good enough reasons on their own.

Kitler's picture

And a 50%+ probabilty of global economic collapse thrown in as a bonus.

kito's picture

yes gold needs lsaps now....which is why it dropped from its high after the market realized there wasnt another large scale asset purchase on the heels of the end of didnt need it before because the credit/debt expansion continued to grow unimpeded without limit or full saturation.........there were no deflationary headwinds in the credit market.....if ben doesnt continue to his attempts to expand his balance sheet at a rapid clip, gold stalls....if he announces qe3 tomrrow (which he wont), i can see gold getting over the $2000 hump fairly quickly......

boogerbently's picture

QE, good for gold.

No QE, good for gold.

Urban Redneck's picture

I wish it would last.  Rising paper gold price just makes stacking physical more expensive.  Fuck the PM traders.  There are plenty of other paper products they can play with.

lasvegaspersona's picture

The gold paper market is 'essential' for 2 reasons: 1) it allows hedging of dollar backed assets by the use of 'gold' and 2) the mere existence of the paper gold market has a deflating effect on the POG....without it we would already be at a gabillion dollars an ounce (even without the fairly obvious manipulation). Fofoa just did a nice analysis of this last month. When the paper market collapses gold goes much higher and quickly! If you are still in acquisition phase you should hope the process drags on just a bit longer.

Urban Redneck's picture

Haven`t read the analysis, but there is a subtle distinction between the "market" and the "participants" above. 

The big money is institutional fiat money, which has different rules constraining its flows.  Prior to the ETFs the only paper options were the miners, and futures (or an option on the future, since a lot of institutional vehicles aren`t allowed to risk physical settlement).  The very existence of paper brings in additional  flows that simply wouldn`t otherwise exist if there was no way to buy "gold" other than bars and coins.  The existence of a paper market can facilitate price supression (or appreciation) because certain large participants have access to unlimited fiat which can be more easily converted to unlimited "gold" to meet their trading ambitions, but men don`t surrender a goal just because the route isn`t easy enough. 

To factually determine whether the price would be higher or lower, you would need access to some information that governments don`t share, as well as a fairly comprehensive quantitative analysis. 

trip kitchen's picture

Not just a big QE expected, but a double secret big QE.  Anything less, and well.......

gunsmoke011's picture

In reality - this is just the FED doing its part for the war on terror. The way the FED has it figured, the Islamist hat free market capitolism - so the FED is just killing it so they don't have to.

malikai's picture

I'm having a real hard time seeing any upside left with or without "Newer, better, QE". But who knows. I'll be watching, anyway.

EDIT: Chartporn:

And the outliers, Silver, Brent:

xtop23's picture

Starting to feel like they're building up a QE launch only to trap the bulls. I see disappointment coming from Bernanke.

Odin's picture

I agree... As a general rule of thumb, when the Cartel starts touting one thing, run the opposite direction... Us muppets gotta survive some how...

Jungle Jim's picture

Yeah. that's the way I see it too.

SilverIsKing's picture

More talk, no action.  Maybe the talk gets a little closer to doing something soon but this is the last bullet and gas prices would move up immediately.  Don't think they'll do it.

The USD has been dropping in anticipation of some QE and will drop through the floor which I think the FED would like to delay.

Deep79's picture

Tyler you keep posting this crap from the IB's

You keep flip flopping on QE, have been banging QE drums since last summer, and then you post an article a few days ago that the FED cant do QE.

Lets hear your posistion, are they launching QE tomorrow?


samcontrol's picture

He flip flops more than most realize.

Me on the other hand, i'm  almost always wrong.

NO QE tomorrow!


Easiest short entry point we have had all year.



Everybodys All American's picture

I don't think QE is going to happen. Largely ineffective at this point anyway. At what point do they run out of options if they do more QE? That dynamic can't be far away.

With the market already pricing the QE largely in and with effective jawboning doing much of the work. Why not just say once again we need to see more data?

Manthong's picture

They never act on cue. They will keep everyone but the connected in suspense.

The only sure position is one that bets on their screwing up the system over the long haul.

However, a disappointment would set the stage for a rescue that sidesteps the political motivation issue before the election.

TheCanadianAustrian's picture

You realize there are many different writers posting these articles, yes?

Deep79's picture

I know

Lets hear ZH's take.

they talk all day about it, post crap from IB's that they then turn around and make fun off

It's becoming a joke.

Everybodys All American's picture

It's a coin flip with Bernanke. That crazy bastard could do virtually anything but one things for sure all the other fed governors will lock step with the worst Fed chairman in my lifetime because no one thinks any differently. Group think sucks.

Panafrican Funktron Robot's picture

The purpose of ZeroHedge is to illustrate that there is no hedge.  If you're reading this for "investable ideas", you are a fucking idiot.

Papasmurf's picture

I think many haven't figured that out.

Dr. Engali's picture

Just because he posts an article doesn't mean he flip flops. It means he posts and article so we can read what other people are telling clients. It's up to you to draw your on conclusion. Myself..I have a turkey sandwich riding on whether or not Benny boy prints.

samcontrol's picture

whether or not = flip flopping

Dr. Engali's picture

I'm not flip flopping. I'm firmly in the print camp. It may not be this meeting but eventually they have to print again. The feds can lie all they want to and tell us thatit's about economic growth, but it's not. It's about the shadow banking system deflating , helping the banks, and lowering the government's borrowing costs.

samcontrol's picture

Vote up!
Vote down!
whether or not = flip flopping=may not be this meeting

I like what u usually say but it's repetitive and you beat around the bush .

Looks like i might become down arrow champ on ZH in the future and looking forwards to it.

xtop23's picture

 Hah Doc you sound like me. I have a mercury dime ridin' on the same thing. I hope you took the bear side.

AetosAeros's picture

Agreed as well Doc.  The Tylers post lots of information, from satirical to theoretical, but all with an obvious finger on the pulse of the dying man (in this case, world economy and freedoms).

It takes the sage reader to look at this information and determine for themselves exactly what the author is presenting, from their perspective, if the information is 'whole' inasmuch as it can be based on the exposure of information to the writer and their individual goals, and last, it depends on the situation of the reader, their knowledge base, and most importantly: their understanding of what the writer's goal is.

The Tylers AKA ZH has it's own history and unique positions, and is only presenting data and information that they themselves need to survive, while giving us a glimpse of what they feel will help enlighten us as well so that we don't drown in all the heavier BS that the MSM is shoving down our throats.  At times I see the articles as a devil's advocate approach, at others I see them as a warning of what could be, but may still be adverted. All in all, ZH has never presented itself as: THE ONE TRUE AND ONLY WAY TO GO. Rather it has helped to get the brain flowing for those who are willing to THINK.

Generally, the ones I see on here who argue the loudest, with the least substance, are pushing their own agenda's or attempting to sway others to a path that is only applicable to the writer. And those with an 'ONLY THIS WAY IDIOTS' approach are nothing more than shills with no intentions of better perceptions, but are their to help cloud the issue and disparage the site.


I liken them to the zealot religious types who stand outside a sex shop and talk of the evils of its way, all the while gawking openmouth at the wares, but never looking away. If it really did offend them, they wouldn't even step foot on the street, let alone be caught under the shadow of it's sign.  Just an observation on my part.


For the rest of you ZH'ers who bring enlightment to my day, and help me digest the information with all your carefully worded evaluations, and supporting links: I thank you.

Most of all you WBanzaii, you help me smile, even when I'm sharpening my knives. LOL Take care all.

insanelysane's picture

They have to go QE or at least give some more "specifics" cause if they don't the market will fall down and go boom.

xtop23's picture

I'm not convinced. I think it will be yet another, "It's definately coming next time" market ramp.

Brief drop and another market pop. This has been, and will continue to be, their M.O. for quite some time.

Then we go to war ...... again..... and all bets are off.

Vincent Vega's picture

Money Substitutes, Bitchez!

ParkAveFlasher's picture

Is that like splenda for sugar? Here I was thinking the reverse.

vmromk's picture

No shit, what a revelation, buying gold......i wonder how much that horseshit analysis costs.

Jonas Parker's picture

Not a dime. Some puke at Citi read Zero Hedge and had a moment of mental clarity...

LongSoupLine's picture

QE is coming!...QE is coming!...MOAMT...


Mother Of All Muppet Traps.