When is QE3 Likely to Take Place?

This morning both gold and silver took a pretty major jump as the dollar took a dive.  Why did the dollar dive?  Ben Bernanke spoke at a National Association for Business Economics meeting this morning in which he made the following statements:

“To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

He later said: “I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor.  Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.”

There are two main reasons for the silver price having so much volatility at the beginning of this year.  First, there has been some major market manipulation taking place.  Second, Ben Bernanke has made so many different contradictory statements in regards to Quantitative Easing or Accommodative Policies that investor buy or sell multiple times based on what he says.

However, we do know several things for a fact.  First, this year is an election year and the powers that be have every intention of making sure that the year remain stable or get better in the short-term in order to make sure that the elections go smoothly.  Second, every time a round of QE finishes it is a matter of a few weeks, not months before the next round gets rolled out.  After each round of QE the stock market takes a dip only to be stopped by the next round of QE.  Take a look at the chart below where the S&P 500 is overlapped with the different rounds of QE.

Operation Twist, the latest quasi QE will be ending on June 1st of this year.  Therefore it is extremely likely that we will see the next dose of QE come between now and July of this year.  Most economists believe that the QE will be at least another $500-$750 Billion.  However, one thing that we have to remember is that like a drug each time QE is taken it becomes less effective and larger and larger doses have to be taken in order to attain the same result.  Be watching for an announcement by the Fed sometime between now and June of this year.  Whenever QE has been introduced by the Fed, gold and silver have made major moves to the upside.  The dollar right now is in a major technical pattern called a flag as seen below.


Typically when an asset gets to the end of the flag it makes a major move either down or up.  Watch the dollar very carefully over the next couple of weeks to see if it gets below the 78 mark or above or the 80.5 mark.  Both moves would be extremely significant for both gold and silver.