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QE3: Get Ahead of the Fed

Monday, September 10, 2012 15:43

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(Before It's News)

The U.S. Federal Reserve has consistently pointed to high unemployment as a reason to deliver more stimulus, which makes this week a perfect time to announce quantitative easing, or QE3.

The Federal Open Market Committee (FOMC) meeting this week is fresh off Friday’s Labor Department report that nonfarm payrolls increased by 96,000 jobs last month. Economists were hoping to see an increase of 125,000 jobs.

Unemployment fell to 8.1% from 8.3% as 368,000 people dropped out of the labor force.

The employment numbers were depressing – but for investors this was always a win-win situation.

If the jobs number had blown past 125,000 that would have been good for the markets – but so is a number that missed the mark.

That’s because from whichever angle the Fed and Chairman Ben Bernanke look at this, the report is more fuel for the QE3 fire.

“This weak employment report, in jobs, wages, hours worked and participation is probably the last piece the Fed needs before launching another round of quantitative easing next week,” Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, NJ told Reuters last week.

Unemployment fell even though fewer jobs were added because the labor participation rate dropped to 63.5%, its lowest level in 30 years. The amount of underemployed and unemployed people is now above 25 million and the U-6 rate, the broad total unemployment rate which many consider to be a more accurate gauge of unemployment, stands at 14.7%.

With the rally the markets had last Thursday after the European Central Bank announced its new bond-buying plan, expect the markets to continue their bullish trend when Bernanke takes action.

That means now’s the time for investors to prepare to profit from QE3.

How to Prepare for QE3
As quantitative easing floods the market with liquidity and devalues the U.S. dollar, expect commodities in general to rise, especially silver and gold.

Investors have already pushed the precious metals upward and global stimulus measures will send them higher. Gold prices are up 5% in the past week, reaching a seven-month high on Friday at $1,744 an ounce. Silver prices have been on a longer move, up more than 20% in the last month to $33.70 an ounce and might have more upside potential than gold.

Editor’s Note: Here’s all the info you need to buy physical silver. Click here.

Money Morning’s Global Resources Specialist Peter Krauth recently weighed in on what to expect out of the two precious metals given additional stimulus.

“I expect lots more money printing, whose inflationary effect is always kind to silver and gold. My long term target for gold still remains $5,000,” said Krauth. “As this bull progresses, I think we’ll see the gold/silver ratio move down closer to 20 which would imply that silver eventually reaches $250.”

“Governments and central banks the world over keep perpetuating the expansion of debt at an accelerating rate,” continued Krauth. “Their solution to the problem invariably is well…debt, debt and more debt. In this kind of environment, the only logical conclusion is higher gold prices and gold stocks.”

A more cautious play on the overall market surging after QE3 is the SPDR S&P 500 ETF (NYSEArca: SPY) which tracks the S&P 500.

If the Fed hasn’t made up its mind about QE3, the latest data and the fact that the previous two months’ jobs reports were revised down a total of 41,000 jobs could push the Fed over the edge.

This could be great for investors.

“QE3 will likely have a play for everyone,” Ned Davis Research commodity analysts John LaForge and Warren Pies told USA Today. “Odds-followers should buy silver…And for those who want to participate in a QE3 rally, but with less volatility, buy gold.”

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