The Fed has announced the next round of QE after the Europeans, Chinese, Japanese and South Koreans made stimulative moves to devalue their currencies and boost their economies. This is very bullish for gold and silver. Gold (GLD) and silver (SLV) are extending their rallies from early August while the miners breakout is being led by the silver miners (SIL).
We have reiterated for some time that the Fed's solitary success has been in inflating U.S. debt (TLT) assets to create the feeling of wealth through record low interest rates in order that consumers with deep pockets will spend and invest in quality companies which in turn will create capital expenditures for an ongoing recovery. So far this has not happened. Record low interest rates until mid 2015 and open ended QE means the government is manipulating the market in order to lend money very cheaply.
This capital was not flowing to the undervalued resource stocks but was being kept by institutions in cash or in large cap dividend paying stocks, which have improved earnings per share at the expense of laying off thousands of workers. Money sitting in banks at 0% interest was not a solution to this economic malaise. The Fed acted aggressively surprising savers with open ended QE which gives the Central Bankers a tool to devalue the dollar on a monthly basis according to how they see the economy.
The Fed is forcing cheap dollars into the economy, small businesses and into the resource sector, which is critical for high paying and indigenous jobs. Even within the Democrat Party pressure was put on the Federal Reserve director to make increased asset purchases right here and now before the election.
A few weeks ago, Senator Schumer from New York makes no bones at being quoted, "Get to work…Mr. Chairman!". This is especially pertinent as Schumer states that because of the Congressional impasse the Fed is the "only game in town". It must be noted that the spinmeisters know that when the general equity markets rally to new highs, then the probability favors the incumbents who usually win by a landslide. The S&P 500 (SPY) and Dow Jones Industrial Average (DIA) are breaking into new two year highs which may make the voters feel that the economic storm has passed and good times are here again. These accommodative moves will be quite painful to savers who have been sitting on a record level of cash and U.S. debt and have been shaken out of their gold (UGL) and silver (AGQ) holdings which are exploding to the upside.
The precious metal charts are forming bullish formations as their 50 day moving averages are moving to penetrate the 200 day moving average to the upside. Let us look at the gold miners (GDX). At $52 this has broken out and formed a strong bottom, our near term target is $60. The (GDXJ) is also breaking out at $24 and breaking through resistance. Our next target on the GDXJ is $30. This has made an important breakout and our next near term target is $38. The silver miners which have been the best performer since our silver breakout alert made an important breakout at $23 and we should see a move off the double bottom in July upward to $30.