(By Rich Bieglmeier) While most of you were sleeping, Merrill Lynch's Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research, told CNBC's Asian Squawk Box that he believes Gold will hit $2,000 an ounce.
The analyst says the Federal Reserve will be pushed into QE3 by a continued slowdown in China and Europe, which will ultimately force Bernanke's hand at home. The only question is timing.
Blanch believes Bennie and the Inkjets will announce the move in September's FOMC meeting. In which case, he feels gold will see 2k by year's end. In the interview, he did concede the November elections could delay the central bank's easing and then gold bugs will see $2,000 early in 2013.
On the same show, President and Chief Investment Officer (CIO) of Merk Investments, Axel Merk believes QE3 is nearly a done deal, perhaps in July, maybe even next week in congressional testimony. The CIO said Bernanke believes in devaluing the dollar to fight off financial woes and to spur on the economy.
iStock doesn't believe that we will see action from the Federal Reserve anytime too soon. Based on the recent performance of stocks, it sure doesn't look as if Wall Street is expecting more free money from the Chairman either.
If you recall, stocks abruptly U-turned following June 1st's disastrous Employment Situation Report. In fact, the bad news induced sell off, on that Friday, marked the near-term low. Starting on Monday, June 4th, stocks rallied on the hopes of more digital dollar printing.
Fast forward to last Friday's Jobs report, and we have an entirely different reaction from traders, it's been all red, all of the time. The indexes have given up ground every day. Clearly, the Street's computer models are saying there will be no money manna falling from the Feadven.
iStock thinks, probably guess is a fairer term, that the earliest the Fed will act is in September. Ben may rationalize that it's close enough to the election not to interfere with the outcome. As long as the market is close to its highs, iStock believes he will hold off.
If stocks dump 20% from their peaks, that's a game changer. Bernanke said from the start that his focus was on asset price i.e. the stock market. If Wall Street gets into bear market territory, QE will wake from hibernation.
In the meantime, Gold's chart (see below) leads us to believe the metal could be header lower before it heads higher. On the weekly chart, you cannot miss the bearish, right angle triangle sitting in the top right hand corner.
Atomic number 79 is sitting on the bottom edge of support. If the trap door opens, a quick trip to $1,500 is likely to be followed by a steady decline to $1,400. That would roughly mark a 50% retracement of the rally that started in October 2010 and carried AU to nearly $1,900 from $1,000. Giving half of the gains back during a correction are fairly common; two-thirds is next if 50% isn't low enough.
While we agree that $2,000 is possible following more Federal dollar debasing, iStock would wait to see if Gold gets cheaper or for Ben to turn the money switch on before buying.