Here it comes, yet another chance for Bernanke to announce QE 3, and as has been precedent this year, another chance for him to disappoint markets. At his Jackson Hole speech, Bernanke stood pat by stating that the Fed was willing to help the economy, but was waiting to step in. But last Friday’s jobs report has put more pressure on Bernanke than ever. Though our unemployment rate dropped to 8.1%, it was another case of the government’s data being controversially reported, as fewer jobs were added. That combined with Mario Draghi’s willingness to step in for the EU has put a bullseye on Bernanke’s address to Congress tomorrow [for more economic news and analysis subscribe to our free newsletter].
But while many investors will be hoping for a third round of QE, it seems unlikely that Bernanke will make such a move. Yes, last Friday saw a weaker than expected jobs report by 4,000 non-farm payrolls, but let’s also not forget that GDP revisions showed a jump from 1.6% to 1.7%. Minuscule, I know, but Bernanke and company have been extremely cautious about injecting the economy with more money for quite some time now, and resting their hat on a figure like GDP growth may be enough to justify a continued wait-and-see approach.
Many are of the thinking that because Draghi announced a program, Bernanke will follow suit, but that may not be the case. Keep in mind that Draghi’s program is specifically designed to ease debts of countries that can barely keep themselves afloat. The U.S. is already under a massive pile of debt, totaling to $16 trillion. More QE would only raise that number, as the funding would not come from a conglomerated source like the ECB. Instead, Bernanke’s reasons for QE would be to aid the stock market and stimulate growth; note that markets are sitting near post-recession highs even with last week’s sour jobs data. Our economy may not be in full force, but we are still a long ways from a recession, and therefore making it unlikely that Bernanke will pick tomorrow’s address to announce QE 3 [see also How Will Gold Perform During the Euro’s Make or Break Week].
We recommend selling gold short prior to tomorrow’s address, as a fair amount of the market has priced in a third QE and is simply waiting on its toes for the announcement. If it does not come, as we have predicted, gold will likely take a nose dive for the session, presenting a strong opportunity for active traders to turn a quick, handsome profit. We like the SPDR Gold Trust (GLD) for traders, as the fund traders more than 9 million times each day and offers an extremely active options market. Of course, standard gold futures will work just fine but may not be quite as liquid as this physically-backed ETF. Be sure to have your finger on the trigger during Bernanke’s speech, as the reaction from this commodity will be swift.
Disclosure: No positions at time of writing.