NEW YORK (Commodity Online): For the politicians, Europe is a potential fiscal nuclear device that needs to be disarmed. According to a recent article by Al Field posted at www.24hgold.com, if just 10% of euro interest rate derivatives produce losses, it could cost the world banking system $22 trillion. That is enough to effectively bankrupt it.
This is one black swan that could well make a crash landing... and soon. You can bet none of this has been lost on the U.S. Federal Reserve either.
That's why there is increasing talk that the Fed will ride to the rescue with its third quantitative easing program, or QE 3 - something I've been saying to expect for quite a while.
And now, a major French bank has joined in on those same predictions. Société Générale SA (PINK: SCGLY) (SocGen) has indicated the Fed is will soon announce QE 3. But it doesn't end there.
They even tell us when this move towards more quantitative easing is likely.
According to SocGen, QE 3 is headed our way this coming March, focused on mortgage backed securities (MBS) purchases on the order of $600 billion over six to eight months. That would be great timing to match up with the pending presidential election. Markets will get a tremendous boost, bolstering support for Obama in the process.
SocGen also tells us what we should buy to profit from this.
They expect the euro and U.S. 10-year Treasuries to take a hit. But they do see U.S. equities, European equities, oil, and especially gold benefiting from this new round of fiat money printing.
I'm in complete agreement on this, especially when it comes to gold.
In fact, just last month, I predicted that gold would reach $2,200/oz in 2012. That's about 33% higher than its current level near $1,650/oz.
Do the fundamentals support it? Well let's check our reasoning.
Is the Fed likely to bring on QE 3? .... Will QE 3 work and for how long?
Is the Fed likely to bring on a QE 4 or a QE 5 in the future?... Where will it all end?
What's more, is Europe likely to default outright, will austerity work, or are more printed money bailouts in store?
Keep in mind, each of these massive money-printing campaigns becomes less effective than the previous ones, so the bailouts tend to grow exponentially.
Of course, in my view defaults would be the right way to go. After all, the lenders who took the risk to lend to insolvent governments would be able to absorb quick losses. The pain would be high, but relatively short.
But I believe there's only a minuscule risk that any government is willing to take the fall for that same solution.
That's why the probabilities of ongoing and ever-increasing bailouts are still very high. And they'll likely continue for some time.
But we aren't helpless. Remember, gold tends to perform well in such an environment. The past decade of annual gains for gold seems to be proof of that.
Take a look at how consistently gold has performed since 2001:
-2001: +1.96%
-2002: +24.8%
-2003: +19.5%
-2004: +5.35%
-2005: +18.36%
-2006: +22.95%
-2007: +31.34%
-2008: +5.14%
-2009: +24.3%
-2010: +29.8%
-2011: +14.2%
I know of no other major asset that has turned in this kind of performance...ever. This is what a stealth bull market looks like, one that I fully expect will keep powering on.
And the central banks of the world seem happy to keep feeding it.
In fact, none of the fundamentals supporting gold have gone away. Instead, they've only become even more entrenched.
Source: moneymorning
