The US Government has been printing dollars and pumping in money to keep its economy afloat. We had Quantitative Easing 1, 2 and 3 may be on its way. What would be the implications for Global Markets?
1. QE-2 ends on June 30th. This means no more pumping of dollars and the Fed Balance Sheet begins to shrink. If there is no QE-3 expect the US market to collapse at least 20 pc and treasury yields to rise. The Dollar would strengthen and Gold and other commodities like Oil would flatten or have a slight dip
2. There is a delay in announcing QE-3. Markets first dip and then there would be a rise on the announcement. I feel this would be the most likely scenario.
3. QE-3 announcement comes through. Asset inflation goes on. US Dollar crashes, Crude jumps. If QE-3 comes through, within a year crude should hit 200 dollars a barrel, Gold 3000 USD an ounce and the US Dollar toilet paper.
How do we play the scenarios?
Right now, wait and do nothing. Technically wait for Gold to close 1570 dollars an ounce and then buy gold or wait for the announcement.
Equities are a no-no for the simple reason too many negatives. Inflation, rupee weakening are just a few negatives now.
If QE-3 comes and Equity markets do rise, I would still prefer Gold as US Dollar is a certainty then and Equities will just have small (maybe a few months) boost. QE-3 would likely set the road map for the next year or so for the world.