QE3 for as long as it takes undermines the value of the dollar so will look good for gold and silver in dollar terms in the medium term.
The markets got more than they expected from the Fed - QE3 for "as long as it takes" and low interest rates for three more years is today's reality. The stale fear of inflation in the States is now well and truly replaced by a major drive away from deflation and a potential depression. With politicians still emasculated in political gridlock the Fed has called on them to do what they were voted in to do. We don't think they will, so QE3 ‘for as long as it takes' is the next best thing. It targets house prices and employment, but will banks follow through?
Translated into gold and silver no news could be better because it undermines the value of the dollar. Gold confirmed this by jumping $40 overnight or 2.3% and silver up $1.6 or 4.8%. Traders and speculators either short of gold or standing on the sidelines drove the prices up. That's just overnight. What does the longer term hold?
It would be naïve to think that this is now the long awaited solution. That must come for Congress and the Senate. They won't do that for a couple of years more. Meanwhile, for the U.S. to really grow the U.S. consumer must see the value of his house rise and his job secure. That is the acid test. The cost, if that is achievable, will be at the expense of the dollar. Gold [and silver] will rise to reflect that value loss.
In India inflation has now been reported at 7.1% and the gold price in the Rupee is now over Rs.96,800 for one ounce, without any premium. Initially this will keep Indian investors out of the market, short-term. Bear in mind that the recent break upwards in the gold price has been in the absence of Indian demand. Previously, such a rise would not have happened without Indian demand.