Post QE2: Where do gold and silver go from here?

Now that QE2 has sailed, gold bugs will need something else to latch onto, at least until inflation really starts denting pocketbooks.

Now the QE2 ship has sailed, investors seem to be scratching their chins as they try to figure out where gold and silver are headed. In fact, the market seems to be doing the opposite of conventional wisdom. The Fed’s printing money, but the dollar’s rising. The currency’s soon to be devalued but bond yields are rising. Inflation is peeking over the horizon, and gold is taking is a breather.

What’s going on? The markets are looking for direction under the threat of major economic changes in the EU and China. No one seems to know what’s going to happen next, and that’s most troubling state an investor can be in.

I stumbled across a quote that seems to sum up the current state of the economy: “Treasurys are getting splattered and 10-year yields are at three-month highs; if rates are going up, it’s not a good thing for equities,” Peter Boockvar, equity strategist at Miller Tabak, tells MarketWatch. “This is the Fed’s worst nightmare.”

Of course, it’s probably not the end of a multi-year bull market in precious metals, but gold investors are nervous.

“With an attempt to quell QE2, a slightly upbeat Dollar bias, fears of Chinese tightening and less inflationary expectations in the marketplace, we have to leave the gold market in a vulnerable posture,” writes Nell Sloane at “In fact, if the debate over QE2 gathers credibility politically in the US this week that could prompt December gold to fall back below the $1,350 level on the charts. While the trade thinks that bargain-hunting buying will check up the slide, we think all physical commodity markets are still facing a corrective window directly ahead. If the market thinks the Fed will end up reducing the implementation size of their QE2 effort, that could result in an even bigger corrective washout in gold prices.”

The moral? Tread lightly for now. It may be a case of “buy the rumor, sell the news.” Now that QE2 has sailed, gold bugs will need something else to latch onto – at least until inflation really starts denting pocketbooks.

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