The Stage is Set for Ben Bernanke and Precious Metals
The carnage seen across the Dow (NYSE:DIA), S&P 500 (NYSE:SPY), and Nasdaq (NASDAQ:QQQQ) is causing a great amount of uncertainty and fear in the markets. The VIX (NYSE:VXX), another wise known as the fear index, surged 45% on Monday. The fear index closed at 48, which is the highest level its reached since May 2010. Although it is easy to argue the Fed’s quantitative easing programs failed to stimulate the economy, it did reduce volatility in equities.
The chart below shows the VIX (VXX) , and how the fear index decreased with the previous two QE programs.
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QE programs not only devalue the U.S. Dollar (NYSE:UUP), but also force investors to seek protection in precious metals (NYSE:DBP). Gold (NYSE:GLD) and silver (NYSE:SLV) have been in an upward multi-year channel with the Fed’s help. Although gold and silver have already made great moves over the past decade, the Fed could really ignite the fire any day now, as Bernanke will be feeling pressure to boost confidence levels.
On Tuesday, there is a one-day meeting of the FOMC. The FOMC statement is scheduled to be released at 2:15 PM ET. You may recall, in July, Fed Chairman Ben Bernanke made it clear that additional easing was possible. He said, ” The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.” If Bernanke thought things were weak in July, how does a DOW sub-11,000 and oil (NYSE:USO) sub-$80 look to Bernanke? Even if Bernanke doesn’t announce additional easing on Tuesday, there is plenty of time for him to make the announcement at the Jackson Hole conference later this month. As you may recall, August of last year was when Bernanke hinted of QE2 and sent commodities (NYSE:RJI) screaming higher.
Investors looking to hold precious metals (NYSE:DBP) in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Silver (NYSE:SLV) plays include First Majestic Silver (NYSE:AG), Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).
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Disclosure: Long AGQ.