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Private Briefingwith WILLIAM PATALON III, Executive Editor
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Gold prices will start another epic run beginning Dec. 12 - the day the Federal Reserve will double down on QE3 at its Federal Open Market Committee (FOMC) meeting.
Decisions made at the Dec. 12 FOMC meeting could add as much as $2.2 trillion to the Fed's balance sheet over the next two years, which will turbocharge gold prices, silver prices and oil prices.
The FOMC is the select group within the Fed that sets monetary policy, such as interest rates and the bond-buying programs known as quantitative easing, or QE.
That the Fed will dramatically increase QE3, which launched in September with the monthly purchase of $40 billion in mortgage-backed securities (MBS), at the Dec. 12 FOMC meeting is almost a given; it practically has no choice. QE3.
But the real issue at the Dec. 12 FOMC meeting will be what to do about the Dec. 31 expiration of the Operation Twist program. In Operation Twist, the Fed sells about $45 billion of short-term Treasuries each month and uses the proceeds to buy long-term Treasuries.
The Fed probably would opt to extend Operation Twist - which has not added to the Fed's balance sheet as QE1, QE2 and QE3 have -- except that it is starting to run low on short-term securities to sell.
Yet the Fed committed in October to extending its easing policies as long as necessary to bring down unemployment and aid the U.S. economy. Its only option is to convert Operation Twist to a conventional bond-buying program - effectively doubling its QE3 money-printing.
"Our baseline expectation is a continuation of the current pace of asset purchases of $85 billion per month on an open-ended basis, which would imply that the current $45 billion per month in [Operation] Twist-financed Treasury purchases is replaced by $45 billion per month in QE-financed Treasury purchases," Jan Hatzius of Goldman Sachs (NYSE: GS) said of the likely actions at the Dec. 12 FOMC meeting.