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Fed Kills Gold Trade, but Doesn't Bury It

The Bank of America Merrill Lynch economist said the Fed isn't incorporating the fiscal cliff into its forecast. The fiscal cliff -- combined with high gasoline prices and a slowdown in the the U.S. economy the further away it moves from the mild winter weather "stimulus" -- will lead the Fed to say enough is enough and hit the accelerator it was still far from pressing down on in its latest FOMC commentary.

"QE is coming in the second half of 2012," Harris said.

The gold market reacts to easy money policy and if the fiscal cliff thesis proves true, it will be good for safe-haven flows into gold, and the weakening in the gold trade will ultimately be a function of it being too high, as opposed to it already being started on a long, and straight, road down.

"This is the hot story among clients now. People are starting to question if the economy is really off to the races and the broad based risk aversion trade will be back in the fall," Harris said.

"Will we get easy money or not? At the end of the day, gold investors should ignore it," Nadler said.

Easier said than done, especially with QE3 still on the horizon. It is, isn't it?

-- Written by Eric Rosenbaum from New York.

>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

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