Quantitative Easing: The Euro, Gold and Other Commodities

Five months ago, everybody was talking about what could happen with the euro due to the fragile economic situation in PIIGS (Portugal, Italy, Ireland, Greece and Spain) economies. High public deficits and debt levels were the most important things to consider. Greece took rude economic measures to assure economic bailout from IMF. Markets started considering the possibility of the end of euro zone. Many analysts said that euro could disappear as a common currency.

However, five months later, euro has hit its highest value against dollar in ten months. What has happened in the middle of the crisis? Two words: Quantitative Easing. Are all the problems mentioned above resolved? NO, but markets are focused in US economy at this time. Could the FED resolve the whole global crisis with more quantitative easing? I don’t think so.

A stronger euro has many bad impacts in European economies. The loss of competitiveness is evident. Exports have become more expensive and that means less work for European people. Fewer people working means less consumption and that turns into less fiscal income for governments.

In my opinion, there’s a bubble around the euro. European Central Bank should take new measures such as The Federal Reserve to avoid economic recession. That will be quantitative easing too. So the euro must return to lower levels. The range $ 1.43 / $ 1.45 is a good one to have a short position on the euro.

Let’s talk about commodities. Is there a bubble too? It could be, but there are more fundamental reasons to justify last rally. Strong demand from emerging economies, China principally explains great part of agricultural and metals uptrend. Climate problems should limit agricultural grains also, affecting the supply as demand keeps growing.

What about precious metals? Gold has its biggest rally reaching new high records. Silver is at its 30 years high. Investors are anticipating FED’s quantitative easing (QE) and inflation pressures in the future. But, what will happen when QE implementation take place? Maybe markets are discounting that and now it’s time to get some profits and wait for the next move.