Think back to last month when the FOMC minutes from February were dissected with the sharpest scalpel in the kit. One small whiff of a hint of a nuance and gold was slammed. And slammed again. In spit of the fact, as we observed many times, the baseline conditions in the American economy remain soft at best, unemployment remains sketchy at best and many other leading indicators bounce around like kangaroos on methedrine. 

Not only is a new FOMC meeting upon us, but conditions have ever-so-marginally improved in the U.S. Certainly not enough for the doves to make a strong case that QE should end. They will state their positions regardless, but they do not have the votes in committee.  Not only that, but since the last FOMC meeting, stodgy old Japan has hopped on the easing bandwagon and Europe - held back by self-satisfied, self-centered Germany - is about to put on its party hat and join the monetary festivities. 

Aside from lousy employment growth, the Fed is now faced with deflation. Japan is facing it, and Europe too. It is the most serious first-tier economic problem we are facing today. In the United States, the PCE (personal consumption expenditure) component of the broad basket of gauges fell in March to a growth rate of 0.2% in March, down from 0.7% growth in February. If consumer spending were a cardiac patient, it would be an eyelash away from flatlining. 

Inflation operates along a continuum from zero to a good healthy 3% level to a very white hot 7% to an uncontrollable, unsustainable 15% per year. Deflation on the other hand, once it goes to zero or below even by a fraction of a per cent, is dangerous. Certain things become uneconomical to manufacture or provide through service industries. The consumer buying and selling cycle becomes gridlocked.

A sensible person might ask: where is all that QE money going? It is going into corporate coffers where it sits and presumably waits. (Although Apple and GE are being forced to return money to shareholders, practically at the tip of a sword.) We know the housing market has become a little more fluid, but that is confined to first-time buyers and to people with top-flight credit.

Remember now, the banks and its corporate clients are getting this money from the Fed at near-historically-low interest rates. So, one, they can hoard it without hurting their bottom line much, or 2) they can lend it around among a small coterie of people, who are sometimes defined as the 1% or 5% (the extremely well off economically).

Businesses have made only modest investments in their own infrastructure, in human resources, and in expanding sales forces. This is particularly tragic for well-educated young people. For gold traders, this is excellent. We venture to say that QE3 might not end until the middle of next year, and it might even be augmented. We think there is a 3 in 10 chance it might be expanded from the current 85 billion per month.

Yesterday gold shrugged off an attempt by (little) bears to take over the market because yesterday was a good economic news day for them. The market shrugged off early losses and rose. Today, more powerful bears attempted to take back the market and again failed while gold is up a hair with afternoon trading just ended. A weaker dollar helped offset "regular" trading losses. 

That leads us to the "nod" in today's headline. Indeed, two shrugs are leaving us nodding "yes," to a continued climb in gold. This will be via the hard road, however, and do not be surprised if there are some interim pullbacks that might sting a little or cause us to stop out on the way back up. But that is the cost of doing business. At the mid-week turn tomorrow, watch for slowing in the equities boom; a steady Feddy; and more physical buying of nicely-priced gold. Silver can't win for losing, as the saying goes.