Today, June 30, 2011, officially marks the end of QE2. You can look at the adjusted monetary base to see what happened. It is up around $600 billion, just as the Fed had said it would be. There was actually a slight retreat in the last week.
You can also see the excess reserves held by commercial banks. They have gone up with the monetary base. That last line up is QE2. This means that all of this new money is being held by the banks. The banks are parking this money at the Fed to earn .25%, which is close enough to zero. I don't think it is a quarter percent of interest that is keeping this money tied up. I think a more logical conclusion is that the banks see more trouble down the road and are building up reserves to deal with those problems. I have read that much of QE2 went into European banks. The speculation is that the Fed was helping to capitalize these banks because of the threat of defaults by Greece and other European countries.
It looked like the stock market was in for a major correction, but things reversed quickly this week. Meanwhile, gold retreated to just below $1,500 per ounce the other day. Gold has been going down slightly over the last couple of weeks, but it isn't anything big. I still think a good strategy for speculation is to have some gold assets and to short the stock market (to a lesser extent).
I just cannot picture a scenario right now where the stock market will go up and make new highs while gold goes down or even stays flat. If there is not a big correction in stocks, then I see gold going much higher. I think low interest rates and loose money is the primary reason for the stock market moving higher. These conditions, along with huge deficits, should be even more positive for gold.
The big question remains: what will the Fed do next? My guess is that it will keep the monetary base stable for a while. It could keep buying government debt and not actually announce QE3, but I don't think this is likely. If we see more major signs of a downturn (stock market crash or higher unemployment figures), then many people on Wall Street will start demanding another round of digital money printing. Then we can expect QE3.
It is likely that we will continue to see a roller coaster ride. Gold has been very quiet lately, so I would not be surprised to see it start moving fast in one direction or the other. This is a tough environment for investing. The name of the game right now is to keep what you have, including its purchasing power.