GRONINGEN (MINEWEB) - When the US launched its first quantitative easing programme at the end of 2008, it is fair to say the world was in a fairly parlous state and in the four months following that significant liquidity injection gold rose around 36%. When QE2 was announced gold rose again but, by not nearly as much. As ETF Securities points out in a new note, by the end of the second round of QE the gold price rose by 11% to US$1,500oz. While these were impressive moves, the real price action happened in September of 2011 when gold hit its record high, not on a third bout of liquidity in the US but, rather, on the expectation that the Fed would have to step in again to help out the ailing economy. Now, granted, the situation in the US did not evolve in a vacuum, indeed, many would point to the ever-worsening sovereign debt crisis in Europe as another significant factor in gold's solid move higher but, it is clear that US monetary policy has a very significant impact on the metal. Indeed, as ETF Securities points out, while gold has traditionally been considered a hedge against financial risk, "with the end of the second round of quantitative easing on June 30 2011, the positive correlation between the gold price and risk, as measured by the VIX index, began to fall, turning negative in October 2011." Adding, "In recent weeks, it has become increasingly clear that another round of quantitative easing from the US Fed is the main catalyst investors are waiting for - both for US dollar weakness and gold price performance." According to the group, if non-farm payrolls and other growth indicators such as the monthly ISM surveys do not quickly show substantial and sustainable improvement, a new round of QE seems increasingly likely and, this would be good for gold. Jeff Nichols, MD of American Precious Metals Advisors and senior economic advisor to Rosland Capital made a similar point to Mineweb in a recent podcast saying, that recent moves in the gold price are much more dependent on developments in the US than on the continued unfolding of the euro zone crisis. He too maintains that QE3 is inevitable and, is likely to be the catalyst for the next significant upleg in the gold price. But, as Tom Kendall, Director of Precious Metals Research at Credit Suisse points out, the argument can be made that each bout of quantitative easing has a lesser impact on the gold price on the upside and, importantly, the relationship is asymmetrical in that, "If the market doesn't get the third bout of QE that it is predicting, the decline is likely to be more significant than what can be expected on the upside." The question now becomes, what exactly is the market expecting in terms of QE and how disappointed will it be if it doesn't get it?

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