The trend of gold has left investors confused and perplexed for a long time now. After peaking last September, the metal saw a downward trend and has been grinding sideways for the eight months since. And now with the Fed's latest stimulus program set to end in June, it is reasonable to consider whether gold is likely to struggle even more under such a scenario. While much is made about how the lack of Fed stimulus is negative for gold, the reality is that gold has been a proven performer regardless of Fed stimulus.

To begin with, the fundamental thesis for gold remains fully intact. First, gold stands to benefit over time in a world marked by competitive currency devaluation including a secularly weak U.S. dollar policy dating back over a decade. Also, with the destabilizing threat of crisis mounting in Europe coupled with persistent pricing instability, gold also represents an attractive safe haven and store of value.

So, what about the impact of Fed stimulus on gold? After all, the Fed's latest program in Operation Twist is set to expire in June 2012. And it is well known that the performance of stocks have been dismal in the recent past once the Fed removes active policy support. Should we expect the same for gold?

Despite the widespread perception that gold rises with Fed stimulus and declines without it, this has not been the case throughout the financial crisis. To the contrary, gold has demonstrated the ability to rise with or without Fed stimulus.

A review of gold during the most troubled periods for the stock market dating back to September 2008 highlights this point. From September 15, 2008 to March 6, 2009 when the stock market was effectively cut in half and the Fed had yet to fully launch what is now known as QE1, gold regained its footing after an initial stumble and went on to gain heavily over this same time period.

As time rolled on and as we approach the end of Operation Twist in June 2012, it may be important to consider establishing gold positions for those investors that have the risk tolerance for higher price volatility. For just as gold is trading sideways today, so too was it trading sideways in the final few months prior to the conclusion of past Fed stimulus programs. It was only after these programs had ended that gold made a decisive move to the upside. And the yellow metal is setting up in a very similar fashion once again this time around. Fate awaits for GOLD!

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.