Gold did exactly what we wanted it to do today as it not only broke above $1,200 resistance, but also $1,215 resistance to close at $1,218. Yesterday I also said I want to see the dollar break down below 94 and it gave us the added fuel to the gold bull.
We also got a weaker than expected retail sales report (are you listening Fed?) and that helped gold and silver as well. As I have pointed out before, the stock market doesn’t care about negative data. The DOW only closed down 7.74 points today and the NASDAQ was actually green for the day. As I said yesterday, the stock market has a life of its own.
Why the Fed May Raise Rates Despite the Data
Most readers know I am clearly in the camp of lower rates and CNBC is in the camp of higher rates while Fed members are mixed on the issue. I have said in the past that the Fed may do a token rise in interest rates. Why would the Fed do this? The reason is credibility. If CNBC thinks that the economy is strong and most Fed board members think the economy is strong, then that is the message the public is hearing from the news media. It seems logical then, from my perspective, that in order for the Fed to play the game correctly, they MUST maintain credibility. If they ever lost credibility, like when they were scrambling in private meetings with bankers and others before the last crisis during TARP discussion, the markets would take notice.
While the data tells us a recession is brewing, the Fed and CNBC cheerleaders tell us we need to raise rates. They very well may raise rates a 1/4 point at the next meeting, especially if we get a few more good employment reports. But this 1/4 point move will be followed by cuts as the deflationary forces take over. Then the Fed will finally admit defeat and take drastic measures and bring back QE again. I don’t think they have a choice.
It is during this timeframe (after the raise of 1/4 point and before the next cut and any QE) that gold will bottom out. It is then I will write my all in article based on the current picture at that time. That’s the roadmap. Enjoy the gold rise while you can. It won’t last. We have one more smack down to come.
Let’s see how far we go up in gold before the rug is pulled. I’ll try and call the micro the best I can. I have been saying I lean bullish, even on days when we hit a few lows in the 1.170’s. I only said I would look lower if we broke $1,158. We never did. Now the hard part will be deciphering where gold will go. But we have clues, most important of which is the dollar.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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