What Does this Data Tell Us? Does the Market Care?
All the market cares about is what a few words from the Fed meeting say tomorrow, not what the data tells us. That’s what we’ll find out tomorrow with the results of a two day Fed meeting culminating in an announcement about the future of interest rates. Traders and markets will then jump on the trend whichever direction it goes (but if history repeats, it will be UP for the markets).
Data is dead, all hail the Fed!
It just so happens I have spent the last month accumulating the data, both good and bad, in deciphering for myself what is really going on in the economy. It is so much data I had to create a separate area where it can be posted and you can find the link to the data by clicking here: What Does this Economic Data Tell Us?
Why a Strong Dollar?
Many who are bullish on the U.S. will point to a strong dollar as proof that the U.S. is doing well. But this isn’t true at all. The dollar is strong because the currencies that make up the Dollar Index are weak; the Euro, Yen, Pound, Canadian Dollar – which make up 92.2% of the dollar.
Why do investors flock to the dollar when the data is so bad for the U.S. economy? Because their currency is falling and they want to protect purchasing power! But it’s not just the U.S. dollar they flock to. You also see the price of gold moving higher and higher in these currencies up until January of this year. Since then gold is taking a breather as it had moved up over 5% in Yen and Canadian Dollars in just 6 months and over 14% in Euros.
As you can see in the chart above, the red color represents the 6.53% decline in the U.S. price of gold the last 6 months. Even worse, gold is down 15.59% in U.S. dollars the last year. At least many who have been reading my articles know I have been warning about this. See: Will the Price of Gold and Silver Keep Falling? 2/14/2013 – While I did think this decline would be a faster one to the final capitulation bottom, it has been buoyed by the strength of gold priced in other currencies.
What’s Next for Gold?
Unfortunately at this time for U.S. holders of gold, at the time of this writing gold is trading at $1,147 an ounce and we are only $15 away from the November 5, 2014 low and silver 26 cents away from its low. Once we break those lows, we are headed to under $1,000 in gold and silver will head towards $12 with a possible test of the 2008 lows of around $10.
No one likes to hear this who presently owns gold. It sure doesn’t do well for my sales of gold and silver. But my list of those waiting for my “all in” article is quite large. It doesn’t hurt that we now have the lowest prices for gold and silver coins and bars in the nation which you can find on our Today’s Prices page.
Typical Fed Week Volatility
Today’s action in gold is typical of any Fed meeting week. Market makers love to swing low and then break to new highs trapping bulls, then pull the rug from under them and drive the price down. That’s exactly what they did today as seen in the following chart.
Making Sense of the Falling Price of Gold
When you analyze the data and see how bad things are, can you really justify investing in the stock market? The technical analyst or the value investor would typically stay away from the stock market after reading that kind of data. But price action trumps everything. It took me awhile to learn this valuable lesson. The price moving higher is all that matters. The data means nothing. Perhaps at one point in the past data or valuations of companies meant something, but today they don’t. They will at some point, but only when the data becomes relevant again and the Fed is ignored.
So it is with gold and silver. Every country in the world is devaluing their currency and if the citizens of these countries were smart they would be buying gold and hedging/insuring their purchasing power. Even those here in the U.S. haven’t been hurt too badly by the falling price of gold.
When oil was $114.33 a barrel in April of 2011, gold was $1,473 an ounce and could buy you 12.88 barrels. When oil was $91.74 in August of 2011, gold was $1,895 and could buy you 20.65 barrels. Today oil is 44.84 a barrel and gold is $1,160 an ounce and can buy you 25.86 barrels of oil. Gold’s purchasing power, at least for oil (and I could do this with many other commodities of late like wheat, corn, natural gas, copper, etc.), hasn’t been too bad. I do realize it’s not all black and white too. Of course anything with our government involvement simply moves higher in price; health care, college tuition, postage, salaries of government employees, Washington D.C. real estate. You get the picture. This is NOT inflation but rather govflation.
All in all, gold and silver have a place in your portfolio and no matter how the market views the data today; the cream rises to the top. Always has and always will. This isn’t 1980 when Volcker can come in and raise rates to help the system. Raising rates will kill the system, especially when the data is what it is. The Fed knows this. They won’t raise rates tomorrow but they may give the market something to cheer about; the stock market that is. The Fed never does gold any favors.
Buying gold through dollar cost averaging in on dips is the way to play this. We only have a few more dips and this decline will be over. I’d like to see the psychological barrier of $1,000 broken and all the journalists (and that’s all they are) at CNBC cheering a new high in the DOW and the end of the gold bull run. I’ll be sure to videotape it just like I did of them the entire run up in gold when they couldn’t explain it. I will then begin to refute every single article written by CFP’s, CFA’s or anyone else that mocks gold as an investment. Just be patient for the bottom to come.
Mining Package Being Released Soon
For those that don’t know, we will be releasing the Mining Package either this Friday or sometime next week depending on market action.
The mining package that we will be offering has been waiting for a release at a time that I feel would coincide with my overall view of gold and silver prices reaching the lower targets I think they can fall too. Many so called experts last year in July thought the miners would take off and next thing you know they broke to lower lows. Some called this latest run up the final fall for the miners. It obviously hasn’t been and I know that’s frustrating for many who are long or have been long for some time. There is a reason why I have been patient with the release of the mining package. There is also a reason why I chose the stocks I did and I’m excited about their potential. The mining package release date will be announced soon. I sent out an email to all who have subscribed recently with an update. If you haven’t signed up, read the following and express your interest.
For those who haven’t signed up; We will be coming out with a mining package where we pick what we believe to be the best mining stocks to buy based on my research the last 9 months. We have been patient in releasing this because of the timing in purchasing these mining stocks can be tricky. We were one of the only one’s who recommended selling mining stocks in September of 2010 when the HUI was trading at 512.56. Much has transpired in the mining industry since that call with many companies disappearing or being taken over. Today many companies are struggling and if we do get a further pullback in the price of gold and silver, more companies will go bankrupt just like Allied Nevada just did.
This is what I had written for the Mining Package back when Allied Nevada’s stock was trading at 99 cents a share. A year ago it was trading at $6.10.
This company is on its last leg. While it may have some good talent at the top, you can’t turn a frog into a princess with a kiss and you can’t get this company to turn things around with all the debt and raising cash by selling assets. Can someone come in and take over? Not with all the debt.
Knowing which companies have the best opportunity moving forward will be key to you getting returns that we believe will be in the 100% to 500% range, and possibly much higher for some of the miners. We will be including the timing of purchase for these mining stocks. This package will be released in the next few weeks and we will announce it on the site.
As a bonus to the mining package we will be offering free of charge a list of 10 Junior miner picks and depending on which package you choose an ETF Trading Service for no additional charge. We want you to make good decisions and everything we offer will help in that regard.
If you are interested in this Gold and Silver Stock Mining Package let us know by clicking this link below and completing the form.
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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