From the Trading Desk
On surprisingly strong volume for the Friday after Thanksgiving, gold dropped to its lowest level in six years. The return from the slow US holiday week has allowed gold to regain some lost ground though. It held and formed a double bottom at $1,050 and has rallied two days in a row. Despite the move higher, the yellow metal may have some difficult times ahead in the short term. Short positions on the Comex are at record highs, gold had its biggest monthly loss in two and half years in November, and a Fed rate hike is likely this month. The USD is also hovering around eight month highs versus the euro and with the ECB expected to announce further stimulus measures next week, the USD could strengthen even more heading into year end. A positive for gold may be the fact that everyone is so completely bearish on it right now though. In this type of environment, when speculative positioning is so weighted in one direction, a short covering rally could certainly catch traders off guard.
In yesterday’s Current Thoughts I said the following; “Something has to give here soon and I think we continue higher with the metals but let the dollar below 100 be your key.”
Today we got the move higher in metals again and the mining stocks took off. No, I am not concerned about this yet as in missing the boat for the bottom, but I am happy to trade JNUG and NUGT long. The dollar did indeed retreat as that 100 mark I have been talking about for a bit now has shown the resistance.
Next up is Draghi speaking on Thursday. This should be dollar bullish and Euro negative and we have to wait and see how much this will push the dollar higher now as the Euro goes to parity with it. This is significant!
Below is another reply to a comment on one of my articles over at Seeking Alpha relating the past financial crisis to gold and what I see coming with deflation and the Fed in December.
“I am in the camp that the economy is not heating up. I document it here when I can (little behind); http://bit.ly/1IiZCQ3
During the 2009 financial crisis, gold did indeed fall but the dollar shot up too, so gold wasn’t the go to fear asset, the dollar was “perceived” as the go to asset. Gold did rebound before the stock market and went on to new highs by 2011 as the dollar sunk. But since 2011, the dollar has shot up and gold has pulled back considerably.
Here’s the one thing I can’t answer just yet, but I follow my indicators that keep me in check. How serious will the deflationary contraction be? And second question, will the current Fed follow what Bernanke said he would do in his 2002 deflation speech? I think it will get worse than most think and I do think the Fed will fight deflation tooth and nail.
I actually see a Fed one and done in December followed by deflation, a stronger dollar, lower rates, and a lower price in gold but eventually buoyed by more QE.
I’m not anxious to cost average into a leveraged miner ETF just yet because of my outlook. While I do think we are close, I won’t yet be ready to go “all in” if my indicators show more weakness than today.
Let’s get us to under $1,000 in gold first and then I’ll have to analyze things.”
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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