Current Thoughts for 3/15/2016

From the Trading Desk

After failing on a third attempt to close above $1,280 at the end of last week, gold has spent the last three consecutive trading days trending lower.  It held support at $1,225 overnight, the fifth point on a trendline dating back to mid-January, but the momentum has certainly shifted downward this week.  Should this $1,225 level break, the next support area to watch for would be the psychological figure of $1,200.

Indian customs data on Monday showed that imports of gold in February totaled just 765,000 toz.  This was down over 60% from the previous month and the lowest monthly inflow on record.  After China, India is the world’s largest gold market and the steep decline in demand can be attributed to gold’s impressive performance in 2016 as well as Indian jewelers’ reaction to a recent 1% excise tax imposed by the government.

 

The FOMC statement is out tomorrow at 11 AM PST.

Yesterday I wrote an article for the blog Gold: Where To From Here? and my goal was to give you a little more insight into what I see going on with gold at the moment. Many don’t realize we are in the midst of a deflationary contraction and there is no inflation in sight. To think the Fed doesn’t also see this and that they will raise rates 3-4 times this year shows you haven’t looked at the data. At a time when many countries are going negative with rates, where do you think money flows? The answer is to safety in the U.S. dollar. This will continue as long as these other countries play their games as I pointed out in that article.

But the Fed also has to try and stir up inflation here and they simply are failing at this. Money velocity is falling still and the Fed is pushing on a string to use economic language.  How is it that no one can see that all the QE thrown at the economy has done nothing to spur on the velocity of money? In fact, in modern times we have never been this far down in velocity as seen in the chart below.

Can someone tell me how raising rates can improve velocity and get GDP going? How about a stronger dollar? Do you see what the Fed is up against? Can you explain how inflation is here? Can you see warning signs from this graph alone that we are seeing unprecedented territory? Can you say “what if” the Fed is wrong and they have to actually begin more QE in the future? What degree of confidence to you have the Fed will wake up to this data or the financial media who hides it under a rug rather than question it will begin to address this issue?

Yes, the Fed will wake up to it just as every other nation fights their own deflation battles. They will continue the policy of throwing more money into the fight against deflation and yes, eventually we will see inflation come. But the Fed will as usual be late with their stimulus and by the time they start adding more stimulus, buying whatever assets they can of failed entities, bonds, stocks, etc., my all in article will have been written. We just need to be a little more patient for these things to unfold.

Meanwhile, voters today through exit polls do understand what’s going on in the trenches. 70% of those who vote Republican in Illinois and North Carolina said they were worried about the nation’s economic future. 81% of Democrats in Missouri and 75% in Ohio said they were somewhat or very worried about the economy. Do these voters know more about the real economy than the Fed? One has to wonder.

About Doug Eberhardt

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