Current Thoughts for 6/16/2016

Did someone say volatility this week? Most everyone who trades knows that the week of the Fed announcement we get some good moves in most all markets. When coupled with options expiration coming this Friday, the moves can be even more severe and that is what we have seen this week and especially today in gold and silver.

Even the dollar was volatile today as it moved over 95 then below by the end of the day. Is this what the Fed means by an objective of price stability? Not if you look at these charts.

dollar volatility


Gold moved as high as $1,318.85 and as low as $1,280 and is presently at the low end of that spectrum at $1,281. Today was all the makings of a push to higher highs, take out stops, then pull the rug. I had said in yesterday’s blog article they would at some point pull the rug from under the gold bull but didn’t expect it all the next day. In reality, I think this dip is still a buy but I would watch the dollar over 95 as your caution area.

Mining stocks like the leveraged ETF JNUG broke to a new high today and then fell 39 points. That’s a difference of $39,000 from high to low for those who held onto 1000 shares. Yes, that’s pretty volatile. The DOW also had a 250 point range today, finishing the day up 92.93 points.

Buying in precious metals has died down with the quick upturn we have had in metals. There is more uncertainty and seems to be more sellers than buyers at present at the mints. Most traders are going flat into next week as we await the results of Brexit. I wouldn’t expect much movement until that time in price next week but tomorrow with options expiration we may get a little more up and down price action. I would at present be buying the dip from a micro perspective if trading, and of course with stops as noted on the dollar above.

Below is a reply to a post from someone on a different website who was bashing gold with the usual barbs like, they would rather have food than gold if the world were to be coming to an end. I thought I would step in and offer my opinion:

Jesse, agree with you on the deflationary data and without money velocity kicking in, gold will struggle. While you make some good points, I’ll throw in some love for gold as part of a diversified portfolio.Precious metals maintain their purchasing power over time. Fiat currency does not. While our currency called Federal Reserve notes at one time used to be convertible to gold, which most who critique gold seem to forget, The government changed the rules and in fact changes them any time they need bailing out (1933, 1965, 1971).
As an example, a 1964 silver quarter could almost buy you a gallon of gas in 1964. That same quarter today, exchanged for the scrip of the day, can still buy you a gallon of gas based on the average price in America for gas (See gasbuddy.com and coinflation.com).A 1965 quarter can get you 25 cents worth of gas today.
One should have a diversified portfolio that consists of stocks. But one doesn’t need to compare stocks versus bonds to know that at times stocks do well and at times bonds do well. The same goes with stocks and gold. They don’t necessarily need to be one or the other. Asset allocation strategies dictate you take from what is doing well and put it into what is doing poorly as history shows there is a reversion to the mean. The stock market is at historic highs around 18,000. Gold and silver have been hammered down and are enjoying a bounce at present, easily out performing the stock market in 2016. But one thing you leave out of your analysis is this gold run, and commodities in general this year, are moving higher with the decline in the dollar. Stocks are moving more with what investors think the Fed will do, not with real valuation or technical analysis. Corporations buying their stocks back is also masking the situation.
Gold doesn’t change. You bury it in your back hard 10 years ago, dig it up today, and it’s the same gold. What it is priced in changes. As I said, over time it should keep pace with purchasing power and that’s why investors hoard it. Central banks hoard it to give the illusion that it backs currency too. Why else would they want a non-interest bearing asset?As far as gold becoming money again, countries like the U.S. that need a more flexible currency and have a strong economy (based on growth increasing each year), can manage debt loads (at present) and are run by their government well, can prosper. But to ignore the elephant in the room at some point can become an issue.
1. Approaching $20 trillion in debt.
2. Interest on the debt manageable today but the government will have to cut current programs or print more money to pay the higher debt cost in the future once interest rates rise.
3. We have a Congress that calls a “balanced budget,” 9 years of adding to the debt and the 10th year coming in under budget. This is pure lunacy. Congress job is to pass spending bills. They never control their expenses. Best explanation of this is here (wish they updated this every year): http://bit.ly/1tgXtUM
4. We have the GAO predicting no inflation in the future. This has never happened yet their long term outlook on the charts show this. What are the odds of no inflation?
5. Many more issues I could list.
I am one of the few who are in the deflationary contraction camp and think there are still issues with gold as the dollar gets stronger. But my reasoning for a stronger dollar is the Euro is a mess. Japan’s a mess. And even China still has to go through a contraction. I don’t need to mention Central or South America or any other Middle East countries, but in a nutshell, the world’s a mess as we face contraction everywhere. The dollar will be perceived as the last bastion of safety for these countries who would love to have gold over their currency. So you see, it’s not a U.S. central issue.
Lastly, you do choose food over gold as if that is what a rational person would do if we hit hard times. The one how buys gold would have sold the gold by then at much higher prices and probably selling you the food, or giving it to you out of the kindness of his/her heart. Remember the old saying; he who has the gold, makes the rules. Kidding aside, give the buyer of gold some bit of acknowledgement that they too would plan for eating and not sit on their pile of gold waiting for Jesus to come again.



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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


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