Current Thoughts for 7/12/2016

From the Trading Desk

With the Dow Jones and the S&P challenging all times highs, gold is finally showing some vulnerability and has traded lower for the second day in a row.  This past Friday’s strong US jobs number provided a sense of calm in the wake of Brexit and US equities have reacted accordingly.  Counterintuitively, gold and silver also ran up on Friday even with the surprisingly good jobs figure.  They have since retreated but haven’t officially broken down… yet.  US 10-year yields rose to 1.508%, up from yesterday and from the low earlier this month of 1.321%.  The rise in yields indicates a shift in overall market sentiment and has contributed to the selling pressure on gold this week.  Silver has shown especially impressive resilience of late.  It not only rallied on Friday despite the non-farm employment figures, surging equities, and a rallying USD, but it also did so in the face of the CME raising margins (normally cause for weak longs liquidating positions).  With Comex length at all-time highs, it feels like the market is due for a correction lower… but I don’t know if anyone is brave enough to short this market though!  Near term support in gold is at $1,330 while $20 held perfectly as the low in silver today.

I wrote this 6am PST.

Gold moved lower today as the $1,400 level continues to be an illusion. In the morning it opened down $10 to $1,345. Silver started the day up at $20.34 and then gave way to the pressure.  The dollar had been bouncing since the wee hours of the morning and that has put some pressure on gold, but it did fall from late yesterday and the jury is still somewhat out on my thesis of a higher dollar until we break past 97 convincingly.

Now it is 3:30pm PST and gold did move lower along with silver as the dollar bumped a bit higher. This pattern should continue into tomorrow with silver taking the brunt of the short term pain after a nice run up.

I wrote this to someone recently on hyperinflation. I have not been in that camp to try and sell gold, although I could make more money doing so. It just makes no sense at present and I try to keep my thoughts as real as possible.

Hyperinflation Not Anytime Soon

For hyperinflation to occur you need a loss of confidence in currency. To have a loss of confidence in currency to occur you need an economy that doesn’t grow and a failed Fed.We have at present a contracting economy and a Fed with a balance sheet that is not what it was, but the markets still look to the Fed as competent in what they do. You also need a weaker military presence which the U.S. does not have.

Treasuries are at record highs for what reason? Because investors view them as safety, here and abroad where interests rates are negative.

The VIX index shows no fear. While there are underlying issues with debt right now, it is “managed” in this low interest rate environment.

We are closer to deflation than any sign of inflation with money velocity still declining and interest rates falling.

We have had a blip up in commodities with a fall in the dollar. The dollar will head back up to 100 and higher as deflation takes hold. Any talk of hyperinflation is extremely premature.


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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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