From the Trading Desk
Disappointing US Non-Farm payrolls figures on Friday allowed equities and commodities to finish the week on a strong note. The weaker US data made the probability of a Fed rate hike by the end of the year much more unlikely, encouraging market participants to immediately pump funds into assets. Silver, which had been trending lower, erased all of its weekly losses on Friday. As usual, it caught traders off guard and continued its very impressive run higher yesterday and today. Since the open on Friday morning, silver has moved up nearly 10% and has cleanly broken through its 50 and 100 day moving averages. It is currently flirting with resistance at its 200 day moving average of $16.01. After such a quick and unexpected move higher over the last few days though, I would expect some selling pressure to emerge up here.
The dollar moved down today and gold and the miners enjoyed another day higher but faltered towards the end of the day. We are right up against the resistance of $1,154 – $1,157 for gold coming within $1.20 of it before falling back $6.
The reason for the dollar decline was once again more negative economic data. This time around it was a larger than expected international trade gap. I would still keep the dollar as your guide as you can see that more times than not they trade hand in hand.
Can anyone else put together what lousy data means from a deflationary contraction aspect? If we have lousy production the world over, why would you want to be bullish on the economy? The Fed finally sees this and that is why they didn’t raise rates, but if you recall, Fed member after Fed member, including the Chairman Janet Yellen came out and said the see higher rates by year end. How can they do that? To satisfy those who love a bull market that work at CNBC? To give the market what many say it wants? Does anyone understand the consequences of raising rates before the economy is ready for said raise? Do you pour from a bottle of red wine newly bottle off the vine or do you let it age first?
This is not a growing economy and needs to be aged before lighting the fire of higher interest rates. I don’t care what gold and the miners are doing in the short term, but my data doesn’t lie to me the way I read it and I know the Fed knows this too but their hope is to “talk the talk” of raising rates and hope that somehow the economy turns around. They presently are “pushing on a string” and can’t get the economy to budge. The data shows this. But it also shows this the world over. Even the one good economy in Europe, Germany is now sputtering and what does that eventually mean for the dollar? Answer: higher. And thus gold will still come under pressure as long as you believe there is a more than often inverse correlation of gold and the dollar.
Stay tuned.
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About Doug EberhardtDoug 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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