I will say right now, unequivocally, this is going to be a crazy week for not just gold and silver, but for the markets in general.
As with most Fed meeting weeks, we see market makers push both sides of trades and push investors out of positions. Holders of physical metals aren’t pushed out of positions like traders are and simply use any down turn in price to add more to positions in a perfect asset allocation strategy.
If we get a dip in price for the metals this week, I would simply dollar cost average into a position. Any dip from here may take us low enough to break the Nov. 5th lows in gold of $1,158 and if that is the case, market makers who know this price level will do one of two things;
1. Keep pushing the gold price down to squeeze the longs out of their positions and take us down below $1,000 eventually.
2. Push the price down below the Nov. 5th lows and then push the price immediately higher (before hitting $1,000) after they get those “traders” who have set stops below the $1,158 price to be stopped out, profiting from their shorts and then jumping in long with big money and pushing the price higher, possibly past $1,325 to get those who went short under $1,158 to get stopped out. Then taking us one more trip down below $1,000. This is what market makers do.
I believe #2 will occur. I don’t think there is a reason to knock gold down below $1,000 right away. May and the summer months are typically decent for metals. Selling will come when traders come back from their summer vacations (and they have a lot of money to enjoy a good summer vacation this year) and THEN the bottom in gold will come.
If I am right, of course I will look good. I don’t care about looking good as much as I care about you buying the metals at the right price and at the right time.
If you are dollar cost averaging into a position, you don’t care about price as much as you do about getting your allocation into metals. Once you have the metals allocation that fits within your portfolio diversification, you simply hold the metals until they double or triple in price or more. Your hardest decision won’t be “did I catch the exact bottom with my purchase?” Your hardest decision will be, “when do I sell the metals?” You have to understand why metals will go much higher and believe why to make this kind of investment. If you don’t, please read Chapter 4 of my book, “Buy Gold and Silver Safely.”
Not only do you get the Fed meeting this week and the decision on interest rates, you will also get a bunch of economic data as you can see below. This includes consumer confidence, GDP, pending home sales, initial jobless claims, core price index, personal spending and manufacturing PMI.
The consensus is the Fed will leave rates the way they are. I concur. The data has been mixed of late and the Fed members have retreated mostly from talk of raising rates from what I read. They will still “talk the talk” and not much more. I really see this as a non-event overall, but the mover may be what the GDP numbers show BEFORE the decision. Let this be your guide. Consumer confidence I will guess as being better than expected which could hurt gold on Tuesday leading up to the big Wed. data and decision by the Fed.
The Fed can’t raise rates but CNBC will twist anything coming from the Fed as positive for the markets. When will the markets stop believing that higher rates are coming? When will the markets wake up? CNBC has been talking about higher rates for at least 9 months right? Children have been conceived and born since CNBC started talking about growth and the Fed’s next move confirming growth. Where is it? Maybe we’ll find out Wed. with the GDP report. It’s not like weather interfered with anything, right? Here’s what happened last year at this time. http://www.cnbc.com/id/101713801
Keep an eye on the dollar under 97 as a good indicator and see if gold can get past $1,208 sometime during the week and get long for a ride. I may write at some point to get short too, but for now I want to see what data comes out and what price action does and I’ll write about it each day. Bottom line; EXPECT VOLATILITY!
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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
Disclosure:
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.