Gold received some good news this morning with the worse than expected GDP report but it really didn’t do much to help the physical metals. It did help the mining stocks though. But by the afternoon’s Fed announcement of keeping rates unchanged with no comments on raising rates, gold took the dovish news and fell a bit further and the mining stocks fell hard.
In my ETF Research Trading Analysis yesterday I had this to say preceding today’s market;
I really want to be flat going into tomorrow. I don’t like to take unnecessary risk if I don’t have to (otherwise known as gambling). You can see that the calls I make take some time to set up and whatever occurs tomorrow we will have a trade that develops. You may be tempted to trade tomorrow, but it’s a crap shoot.
The thing about the week of the Fed meeting is all the volatility we get and that I have been warning about. If you trade on a day like today, you are simply gambling. A great example of it can be seen in the chart of JNUG that follows.
The Fed announcement came out at 2pm and JNUG dropped like a rock going from just ove4 25 to just below 22, or over a 10% move. It then bounced a bit higher, but closed down 32 cents at 23.53. Why does a trader want to be long anything the day the Fed announces is beyond me. And the moves occur so fast that by the time you get filled, it can reverse direction on you. The better trade is to wait for the trend to develop and jump on it.
The dollar got hammered in the morning with the GDP news but only the mining stocks jumped on that news as gold was held in check and negative throughout the morning. Gold and silver don’t always trade opposite the dollar, but from a more macro point of view they do. I still see the potential of a short term dollar decline and gold and silver rise, but I also say this trend for all will revert back to the macro trend we have had since 2011. That macro trend is a higher dollar and lower gold and silver prices. The long term trend for gold and silver though is still higher, but we must first experience some sort of capitulation bottom. For now, enjoy the ride higher in gold and silver, assuming we continue that trend tomorrow, which is where I lean. We may gap down in the morning, but bounce from there into Friday and next week.
We have a lot more data coming out tomorrow that can move the markets, like initial jobless claims, personal spending, PCE Price Index and Chicago PMI.
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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