From the Trading Desk
After five straight days of gains, gold finally took a breather today and sold off quietly as the market calmed from the recent currency episode in China. Overnight, the People’s Bank of China Assistant Governor said that there is no further need for Renminbi depreciation following their decision to adjust the CNY-USD fixing earlier this week. With traders finally factoring in stabilization for the Chinese currency, volatility in the markets waned and gold’s safe haven appeal lost some of its luster. Strong retail sales figures in the US and a report from the World Gold Council citing gold demand dropped to a six year low in the second quarter didn’t do any favors for the yellow metal either today. Short term resistance seems to be entrenched at $1,130 while bids should materialize ahead of $1,110 on a move lower.
The dollar bounced today with the good news on the retail front, but the stock market didn’t really respond by the end of the day ending up mixed. You can see that from the chart below but notice the dollar got weaker by the end of the day. If we can get a lower low in the dollar, below that 96 mark now, then gold should continue higher.
The mining stocks which were leading stocks higher got hammered today. JNUG was down 17.86% after moving up 24% yesterday.
We’ve had a pretty nice move from the 2.45% range the 10 Year was at all the way down to 2.05% and have since bounced higher to 2.19%. We will probably get another short term push higher before we start heading down below 2%.
Higher rates are typically, among mainstream thought, a negative for gold and today it seemed to fit that pattern. This can be useful analysis for my micro point of view, but believe me, when rates start to go higher with the inflation rate, gold will move higher with it. Gold didn’t just hibernate in the 70’s with high rates, it moved higher the entire decade.
Dennis Gartman’s Timing on Gold Calls
There is a certain individual who is touted on CNBC all the time as an expert on gold. No, it’s not Peter Schiff who has gold gold and the dollar both wrong since 2011, but it is Dennis Gartman. I have met Dennis before and he gave a speech at an investment conference I attended. In this speech Gartman let everyone in the audience know that he is “wrong 80% of the time” with his calls. You may not know this, but he gets paid almost $5,000 a year for this advice he provides in his newsletter.
Let’s take a look at his calls on gold.
10/3/2012 Gartman Says ‘Everyone Needs to Own Gold’
8/21/13 Why Is Anti-Goldbug Dennis Gartman Getting into Gold?
The reason to bring this up is when it comes to analyzing gold (or silver) you only need to know a few simple rules;
1. If you don’t own any, buy some – precious metals are insurance first and foremost. They represent real wealth that over time keeps its purchasing power.
2. We are in an overall deflationary credit contraction that will bring the price of metals down further with micro run ups along the way. Chapter 4 of my book “Buy Gold and Silver Safely,” written in 2010 explains this process and my next book, “Illusions of Wealth” will explain what happens next (you can sign up to receive notice of its release with that link at the bottom of the book).
3. You won’t find me wishy washy on what gold represents and changing my mind on what people should do. My advice is consistent; dollar cost average into a position. This is the beauty of asset allocation. You take from what has been going higher and higher (DOW over 18,000) and put it into what is being beaten down (gold and silver).
4. Gold is going to fall below $1,000 and I will write my “all in” article between $850 gold and $1,000 gold.
5. Where gold is today is similar to where the DOW was in 2009 when it was at 8,500. Some people bought then and yet the DOW fell to 7,500 and some bought then. When the DOW was sitting at 18,000, did either investor complain? You will be saying the same thing about gold and silver in the years ahead.
6. Supplies will become an issue as the metals price falls and premiums will rise as well as delivery times be extended. I hope to have most clients invested before this becomes a real issue.
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
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.