From the Trading Desk
What a week so far… and it’s only Tuesday! The Shanghai Composite index started off the week down 8.50% and US equities followed suit with the Dow Jones having over 1,000 point range yesterday. The Vix index, a measure of volatility, exploded to trade all the way in the 50s, a level it hadn’t touched since the financial crisis of 2008. The Dow Jones has now had six consecutive losing sessions and is down nearly 11% over that time period. Overnight in China, the government tried to stem the selling pressure by cutting the benchmark interest rate by another 25 basis points. While gold acted as a safe haven hedge last week, it succumbed to liquidation pressure over the past two days. Platinum, palladium and silver, the more industrial precious metals, were hurt more by the rout in China than gold. Near term support for gold and silver is coming in at $1,135 and $14.50, respectively.
Today was another crazy day for the stock market after the 1000 point crash from yesterday, but we didn’t get enough fear from buyers to swoop in and snatch up gold and silver. Everything is looking weak everywhere right now which is a sign of a deflationary episode taking hold. Naturally I would prefer the market to wait for this to occur, but one cannot ignore price action as 92 year old Richard Russell, writer of Dow Theory Letters has told me over and over for 13 years.
The dollar moved up nicely higher today and then gave a bunch of it back at the end of the day. This hurt mining stocks more than it did gold, but the dollar and gold haven’t been on the same page of late. They will soon enough.
The 10 year treasury fell and then also rebounded end of day driving rates down .06 from the high of 2.14.
Are we ready for a bounce in gold? Could be. If the dollar continues to fall I would think gold will have to move higher. But it will still be part of this dead cat bounce I described a few days ago. We’re definitely NOT off to the races with gold.
One of my indicators I don’t talk about much is inquiries from reporters/journalists who try to reach out to experts on various subjects like precious metals, and help write their story. I have not received but one inquiry from a service I follow all year long and that person never wrote the story (probably because I sent them my reasoning why gold would fall and he agreed with it!).
I do have a lot of people waiting for my all in article and I don’t plan on letting them down. Because we do have supply constraints with many products right now, I am making recommendations to dollar cost average into a position and buy some metals now if you haven’t bought and if you have or haven’t bought and are waiting on my call to go all in, I can’t blame you for waiting. The deflationary credit contraction I have been writing about since 2010 is in full force and it is taking all commodities down with it. Your patience will be rewarded.
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.