Overnight we saw some serious pushing of the metals down in Asia where we saw big money taking advantage of the result of the Swiss vote telling the world how they want their central bank to operate by rejecting gold as a reserve. But this smack down was short lived as both gold and silver rebounded quickly before anyone in Europe could get their trades in. The U.S. physical metals market is not even open yet to react to the carnage that took place.
Of course CNBC jumped on this negative news from Switzerland with an article; Why Gold Can’t Win where they said;
But while the outcome was well expected, gold still swooned Monday, dropping as low as around $1,141 in Asian trade Monday for an around 3 percent decline, a far cry from the more than $1,900 an ounce peak set in September 2011.
It’s easy to pick on an asset that has been beaten down the past few years. It was easy to do to the stock market in 2007 and 2008 when it was crashing. But the stock market rose and gold will too again. One simple reason is debt never goes down. This is how our government works. One has to understand the game can last longer than most think it can, but at some point, and that point is when interest rates rise and money velocity picks up, the piper will have to be paid.
Pre-market trading has begun with the miners, despite gold and silver’s smack down are all up. JNUG is up 7%, NUGT up 3.67% and GDXJ up 2.04% with GDX up 1.34%. JDST is down 2.56%.
One can look for higher highs to trade any of these. It may be a whipsaw day or just a choppy day as traders return from a long weekend.
The play of the day might be to cost average into UGAZ which is trading pre-market at 11.42 down 15.03%. It’s 52 week low is 10.02. It was just at 18.24 Nov. 20th. Can it fall below 10.02? Sure, anything is possible. But I like it as a longer term swing at this point. As with any 3x ETF, don’t go crazy with it by buying a ton of shares.
The miners might set us up for a good trade again, but today’s a tough one to go either way. Just look for market makers to take you to profit by following what they do. Higher highs are a good risk versus reward trade.
Those buying physical gold and silver can still buy at cheap discounted prices. If you haven’t bought any, buy. If you have bought some and have more room in your portfolio to allocate more, then keep dollar cost averaging into a position.
I don’t know if we have hit bottom in gold or not. My indicators say we haven’t. I still see deflation everywhere. Manufacturing growth in China slowed in November. Germany’s inflation is at a 5 year low. The dollar is still in an uptrend. The 10 year Treasury is lower than when I talked about it before yielding just 2.18%. Money velocity is at a stand still in the U.S. The stock market in the U.S. is still breaking records. The Swiss vote shows that Central Banks still have power. Remember, the Swiss want to weaken their currency, not strengthen it. To back it with gold would have strengthened it.
The Swiss already have the world’s highest amount of gold per capita. They have put a cap on the franc versus the Euro to keep the franc weaker so they can become more competitive with exports. This is a nice problem to have, is it now? Weakening your currency because it’s too strong? Adding gold to it was rejected because the SNB would have less leeway in doing this. If it passed, then the SNB would have had to possibly do the following; “the SNB would’ve found itself reinforcing its cap with a negative interest rate on the cash-like deposits commercial banks keep with the central bank, making good on its threat to take further steps ‘‘immediately” if necessary.”
On the other end of the spectrum is Japan trying to depreciate their currency to stimulate export growth and keep their economy growing. This is out of desperation, not because of demand for the currency. The U.,S. dollar is viewed the world over as the last bastion of safety (large economy wise) and U.S. treasuries paying out such a small amount shows investors would rather own U.S. paper because of perceived stability here rather than their own country’s paper. You have to see a crack in this perception and a little fear I believe, along with some of those indicators I mentioned and others I follow for gold to take off. I just don’t think we’re there yet.
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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