Commodity Trade Mantra

Bearish Short Term Signs for Gold and Silver on FOMC Outcome

Bearish Signs for Gold and Silver

Bearish Short Term Signs for Gold and Silver on FOMC Outcome

Gold generally benefits from an easy monetary policy as investors fear that rampant cash printing will damage the value of fiat currencies, prompting them to seek safety in hard assets such as Gold Bullion. Gold Prices rose yesterday on bargain hunting, some short covering & on expectations that the US Federal Reserve at its last meeting for 2012, will announce more stimulus measures that would support Gold’s appeal as a hedge against inflation. The news, that Italy’s Prime Minister Mario Monti announced he will resign from office early next year initially pressured the Euro currency and prompted an up tick in Italian and Spanish bond yields. The Euro recovered later in the day. The markets await the result of the FOMC meeting scheduled for Tuesday and Wednesday. With the “Operation Twist” program ending this year end the FOMC members will be deciding whether to extend the bond-buying program. The QE4 in most probability is a done deal. But the focus of the market place remains on the “Fiscal Cliff” tax increases and spending cuts that is fast approaching. The Fiscal Cliff fear will continue to bear heavily on any small positive or bullish market sentiments; though the odds are higher than not that there will be a last-minute agreement among lawmakers to avoid the US going over the Fiscal Cliff. The US Dollar Index may also gain some fresh upside technical momentum.

Gold and Silver may crash after QE4 announcement:

The QE4 (or QE3 Reloaded) which may be a replacement of the “Operation Twist” is not a new addition to debt. The same is currently running since Sep 2011 & was only slated to end this December. Gold had already shot up to its till date Lifetime high of $1925 on 6th Sep 2011 & started a decline. Remember- Gold Prices actually fell after “Operation Twist” was announced. By way of Operation Twist, the Fed sold short-term securities and bought long-term bonds at the pace of $45 billion monthly. The idea was to “Twist” the yield curve to bring down longer-dated securities in an effort to reduce borrowing costs. Operation Twist had little impact on Gold since it essentially was shuffling maturities on its balance sheet, rather than adding to it. So all said & done, there is nothing new to shake the Gold Markets. The Operation Twist program essentially “Sterilized” the purchases by simultaneously buying and selling bonds. The expected new program could be the same & the possibility of it being very different seems low. They are simply building Reserves. The QE4 may in all modesty, give flooring to Gold Prices, but does not have the firepower to over rule the Fiscal Cliff Fear. It could eventually increase the inflation risk if the U.S. economy actually starts to rise because the larger the reserves are, the harder they will be to pull back in. Rising Inflation is always bullish for Gold. The Gold Market may be misguided due to the Fed’s announcement in September that they would do “open-ended” purchases until the U.S. unemployment rate drops. Gold Market traders may traditionally be bracing themselves after the recent dips, for a sharp rise in Gold Prices again after the FOMC meet results are announced. Contrary to market expectations, I expect Gold and Silver prices along with Base Metals to decline sharply. If any choppy & sudden upside movements are seen, they may soon reverse the direction as the Fiscal Cliff factor looms ominously.

Technically, Comex Gold February Futures prices have a strong support at $1675, which if breached may open the flood gates to a massive dip to $1603. Comex Silver too seems to have a moderate support around $32. A close below the same could lead to a crash towards $30 – $29.35 also. I strongly feel that the Gold and Silver markets will decline – A reaction totally opposite to the usual upside trend to any QE announcement seen till date. Gold, followed by Silver, has always shot up after every QE announcement, as an inflation hedge & also on further currency debasement. I expect the Fiscal Cliff fear to have a stronger grip on the markets & the same will over shadow the latest monetary easing efforts by the US Fed. The Gold and Silver markets may see sharp downfalls till Thursday, after which I expect the trend to reverse. Gold and Silver will rise sharply again but I am not looking for it to happen right away & moreover, Gold will need a massive shocker event to help it break its lifetime high of $1925, while Silver may simply glide up anyways. There would soon be some positive announcements or agreements on the Fiscal Cliff issue & Gold and Silver Prices may see sharp rises from Friday, but Silver may gain faster & in larger strides. I expect Silver to outperform Gold in Q1 of 2013. The Fiscal Cliff issue may also get postponed to March 2013, an announcement which may give some relief to the then overly sensitive markets. All Base Metals, especially Copper, may also see some downside corrections. The markets may eventually see large Short Position build up on these large dips on expectations of a trend reversal in Gold after 12 years to bearish. But these notions may soon prove wrong. I would prefer to build up larger positions in Silver than Gold on bottom fishing. Base Metals & Agro commodities will also rise in the Q1 of 2013, triggering large scale Inflation – or rather, I would say – Hyper Inflation. Remember – Gold and Silver have a historical bounce back period in the year following the US Presidential Election. According to the weekly commitment of traders report from CFTC, the current net-long positions in Gold are at the lowest level since mid August, but the net-long position for Silver dropped only slightly.

Fed Likely to Sustain Stimulus Program:

The US Federal Reserve currently buys $40 billion of mortgage-backed securities and $45 billion of Treasury securities a month. Officials highlighted that $85 billion figure in September, and have indicated since that it remained their rough target. The US Economy remains lackluster and millions are yet looking for work. It would be odd for them to disappoint the expectations that they have created themselves. The US Federal Reserve is widely expected to announce on Wednesday that it will continue buying Treasury securities to stimulate growth in the New Year. The Fed’s public declaration in September that it would buy bonds until the outlook for the labor market “improved substantially” has cleared away much of the uncertainty and controversy that usually precedes such announcements. There have been views that the Fed might slightly decrease the total amount of purchases, to $80 billion, or increase the share of mortgage securities. The Fed may decide to drop the sterilization portion of ‘Operation Twist’ and just straight up monetize debt rather than merely shift duration of instruments. The practical factor is the dearth of short term instruments for the Fed to trade. The other factor is that the election is now past, and the ‘restraint’ that the Fed often shows during a Presidential Election is now off the table.

Though there is a serious doubt in the Fed’s ability to improve the situation, it is absolutely clear that the US Federal Reserve is determined to keep trying. The US Federal Reserve has also said that even if Congress and the White House negotiate a compromise, the Fed’s efforts would continue, though the Fed has issued a warning that a failure to avert scheduled tax increases and spending cuts next year would overwhelm their efforts and plunge the economy back into recession. Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta said in a recent speech that, “I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time, even if fiscal cliff issues are properly addressed.” “I am not prepared to say we are remotely close to substantial improvement on the employment front,” he said. To continue the purchases of Treasury securities, the US Federal Reserve will need to change its approach. It is now buying long-term securities with proceeds from the sale of short-term securities, but it is running out of inventory to sell. The most likely alternative is to create money by crediting the accounts of banks that sell bonds to the Fed, the same method now being used to buy mortgage bonds and also to finance earlier rounds of the Federal Reserve’s Quantitative Easing. Charles L. Evans, president of the Federal Reserve Bank of Chicago, said last month that the Fed should declare its intent to keep short-term interest rates near zero until the unemployment rate fell below 6.5%, provided that the rate of inflation did not exceed 2.5%. But, looking back into history, the unemployment rate exceeded 7% in the mid-1980s and again in the early 1990’s, and in both cases the Fed waited until the rate fell well into the 6% range before it began to raise interest rates.

Time for Silver Investment– The better option to Gold:

Silver remained the best investment option this year and will also be for the next year as it almost always rises in tandem with Gold Prices and outperforms over the longer term. It is the Industrial demand growth that will drive the white precious metal as it gives Silver a feature that gold could never possess. 46% of new annual Silver mining and recycled production is consumed every year by industrial demand. This means it is not available for hoarding and investment in the future. However, industrial demand that is consumed and not added to inventories is not the reason Silver Prices have risen dramatically since 2005. The reason is that new investors and net new investment in Silver are affecting the price of the marginal ounce of Silver. Apart from the rising Industrial demand and a tight supply-demand situation that drove Silver Prices higher, the real driver of Silver Prices over the long-term is more than consumption; It is the trend in Silver Investment.

Is the US Economy really getting better?

The gross national debt of the U.S. running from 2001 to present is about $16 trillion. It’s doubled since 2008. During Obama’s term, he’s created more debt than any president before him. Governments around the world are employing the same mechanism to try and kick start their economies and their debasing their currencies. The U.S. dollar has lost 85% of its value in the last 11 years against Gold. The Euro has dropped 78%, the Chinese Renminbi 80% and the British Pound 83% as well during that 11 year period.

Large companies have announced the elimination of more than 100,000 jobs since Barack Obama won the election.  Consumer debt just hit a new record high and the federal government is accumulating debt at a much faster pace than it was at this time last year. How can people in “Places” claim that the U.S.economy is “improving” when it is painfully obvious to anyone that it is shriveling? The percentage of working age Americans with a job today is exactly where it was back in September 2009 in the midst of the last major economic crisis. The U.S. share of global GDP has fallen from 31.8 percent in 2001 to 21.6 percent in 2011 & the number of Americans on food stamps has risen by nearly 50%. The results of the events lined up for 2012 end & the Q1 of 2013 could most probably turn out to be the proverbial “Last Straw that broke the Camel’s Back”.

The following are 15 signs that the economy is rapidly getting worse as we head into 2013.- TheEconomicCollapse

#1 According to numbers that were just released, the number of Americans on food stamps has risen to a new all-time record of 47.71 million.  That is a huge increase of more than 600,000 over the previous reading of 47.10 million.  After about a year of slow growth, it looks like the number of Americans on food stamps is starting to skyrocket once again.  Back in the 1970s, about one out of every 50 Americans was on food stamps.  Today, about one out of every 6.5 Americans is on food stamps.

#2 Youth unemployment in the United States is now at the highest level that we have seen since World War II.

#3 According to Gallup, unemployment in the United States shot up very sharply during the month of November.

#4 It looks like the unemployment numbers are likely to get even worse.  Since the election, dozens of large companies have announced major layoffs.  Overall, large companies have announced the elimination of more than 100,000 jobs since November 6th.

#5 According to the Wall Street Journal, of the 40 biggest publicly traded corporate spenders, half of them plan to reduce capital expenditures over the coming months.

#6 Small business owners all over America are declaring that Obamacare is going to force them to start replacing full-time workers with part-time workers during 2013.

#7 One recent survey discovered that 40 percent of all Americans have $500 or less in savings.

#8 A different recent survey found that 28 percent of all Americans do not have a single penny saved for emergencies.

#9 62 percent of middle class Americans say that they have had to reduce household spending over the past year.

#10 Many Americans are trying to make ends meet for their families by going into more debt.  Consumer borrowing hit another brand new record high in October.  It looks like the American people have not learned from their past mistakes and have decided to roll up consumer debt at a faster pace than ever before.

#11 Median household income in America has fallen for four consecutive years.  Overall, it has declined by over $4000 during that time span.

#12 Wall Street bankers are expecting “the worst bonus season” since 2008.  Not a lot of people are going to shed tears over this one, but this is a sign that there is trouble in the financial world.

#13 Food banks all over America are reporting that more needy families than ever before are showing up to get food.

#14 As I wrote about yesterday, the federal government has run a deficit of $292 billion dollars during the first two months of fiscal 2013.  That figure is $57 billion higher than it was during the same period last year.  Government debt continues to soar wildly out of control and at some point all of that debt is absolutely going to crush us.

#15 I have written previously about how the once great city of Detroit has become a symbol of the downfall of the U.S. economy.  Well, now the state of Michigan is laying the groundwork for a “managed bankruptcy” of Detroit.  Sadly, many other large U.S. cities will likely follow suit over the next couple of years.

We should truly mourn for what is happening to Detroit.  At one time, it was one of the most beautiful cities on earth.  But now it is on the cutting edge of America’s economic decline.  You can see some amazing before and after pictures of an abandoned Detroitschool right here.  Sadly, what is happening toDetroit will soon be happening to the rest of the country.

A similar thing is happening over in Europe.  Greeceis on the cutting edge of Europe’s economic decline, and people over there are becoming very desperate.  The following is an excerpt from a Financial Post article about how the Greek middle class is turning to crime as the depression in that nation gets even worse…

In the once stable neighborhood of Kordelio, the unemployed and drug users gather in the parks, scaring away mothers and children, and crimes like chain snatching are on the rise. Many long-time residents have left, moving abroad or to their families’ villages, leaving behind empty houses, said Evangelia Rombou, 58, who has lived in Kordelio for 22 years.

But it is not just Greecethat is grappling with these kinds of issues.  Now even countries that had been thought to be “stable” are experiencing significant problems.  For example, a massive crime wave has broken out in France.  The crime wave inFrance is being blamed on “austerity”, but the government ofFrance still spends far more than it brings in.

So how bad would things get inFranceif the French government actually did go to a balanced budget?

And how bad would things get in theUnited Statesif the federal government was not stealing more than 100 million dollars an hour from our children and our grandchildren?

Even in the midst of our debt-fueled prosperity we are starting to see glimpses of how desperate people will become when our country is someday forced to live within its means.  For example, the following is from a report about an incident that happened in Columbus, Ohio the other day…

Columbus Police sprayed Mace on several people in a crowd that had gathered to sign up for a list to get subsidized housing at a northwest Columbus apartment complex. Police said the crowd started to gather Friday night for the Saturday morning event at The Heritage apartment complex on Gatewood Road near Sunbury Road in northeast Columbus. Authorities said that its highest number, the crowd reached 2,000 people.

Our entire economy is a giant mirage.  Our prosperity has been purchased by stealing from the future.  A few people have been warning that we have completely destroyed our future in the process, but both major political parties just continue to do it and the mainstream media just continues to cheer them on. At some point this con game will end and this economic mirage will disappear.  When that happens, millions of people all over this country are going to become very angry and very desperate.

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