Gold and Silver Prices fell sharply below a three month low while Stock Markets rose. Signs that US lawmakers may be closer to a budget deal boosted Equity Markets and reduced demand for Gold and Silver as an alternative & safe asset. The prospect of a sweeping budget deal takes some of the crisis demand out of Gold. Gold Market traders & investors have been denying all logic lately. The sell off in Gold and Silver (pricing-in the Fiscal Cliff) occurred right about the time that U.S. House Speaker Boehner mentioned a “Plan B” on the Fiscal Cliff negotiations. Virtually everything which is happening in the global economy suggests that the Gold Prices should be rising – and probably rising fast, yet Gold has been unable to move out of a trading range of between around $1680 and $1750, and every time it nears the top of this range it gets knocked back again. The need for a Safe Haven hedge seems to have vanished as markets get optimistic as a deal on the Fiscal Cliff seems close by & also based on the recent addition to the QE by the US Fed combined with positive news from Eurozone, China & Japan. The recent spate of mildly positive economic reports has added to the short sightedness of the markets, which have turned towards riskier assets like stocks and high-beta currencies in anticipation of an Escalating Economy, abandoning the Precious Metals in bargain. A rise in US home-builder confidence, progress in negotiations to avert the Fiscal Cliff and a credit-rating upgrade for Greece has reduced Gold’s safe-haven appeal for the moment. Magically a data report also showed that the U.S. current-account deficit fell sharply to reach its lowest level in nearly two years. Base Metals have not moved down through the sharp declines in Silver & Gold Prices, though their upsides have remained limited. Traders are back into Equity Markets for gains expecting a recovery in the economy & so no need for safe haven hedges. Hedge funds have been focused on Gold of late & have completely avoided Copper & other Base Metals till now. With the illusion of an improvising Economy, money will start flowing into these segments soon & inflate Base Metals Prices. With Stock Market moving higher, consumer confidence would rise also & that in turn will make the consumer take on new debt. Also, businesses love a stock market moving higher as it also inflates the price of their shares after inflating the prices of their products or services. The Market seems to be entering in a Risk On mode – The first sign of Inflation rises being very close by, & with the kind of massive money printing that has been seen lately, I would expect a Hyper – Inflation to hit us very soon. That would make traders again turn to Gold and Silver. The Precious Metal Markets will stabilize sooner rather than later. In the meantime, Gold may see volumes & open position drops. Silver would remain relatively less affected. The Fiscal Cliff issue has been a bearish drag on many markets for quite some time now, especially the Commodity Markets. It would not surprise me if Commodity Markets suddenly reverse their path & swing up after the final announcement of a Budget deal. Eurozone matters have remained relatively silent since finance ministers there reached an emergency loan agreement for Greece, and since Spanish banks requested a bailout.
Gold is such a thinly-traded market right now that big ticket sellers have the ability to push the market around further than it actually should, though they cannot hold markets hostage for long. No one is that Big enough to continue this for a prolonged period in a Global Market. It is common for Big size Market Players (Manipulators) to pull down the market in thin, low-volume conditions so they can have as big of a desired price impact as possible when they execute their bigger trades. Unfortunately, this may continue to happen till the year end as most Gold Investors & traders take a break for the holiday. Such activity is not exclusive to the Gold and Silver markets. It happens in nearly all traded markets, & always will. Technically speaking, Gold Futures can easily slip to $1603 on a close below $1675 & Silver close to $29 on a close below $32 (alerted earlier also), but there will be a huge amount of bottom fishing then making the recovery seem almost vertical.
Economic growth is so anemic that the Fed will be conjuring the sum of $1.02 Trillion into existence over the course of the next year in order to buy mortgage backed securities and US Treasury obligations with the sole purpose of keeping interest rates ultra low so as to encourage additional debt. Yet everything is okay now because Obama and John Boehner are talking and moving closer? The US Economy is on track to have a national debt of over $20 Trillion by the end of the next 4 years and many more trillions in unfunded liabilities. Market algorithms respond to short term signals. Very little to almost none of the strategies are now given due thought & analysis. These are done by machines now by computer algorithms and those things will either buy or sell based on the short term signals that they get. The breakdown in the bond market has sent the price moving down towards the bottom of a 5 month or so trading range. The US Federal Reserve is deliberately pushing rates lower to not only spur more consumer spending but also to keep the US government’s borrowing costs obscenely low.
Just because the future you expect and have prepared for hasn’t yet materialized, don’t think it won’t. The very structure of the world’s financial system has been fractured beyond repair, as have the foundations of the largest economies. The only thing holding it together is the fiat-currency system that was behind the fracturing in the first place and that is now being taken to an extreme and extraordinary level in an attempt to keep the whole shebang from literally collapsing. – David Galland, Casey Research – Read more on, The Gold/Silver Hit Is A Trap.
I read something interesting on Gold Manipulation that caught my eye. Though I do not completely agree to the argument, I find it fascinating as a line of thought. Here is a portion of the same.
“Indeed given the amount of paper gold futures that have been sold, those doing the selling must be wondering how long they can keep this up given they have only managed to knock the price back a few percent. The volume trades, seemingly designed to drive the price down below various stop loss positions and thus make the falls self perpetuating in these days of computer-driven trading, are patently only succeeding to take the price down to another point where perhaps an even bigger position holder is buying. The finger tends to point at China in this respect given a number of statements from various senior officials suggesting that a) China needs to increase its reserve holdings b) that it is buying on dips and c) that it needs to keep the population happy and has been in the persuasion business of telling its rapidly growing middle classes that gold and silver are great assets in which to invest.. This should all be a positive sign for gold’s future advance – it just depends how long the heavy paper gold sellers can keep up their fight to drive the gold price down, and their motives. Could be they are pushing the price down to buy back at lower levels, let the price rise, sell at a profit and start the procedure all over again, although others, notably GATA and its followers ascribe more sinister motives to the manipulation – for manipulation it surely is.” – mineweb.com
“Fiscal Cliff” deal closer, but gaps remain – Reuters
What a new inflation measure would mean for your wallet – President Obama put a new offer on the table in the fiscal cliff negotiations, and it includes a wonky change that may raise your taxes and reduce your Social Security benefits … a little. –CNN Money.
Boehner proposes short-term tax fix; Democrats say no – CNN
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