Did Yesterday’s Sell-Off Signal a Shift in Market Sentiment?

The questions market participants who follow and trade gold should be asking after yesterday’s dynamic selloff is whether or not this price decline was the beginning of a correction? A small dip to be followed by consolidation? Or a one and Done?

To answer that question we have to understand the nature and underlying environment that existed when gold, silver, platinum, and palladium lost ground in trading yesterday.

The first question we need to answer is what fundamental factors were evident that can be cited as an underlying trigger for the selloff. The second question we need to ask is was yesterday’s price decline mostly based on fundamental events or was a completely technical in nature.

As to what fundamental factors were different yesterday, most analysts have cited the release of January’s FOMC meeting minutes by the Federal Reserve that initiated the selling pressure.

And If you believe that these minutes revealed information that was not disclosed, or that this new information could have a profound impact as to whether or not the federal reserve would stay the course that it is previously on, then you can assume that yesterday’s selloff could be the beginning of a correction.

However, if you believe that the information disclosed yesterday was simply a slight modification of the Federal Reserve’s current monetary policy then you could correctly assume that any more downside pressure based upon those minutes will be short-lived.

Based upon the quick recovery of the precious metals today. It is my belief yesterday’s lower pricing was no more than a brisk round of profit-taking based upon an overbought market and traders that were ripe with profits wanting to take them.

More importantly the fundamental factors that have been guiding gold prices higher recently are still absolutely evident in the market and have not evolved to their full potential.

The current trade negotiations between the United States and China seem to be coming to a resolution of sorts. Should that come to pass it is widely believed that that will have a detrimental effect on the U.S. dollar and thereby be an extremely bullish factor for gold.

Secondly, although it is not currently on the radar screen of many traders this current administration has added roughly $2 trillion to our national debt since his term began two years ago, and has resulted in a budget deficit that has swelled to $22 trillion.

 Add to this the fact that the collective global debt has also been rising. With many countries fueling their recovery using the same techniques as the Federal Reserve’s Q.E, in other words flooding their countries with worthless fiat currencies. As it stands now the global debt has swelled to $244 trillion.

The scary part of that fact is that this level of debt is roughly 3 times the size of the collective global income that, as reported by the Institute of international finance, and reported in MarketWatch today.

The truth of the matter is that if individuals ran their household financial budgets in the same way the countries do, they would end up broken and penniless. The only difference is that sovereign nations can continue to print more money and stretch the timeline before they have to pay the piper.

Wishing you as always, good trading,