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Happy Days Again?

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Gold moved up today, taking back a decent chunk of yesterday's decline, mostly on what traders saw as bargain-basement prices and a slightly softer dollar.The trade seems to have been - at least as the day began - to sell dollars and buy gold or silver.Now that the December FOMC meeting is behind us and the tapering executed on QE3 is modest, we can get back to looking at other statistics and currents and hopefully return to a more normal market in precious metals.

The big news today is that the U.S. economy grew at an annual rate of 4.1% in the third quarter. That is an enormous leap for a highly-developed economy and was half of a percentage point over estimates in forecasts. Moreover, it was also almost 1.5% over the the growth rate in the second quarter.

In understandable terms, it means that, if that rate continues, which it most likely won't, the U.S. economy as reflected in GDP will grow by about $640 billion dollars in such a 12-month period. By comparison, the Chinese economy, which that government says is growing by about 7% per year, would add $560 billion in GDP.

This spike in growth is important to precious metals bull traders because that kind of speed in expansion would definitely portend inflation and in the not too distant future.

Trade is thinning out significantly as we approach the Christmas holiday in the U.S. and other westernized countries. So, sharper moves on the backs of fewer traders can be anticipated.

"There are so many bears out there," said Bob Haberkorn, commodities broker with RJO Futures. "After the big fall, you're going to get a bounce heading into the new year" as some investors who bet on lower prices cash out, Haberkorn said.

One reaction to the fall of gold below $1200 earlier today was bigger momentum in physical sales in Asia. China, Singapore, Japan, and Korea saw modest surges.

The third-quarter number for GDP was revised upward by half a percentage point, compared with the Commerce Department's prior estimate. The reason was essentially strength in underlying consumer demand. (The large contribution from inventories didn't change from one quarterly estimate of GDP to the next, an important point.)

Health care was the big factor behind the consumer-spending adjustment for the third quarter, Doug Handler, chief US economist at IHS Global Insight in Lexington, MA, said Friday. But he points to other recent indicators that show broader consumer momentum.

"With October and November's solid retail sales data, we can confirm the consumer's newly expanded role in the economy," Handler added.

Most interesting in the statement out of Lexington is that there have actually been curbs on health care spending. They may not be universal, but the evidence is beginning to mount that the Affordable Care Act, for all its initial fits and starts, is having a positive impact on the American economy.

It makes sense. If the AFA is saving $10 billion per month thus far, and most of those who are saving because of it are of modest means, you can be reasonably assured that the extra money is being spent on consumer goods and services.

That is good for higher gold and silver because more money chasing goods will instigate inflation, which is the one macro hope that the precious complex is standing on right now.

As always, wishing you good trading,

Gary S. Wagner - Executive Producer