The Dow, S&P and NASDAQ are all up healthily today.
The monetary conditions that are creating the boom in equities is, as we go deeper into quantitative easing is turning out now to be bad for gold and silver. The effect has operated on two curves, gold on one and equities on another.
When the economy was still sputtering but cheap and easy money was entering the big financial institutions, gold benefited because traders and investors were very, very wary of the stock markets.
That lured them into investing in gold. And gold (and silver) rose on that impetus. That changed, of course.
Eventually, people regained faith in the stock market and money began migrating back to it and the markets are still moving up on the momentum created by positive sentiment. Likewise, the money moved away from the precious metals markets as the need for safety even with the added benefit of good, solid profits evaporated.
And here we are today. Although it sounds like heresy, it may be time we started rooting for QE3 to endure its tapering. When it first happens, there will be a serious impact on gold prices. But, equities will be harder hit as time goes on. The cheap and easy money - in the hands of large financial institutions will no longer be lent to high-level investors who then buy stocks with it.
The dominoes have fallen and we must start looking for the reverse: dominoes standing back up on end. Imagine playing backwards one of those videos where an elaborate domino chain is set off so they all fall down.
The borrowing that fuels equities will slow and a haven will be sought. The money might be spread among Treasury bonds, which will surely rise, oil or other kinds of bonds, like municipals. The tapering of QE will surely push interest rates up, and thus push the dollar up. The last is the only feature that may help curtail precious prices should this scenario unfold.
There was a very interesting discussion of this in the November 24th edition of USA Today. It said in part:
"Since late 2008, the S&P 500 stock index has rallied every time the Fed announced a new asset purchase program, says Bespoke Investment Group. The benchmark index has risen in excess of 20% during QE1, QE2, Operation Twist and QE3.
"But the only two times the Fed hasn't been in the market buying bonds, the S&P 500 fell 9% and 14.5%, respectively, Bespoke says. In May, the first hint of tapering caused a "Taper Tantrum" and 5.8% drop."
The flip side of the scenario is that when the Fed tapers, it will signal a strong economy and doubters' money will finally go into equities.
Either way, more risk will enter the equities markets and in the long view, that should be good for gold.
As always, wishing you good trading,
Gary S. Wagner- Executive Producer
Over the last few weeks we have seen a rapid decline in both gold and silver pricing. This reflects our current market Outlook and forecast models which continue to look for lower pricing in both gold and silver. We have defined important support and resistance levels that we need to watch in order to determine our best exit strategy for our current trades. Moments ago I sent out a special trade alert recommending that all subscribers move their stops to the prices mentioned in the proper action section. As we are quickly approaching a holiday weekend and shorten trading hours, I would look for a decrease in volume, which can increase volatility in the market. Currently I’m not looking for any major volatility and today’s video will detail our current areas and projections along with our price targets for current trades
Maintain Gold Short at 1276 stop @ 1294
Maintain Short silver @ 20.47 stop @ 20.90
Click on bull below for current chart gallery
Gary S. Wagner - Executive Producer