Rising Into The Weekend

This week has brought us some very interesting fundamental input that's influencing precious metals prices.

But, we want to start with one of our favorite mantras: sometimes technical forces become so strong that they function as a fundamental mover of the markets in and of themselves. There will be more about technical movement in other places in this email, in today's video and on our website.

One steady factor right now is the conflict between the Gazan Palestinians and Israel.

However, that takes a backseat to the ongoing absorbing of the Fed's statements about keeping interest rates low for a healthy period of time. Like many Federal Reserve Boards before them, Yellen's posse does not want a recurrence of a recession on their watch.

Some months ago we said flatly, in the face of conventional wisdom, that tapering of bond buying under QE3 would be beneficial to precious metals bulls. This has obviously proven to be the case thus far. The reason is that, as cited in the paragraph above, with the wind-down of QE3, the Fed embarks on uncharted waters. The way to more or less guarantee a cushioned landing from quantitative easing is to hold down those interest rates.

Precious traders can also look to a worsening case of the jitters in equities, a positive influence for metal bulls. This is not to say the stock bull market is ending, but it will be increasingly constrained by high earnings expectations. Those strong earnings may be provided by late-cycle equities. Late cyclers usually are sectors that respond to manufacturing expansion. Such stocks would include materials providers, commodities, steel and other finished metal products, rubbers and plastics and so forth.

But, many of the companies in the sectors mentioned have smaller margins and, except in extreme circumstances, are less volatile than, say, retail and automotive.

While we don't pose ourselves as stock analysts, we feel confident in saying that some other areas that have shown growth in equities - airlines, hotels, dining - may have already peaked and could decline because a) consumers have done their splurging and b) if they haven't, capacity, especially on planes, will not be able to expand quickly enough.

Another interlocking part that should be watched against gold and silver is oil. Crude has lost nearly $7.00 since its peak when the fighting was furious among factions in Iraq. It spiked mildly on July 10th but then headed down again. Oil fell $2.20 per barrel today. That should tell you how seriously the oil traders are taking the battle in Israel and Gaza.

Finally as we head into the weekend, we should note that bond yields fell again in a sign that bonds as a haven investment is continuing to lose out to gold and silver.

As always, wishing you good trading,