Watch The Bouncing VIX As Gold And Silver Fly High

Most of us don’t ask many questions when our investments catapult upward, but it behooves us to do so today because the down ticking in equities is fast becoming a route.

In fact, stocks may be on the verge of a correction and that will generate more good news in precious metals. Here is the good news for those who are invested in gold and silver right now.

At 3PM in New York, gold is up 2.00% and silver has risen about 1.60%. That put gold at a 15-month high. It also means that gold has gained 5.50% in the last 30 days and 9.00% over the last year.

A weaker dollar accounted for more than 1/3rd of gold’s rise and for almost half of silver’s. (More on the dollar below.)

The rise in precious metals is in reaction, of course, to the damage being inflicted upon equities at the moment. There is not one specific reason for the declines seen across the stocks in all regions. Rather stocks re-experiencing the proverbial “death by a thousand cuts.”

In spite of the fact that Amazon and LinkedIn showed breathtakingly fabulous growth in earnings, Apple’s stumble (and fear of long-term problems in China) is pulling down the tech sector. Chevron had a terrible earnings quarter but Exxon Mobil did very well. Yet energy is more volatile than we’ve seen it for some time.

Speaking of oil, West Texas Intermediate is up marginally today while Brent North Sea crude unchanged. WTI has shown a 20% gain on the month, stellar by any measure.

In another safe haven area, currencies, the U.S. dollar experienced its worst declines against the yen since 2008. This is no small feat against a currency whose central bank is maintaining zero-level interest rates. The buck is also falling against the euro.

The interest in the yen as a safe haven is strong. The dollar, however, is being pushed down by a variety of causes. Many regimes that are teetering on the brink of disaster are “selling” dollars, mainly by using them – under pressure – to pay for goods with the hardest of hard currencies. This includes some large economies like India and Russia as well as the usual undeveloped nations and countries like Venezuela and Ecuador.

Although rarely mentioned, the U.S. is still experiencing the effects of the asset purchase program that saw trillions in bad debt bought up by the Federal Reserve. We wouldn’t ascribe too much of it to current dips in economic data. The U.S. is still the strongest of the major economies, although the EU is coming on again, a good thing all around.

The yield on the U.S. 10-year bond fell, another indication that risk sentiment is markedly off.

The best indicator of volatility, the VIX, which had been steadily declining, rose to a seven-week high before retreating a bit in late trading. It is up about 9.00% on the session, a perfect mirror to the high degree of interest in precious metals and the yen.

Next week we will have a raft of U.S. economic data come in on the new-month tide. Nonfarm payrolls will be reported on Friday. Two surveys from the Institute for Supply Management are also upon us. The ISM manufacturing survey is due out Monday and the service-sector report will be issued on Wednesday. The ADP private-sector jobs report will come out Wednesday and weekly jobless claims Thursday. 

Good U.S. economic news strengthens the dollar although we are still in the mode of thinking that gold and silver have become quasi-independent of their traditional roles and are being looked upon simply as good, strong, long-term investments.

Wishing you as always, good trading,