Industrial-Strength Growth

September 2, 2014 - 4:52pm

 by Gary Wagner

Never mind the Russian tanks in Ukraine and the idle threats against NATA by the resurgent Russians. Never mind ISIS, beheadings, Somalia military actions, the deflation of Europe, the teetering of Venezuela.

Never mind nuttin' else. Here's why gold and silver dropped like rock in the ocean today.

Manufacturing expanded in August at the fastest pace in three years as factory orders expanded by the most in a decade, showing U.S. factories will help power the economy into Q3.

The ISM (Institute for Supply Management) index unexpectedly climbed to 59, the highest level since March 2011, from July's 57.1, the Arizona-based group reported today. (Readings greater than 50 indicate growth.) The median forecast in the Bloomberg survey of economists was 57, so the number 59 was a thrill.

This naturally translates into many different areas of the economy. It drives the dollar up. It drives the price of U.S. treasury issues down but pushes the yield up.

It makes investors want to bet more heavily on a rise in Fed interest rates.

In news unrelated to the financial machinations, the political unrest, and the manufacturing surge, the price of crude tumbled nearly $3 a barrel. Demand is very light and as the U.S. keeps ramping up its domestic supply, foreign countries are now competing with the world's biggest consumer of energy.

Further ramifications for precious metals can be found in the rise of the manufacturing gauge.

People who feel secure in their jobs are generally more willing to make big purchases like automobiles. Cars and light trucks sold at a 16.4 million pace in July, a very slight slowdown from 16.9 million in June that was the fastest rate since mid-2006, but still very brisk.

Gains in business investment may help make up for some of the shortfall among light spending by individuals. New orders for durable goods soared 22.6 percent in July after a revised 2.7 percent gain in June that was bigger than previously estimated, according to Commerce Department data released last week.

The surge was driven by demand for aircraft, although bookings for motor vehicles and parts also climbed. Revised data for June reflected improving demand for a broad array of items, including computers, electrical equipment and machinery.

So what the heck are consumers doing with their money? The St. Louis fed says we're hoarding it.

Banks have put away close to $2.8 trillion in reserves, and households are sitting on $2.15 trillion in savings-about a 50 percent increase over the past five years.

Remember about ten years ago when experts were fretting about the savings levels of Americans? Hmmm... well, as the saying goes, "Damned if you do and damned if you don't."

As always, wishing you good trading,
 

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

We were stopped out of our long positions in both gold and silver today.
Long gold at 1290, out at 1272 -$18.00
Long silver at 19.57, out at 19.27 -.30

Gold Market Forecast

According to Bloomberg news, today's dramatic drop in gold prices can be attributed to U.S. manufacturing's expanding at the fastest pace in three years.

However, this news was absent as gold traded substantially lower in Australia, Hong Kong and London in overnight trading last night. As far as I'm concerned it is all about the dollar and the tremendous strength that we have witnessed in the greenback.

Over the last few weeks we have been speaking about a dynamic compression in range with a series of higher lows and lower highs. It was our belief that as we hit the apex of that triangle we would see a dramatic breakout. We also believed that the breakout would be to the upside. There is no doubt we did get a breakout; there is also no doubt that the breakout was to the downside and we were incorrect in our trade assumptions.

That being said, what kind of real long-term damage have we seen in the charts with this most recent decline, and where are gold and silver prices headed from here, are the important questions. We will look at those fundamental questions on today's report and dig deeply into the charts this afternoon and evening to ascertain as best we can the answers.