Why you need to watch the price of gold with one eye and all the other markets with the other.
Can someone explain to me why the media and government officials stopped talking about the United States debt. At the time of this report, the US Debt is a staggering 19 trillion dollars. That’s $58,000 for each individual in this county. And the Government keeps spending a trillion dollars a year more than it takes in. Is anyone concerned yet, especially with the (I’ll be nice) folks running for president? Is that the best we can do?
Look at these numbers: Every day 10,000 baby boomers are retiring and are expecting to cash in on all the entitlement programs available. One third of them have no savings and will have to rely totally on Social Security. Currently there are 47 million Americans on food stamps. People are living longer. Going forward how can we pay for these entitlements?
In an election year I don t expect you will hear anything about entitlements. For each politician running for office, this topic is suicide and sure to destroy any chance of being elected. So we forget the debt and listen to the presidential candidates trade insults each day. That’s a sure plan for economic disaster.
As a gold trader, I need to understand how all this madness will turn into higher gold prices. I have a lot of theories and will share some of the ones that stick
out in my mind for the short term investment. Let’s look at the landscape now as I see it and have reported in the past.
Gold is virtually locked in a trading range between $1,075 and $1,095. In the last week and a half, buying in the gold ETFs has increased each day. Wall Street gold traders still sitting with short positions believing the Fed governors’ story that more rate hikes are in the cards. I still believe it’s one and done. I see no data to support another rate hike any time soon.
So we have a stalemate.
The longer gold stays in a trading range the more likely it will have a spring effect (or as they say) I expect a short covering rally.
Now let’s look at something I’ve been thinking about for a while. Let’s look at the stock market. Investors are highly leveraged and the volumes are low indicating to me that a sustained rally is out of the cards. Just the opposite I expect will occur. Lower earnings and continued lower oil prices should continue the Dow’s decline.
So here’s my take on the gold market short term. We still see central banks buying gold. Is there something they know that we don’t? I wouldn’t be surprised to see the Fed live up to their promise and raise rates (as some of the Wall Street traders predict) and crush gold only to turn around and buy it cheaper to support our currency. But the downside is, higher rates which will cost us more to finance the country’s debt. So the Fed’s hands are so tied up there is no escape. Look at all the world countries that have now turned sellers of our debt. What does that tell you?
Overall the government is in a sink hole with no rope to save itself. So going forward, I expect a weaker dollar against major currencies and gold to be the investment choice as our government has no alternative but to buy the metal. And eventually the retail investor will catch on, too.
In the meantime, I put my ear to the ground awaiting to hear the roaring rally on the gold train a comin’.
Author Name: Walter Pehowich
Walter Pehowich is the executive vice president of precious metals investment services for Dillon Gage with over 38 years of experience in precious metals investment services. His career began in 1977 at Bache (which evolved to Prudential-Bache Securities and then Jefferies Investment Bank). While at Jefferies, he served as senior vice president with oversight of investment grade precious metal products. Pehowich holds a National Futures Association (NFA) Series 3 license, authorizing him to advise and sell alternative investments in commodities and futures markets.