Gold, silver under pressure in a broken market
Precious metals and related mining stocks are getting hammered.
Market shenanigans continued Tuesday, with various asset classes going vertical in different directions as the fiscal cliff negotiations in Washington seemed to hit an impasse. The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see.
Many of the moves are contradictory. The dollar is lower, which suggests inflation. So are Treasury bonds. But copper is moving lower, suggesting slower economic growth. And gold and silver are being hammered, something that is typically accompanied by lower inflation and a stronger dollar.
I think the drawdown in gold and silver represents the best opportunities for profit in this volatile market environment.
For one, both gold and silver are knocking out major technical support. The SPDR Gold Trust (GLD) is dropping out of a two-month flag pattern and is now testing its 200-day moving average for the first time since March. Gold-mining stocks are also very weak, with the Market Vectors Gold Miners (GDX) threatening to drop out of its consolidation range -- a move that would put its summertime lows back in play.
The catalyst for all this appears to be a realization that cheap money stimulus out of the Federal Reserve just isn't an effective salve for the economy anymore. The credit channel remains too constrained. And with the Fed committing to pulling back if the inflation rate moves over 2.5%, they are starting to remove the specter of hyperinflation -- one of the primary motivators of gold and silver investors.
This is all happening in the context of very bullish sentiment towards precious metals -- suggesting a violent decline will be needed to restore equilibrium before prices can move higher again.
There's a lot of opportunity out there for nimble traders to snag some profits in this area. I'm adding new short positions against New Gold (NGD) and Pan American Silver (PAAS) to my Edge Letter Sample Portfolio. I don't know how long the drawdown will last. But it's strong enough that I want to trade it.
Disclosure: Anthony has recommended NGD short and PAAS short to his clients.
Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
It will take some time for the market to figure out that the resolution for the Fiscal Cliff is just more kicking the can down the highway.
Expect Obama to continue killing jobs through Obamacare and raising taxes on everybody, not just the rich. Taxing the rich is just a pretense for raising taxes on everybody.
Anthony believes the Fed is committed to keeping inflation under 2.5%. Why not? Tis the season for believing in Santa Claus. Anthony hasn't yet figured out when politicians are lying. Hint: It's when their lips are moving.
Expect the decline in precious metals to be brief, just a short time until the market figures out the truth.
How, please inform us, is the Fed going to rein in the inevitable inflation without raising interest rates which will send the interest payments on the federal debt out of sight? A few trillion more and its going to get ugly.
I know the article is directed to short term trading, but I am fearful of what's down the road.
It seems to me that our wonderful ruling class would rather take away from those who EARNED
social security and medicare than restrict the dependency classes who have NEVER done anything but parasitize the country, but are a stable source of votes. The rest of the people(ex workers) think and are therefore an unstable source of votes.
"... The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see. ... "
Does it imply that if retail investors (you and me) were participating in equities, then the "trading algorithms" (wall street and financial specialists) would be feeding on them (us) ? ... like a pack of wolves maybe.
The true ugliness is here indeed.
This is not going to inspire confidence for retail investors to join the party. Instead, it will reinforce the feeling that the system is rigged against them.
We need to quit the scare tactics currently championed by the "Fiscal Cliff" talk. Letting the automatic features of the tax law and the automatic spending cuts that will happen is probably what we need to get us back on the road to fiscal sanity. Revenues that match spending. I'm a card carrying Republican, but I long for the days of the Clinton administration where taxation no only matched spending it exceeded it to a point we all most eliminated the national debt. Its time we as a nation bite the bullet and let the fiscal cliff take over.
Dr. Doug Connell
Business Chair at a local university in Ft. Myers, FL
Let's see: Gold drops but the Dow goes up ? Could it be that Christmas is in just 6 day's and we might need a little 'pocket change' for our making merry? Oh- don't forget the buying opportunity that now exist to maintain your positions. Gold is still a great hedge to protect yourself from the uncertainty in today's economy but you only benefit when you convert it to cash !
Is that crazy Akimoto back ? I've got my Christmas song out about him (all his personalities) ! We'll be sharing it later with you. (Don't laugh V L- I've got one for you too !)
"The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see."
I predicted the entire market would come to this state of affairs three years ago. But, contrary to my thinking then, watching hedge funds and day traders play with themselves isn’t nearly as funny as I thought it would be.
"I think the drawdown in gold and silver represents the best opportunities for profit in this volatile market environment."
In spite of my past criticisms of some articles by Anthony, I do like it when I agree with him. I like it even better when I already did yesterday what he is recommending today.
Boehner's plan 'B' is now rejected by the white house. You might want to reconsider keeping your gold investments for 2013; But if you have faith in our government to have a 'deal' done, go ahead and cash in.
Robin1620: I like all shapes and sizes; especially the ones in the GOOD electronics & Ferrari's (That one's on my 'wish' list).
Right now the best investment is guns, not gold, after the sad and pathetic massacre in Sandy Hook, will lead to stricter gun control,, it will not stop till every law abiding citizenship will be stripped of their guns and a tyranny government rules that leaves us defenseless
The second amendment provided us protection from enemies outside the USA and within government against the people that they represent, with in the USA.
The second amendment wasn't for hunting rights. But against government that is corrupt and not for the people!
We should have not gotten off of the gold standard, that measures all currencies! All dept to foreign countries was paid by gold. Printing more money only leads to inflation and every country can do this. With gold as a standard, it took care of more printing of fiat money!
Gold can tell a Nation what there currency is worth.
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