Mar. 19, 2015 4:52 AM ET
Summary
- What does the economic data tell us? Does the market care?
- The Fed nonsense about a rate hike. Or will they raise rates to save face?
- Gold and silver will decline again after this run up.
Data is dead, all hail the Fed!
It just so happens I have spent the last month accumulating data, both good and bad, in deciphering for myself what is really going on in the economy. It is so much data I had to create a separate area where it can be posted, and you can find the link to the data by clicking here: What Does this Economic Data Tell Us?
As you can see from the data it is mostly negative. But how does the Fed view this data? We actually heard Janet Yellen say the Fed won't raise rates in April, but could shortly thereafter. I wrote recently that the Fed isn't thinking about raising rates any time soon, but may do so just to save credibility.
This is the "talk the talk" I speak about. Yellen followed up her comment about raising interest rates with; "depending on how the economy evolves." HELLO? Why do people believe what comes out of the Fed? Do they not have a clue or is the Fed really good at keeping the truth from us with neuro-linguistic presuppositions?
The Fed talks about when they will raise rates (strong economy), but the economy has "moderated" (weak economy) and they have lowered their growth forecasts (weak economy) and are still battling deflation (weak economy).
The dollar took a hit today falling to 97.68 as I type, and gold rose from a low of $1,144.90 to a high of $1,175.80 and is presently sitting at $1,167.90. Silver fared a little better going from $15.36 at its low to a high of $16.20 and is sitting at $15.99 presently. Oil also shot up and natural gas had a 4% plus lift too.
You could have played almost any ETF long in the following list and scalped something from it AFTER the announcement. We got a spike up quickly, but the trend was already moving higher.
Whether or not something was leaked is uncertain, but a good trader would have noticed this trend pre-announcement. And a good trader could have also waited for the Fed decision and still do well (that's what I did).
Have we bottomed in gold and silver and we're now off to the races? Not even close. We may get a continuation higher, but let the market dictate to you how to play it. We have already seen on Wednesday an after-hours reversal in almost all of the above ETFs. Just raise your stops if you are long.
Deja Vu for Gold and Silver
We've been through this before. The Fed needs to see inflation and they aren't. It's deflation they are fighting. Interest rates are below 2% again. Money Velocity is at a standstill. More QE is a possibility and dare I say a necessity at some point. They can't let Draghi and the ECB have all the fun. You know I have been bullish on the stock market, and today was a nice move again with some indices breaking to higher highs. Gold and silver will have their fun for a bit and then pull back once again.
Making Sense of the Falling Price of Gold
When you analyze the data and see how bad things are, can you really justify investing in the stock market? The technical analyst or the value investor would typically stay away from the stock market after reading that kind of data. But price action trumps everything. It took me awhile to learn this valuable lesson. The price moving higher is all that matters. The data means nothing. Perhaps at one point in the past data or valuations of companies meant something, but today they don't. They will at some point, but only when the data becomes relevant again and the Fed is ignored.
So it is with gold and silver. Every country in the world is devaluing their currency and if the citizens of these countries were smart they would be buying gold and hedging/insuring their purchasing power. Even those here in the U.S. haven't been hurt too badly by the falling price of gold since 2011.
When oil was $114.33 a barrel in April of 2011, gold was $1,473 an ounce and could buy you 12.88 barrels. When oil was $91.74 in August of 2011, gold was $1,895 and could buy you 20.65 barrels.
Today oil is 44.84 a barrel and gold is $1,160 an ounce and can buy you 25.86 barrels of oil. Gold's purchasing power, at least for oil (and I could do this with many other commodities of late like wheat, corn, natural gas, copper, etc.), hasn't been too bad. I do realize it's not all black and white too.
Of course anything with our government involvement simply moves higher in price; health care, college tuition, postage, salaries of government employees, Washington D.C. real estate. You get the picture. This is NOT inflation but rather govflation.
All in all, gold and silver have a place in your portfolio and no matter how the market views the data today; the cream rises to the top. Always has and always will. This isn't 1980 when Volcker can come in and raise rates to help the system. Raising rates will kill the system, especially when the data is what it is. The Fed knows this. They won't raise rates any time soon but they may do a token raise to maintain some sort of credibility.
Buying gold and silver through dollar cost averaging in on dips is the way to play this precious metals market. This can be done through ETFs like and/or through purchasing physical gold and silver. We only have a few more dips and this decline will be over. I'd like to see the psychological barrier of $1,000 broken for gold and watch all the journalists (and that's all they really are) at CNBC cheering a new high in the DOW and the end of the gold bull run. I'll be sure to videotape their comments just like I did when they were confused about the entire run up in gold price before 2011.
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