Gold Prices Drop 3.3% After Fed Minutes Suggest Quantitative Easing Could Cease "Well Before" End of Year

[The Machine]

Gold Prices fell below $1630 per ounce Friday morning in London, their lowest level since last August and 3.3% below where they were 24 hours earlier, while stocks and commodities also fell and the Dollar gained after Federal Reserve minutes appeared to suggest some policymakers see a case for ending quantitative easing this year.

At its policy meeting last month, the Federal Open Market Committee voted to buy $45 billion of US Treasury bonds per month to support the economy, adding to the $40 billion a month of agency mortgage backed security purchases announced in September.

The minutes from that meeting published Thursday however show that some FOMC members "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013".

"The news that some policymakers suggested that the Fed could withdraw QE before the end of year, that put a dent on one of the underpinnings on gold, which is expansionary monetary policy," says Mark Luschini, chief investment strategist at US broker-dealer Janney Montgomery Scott, which managed $15 billion in assets.

"The Fed stimulus program has been a key driver behind gold," agrees Ed Meir, metals analyst at brokerage INTL FCStone.

"Removing such an instrumental prop could impact the precious metal dramatically, especially if it was done in rather heavy doses. However, the market that will reel most is the US Treasury market, although commodity in general should feel a blow-back as well through a stronger dollar and/or weaker equity prices."

Like gold, silver also fell after the FOMC minutes were published, hitting a low of $29.26 an ounce this morning – a daily drop of 5.8% and also its lowest level since August.

Heading into the weekend, gold looked set for a 1.9% weekly drop by Friday lunchtime in London, while silver was down 2.7% on the week.

Broad commodity prices also fell Friday, with oil down more than $1 a barrel on the day, while the US Dollar Index, which measures the strength of the Dollar against other major currencies, touched a six-week high.

Elsewhere in the Fed minutes, the Summary of Economic Projections shows most FOMC members do not expect the Fed will need to raise interest rates until 2015 at the earliest, at which time they forecast the unemployment rate will have fallen to the 6.5% target announced last month.

Later today, the latest US nonfarm payrolls report is due out at 08.30 EST, with the market expecting it to say 150,000 jobs were added to the US economy last month, according to the consensus forecast among analysts. The unemployment rate is expected to hold steady at 7.7%.

Over in Europe, stock markets extended yesterday's losses this morning, giving up more of the gains that followed Tuesday's US fiscal cliff deal.

Service sector growth in France and Germany slowed last month, according to purchasing managers index data published Friday, while UK services activity shrank.

HSBC meantime has cut is gold price forecast for 2013. HSBC analysts now say they expect gold to average $1760 an ounce this year, down from the previous forecast of $1850, although they expect to see prices gain from current levels.

"We believe that gold prices will recover this year and retain a pronounced bullish posture," a note from the bank says.

"[Fed interest rates]are likely to remain at current low levels until sometime in 2015 [and] other major central banks have also adopted conventional or unconventional easing of monetary policy."

HSBC's silver price forecast was left unchanged at $32 an ounce average price this year.

[sxsess]

Machine, Ultimately QE will not be the price driver of precious metals IMO. The fact that this govt will not address and/or remedy this spending problem will be the main component of higher demand for gold. I'm holding my gold for the long term i.e. ~5 years. Thanks for bringing the precious metals articles here.

[Camelspiderman]

when George soros dumps his millions in gold , ill dump mine ...

[WallyWeaver]

when George soros dumps his millions in gold , ill dump mine ...

Exactly.

The fundamentals have not changed and will not change. The Fed will not stop printing money and interest rates will not rise anytime soon, regardless of what was in the FOMC minutes from December.

It is critical to make a distinction between the mindset of the investor and the mindset of the trader here. The vast majority of articles found on sites like Yahoo Finance and MarketWatch are written by and for traders. It should not be a surprise, then, that most of these articles are calling the end of the pm bull market. This is foolishness.

While I have been dabbling in TA (candlesticks, Fibonacci, Elliot Wave) I am still a fundamentalist at heart when it comes to pm's. My view has not changed: when I see dips in prices like this I do everything I can to add to my position.

The payday for investor's will come, all that is required is patience. Look at this as nothing more than an extended opportunity to add to your position.

WW.

[20Mil]

Exactly.

The fundamentals have not changed and will not change. The Fed will not stop printing money and interest rates will not rise anytime soon, regardless of what was in the FOMC minutes from December.

It is critical to make a distinction between the mindset of the investor and the mindset of the trader here. The vast majority of articles found on sites like Yahoo Finance and MarketWatch are written by and for traders. It should not be a surprise, then, that most of these articles are calling the end of the pm bull market. This is foolishness.

While I have been dabbling in TA (candlesticks, Fibonacci, Elliot Wave) I am still a fundamentalist at heart when it comes to pm's. My view has not changed: when I see dips in prices like this I do everything I can to add to my position.

The payday for investor's will come, all that is required is patience. Look at this as nothing more than an extended opportunity to add to your position.

WW.

Hey WW,

Hope you enjoyed the Holidays. I wanted to bring this to your attention as I am on the other side of the fence when it comes to US and the rise in interest rates.

You can see that the benchmark yield on the 10-year Treasury Note has exploded out of a multi-month range.

It hit 1.97% earlier yesterday morning, the highest since last May, after breaking a downtrend that goes all the way back to February of 2011!

How Treasury Yields Affect the Economy:

As Treasury yields increase, so do the interest rates on fixed-rate mortgages. This makes it more expensive to buy a home, so demand for homes decrease, and therefore so do the prices of homes. This, then, has a negative impact on the economy, and can slow GDP growth.

Higher Treasury yields mean that the Treasury Department will be forced to pay a higher interest rate to attract buyers. Over time, these higher rates can start to increase demand for Treasury products. That's why higher Treasury yields can increase the value of the dollar.

**Folks, keep in mind the affects it would have if USD interest rates rose even by the slightest amount... Don't think the FED is actually going to wait until 2015 to do this either. Just follow the charts and right now Treasury Yields are on the rise. I wonder if Thursday's FOMC minutes was any type of coincidence? :)/>/>

There is an inverse correlation between Bond Value and Bond Yield. That's why Treasury yields move in the opposite direction of Treasury bond values. So if we are getting ready for the Bond Bubble to pop, then it would be safe to say that we should get ready for the USD to rally. People have been talking about the Bond Collapse for quite some time but keep an eye on the charts. I've been hearing about the "Bond Bubble Collapse" for at least a year now from very credible and reputable financial research firms. Make no mistake, BONDS will collapse, it is only a matter of when.

Edited January 6, 2013 by 20Mil

[WallyWeaver]

**Folks, keep in mind the affects it would have if USD interest rates rose even by the slightest amount... Don't think the FED is actually going to wait until 2015 to do this either. Just follow the charts and right now Treasury Yields are on the rise. I wonder if Thursday's FOMC minutes was any type of coincidence? />/>

What will the banks do with all of the inventory (empty homes) they are already holding on to (anywhere from 10 to 20 million homes: http://dinarvets.com...t-fabian-calvo/) if interest rates rise and home values drop? They are already severely back logged with inventory that they are underwater on, what happens to that inventory if interest rates rise and home prices drop even further? Are the already underwater banks prepared to take even more of a loss on those homes?

The Fed understands this. They know that the only way we get out of the mess we're in is to unwind that shadow inventory, which does seem to be happening, albeit very slowly. This is the main reason why I don't see a rise in rates happening.... for a very, very long time.

It would be different if the US economy was rolling and businesses were hiring again. This is the real way to unwind that inventory: get Americans back to work with good wages so they can buy homes. But we are moving in the opposite direction of that. Just look at the fiscal cliff deal that was just passed: for every $1 in spending cuts for the Federal government there are $41 in tax increases reaching 77% of the tax paying public. How do you think businesses, who are already stretched thin, are going to respond to an increase in taxes? My guess is it is not going to inspire a new wave of hiring. And the real lousy part about the whole thing is even after they got that deal done the Federal government will still add $3 trillion+ to the national debt over the next 10 years.... pathetic.

Let me hit on the FOMC minutes real quick: yeah, it's true, the markets interpreted the minutes to mean the Fed might stop their bond purchases sometime this year. And yes, gold prices were affected. But remember, the Fed has been clear that their policies are not date specific, they are performance specific (ie. unemployment needs to hit 6.5% for rates to rise). I guarantee you we will not see 6.5% anytime before 2015. I think after the dust settled from Wednesday and Thursday this reality became more clear as, even after all of that 2-day price decline, gold ended the week flat.

Back to housing: It is true that the housing market has been recovering, which is strange when the real unemployment rate is somewhere near 15%. But home sales have been increasing none-the-less. Heck, I live in a 5 year old house that I just bought 2 years ago for $227 k and that was the absolute bottom of the market. The interest rate on my 30 year loan is 4.75%. Directly across the street from my home they put up model homes just last summer. Both of the homes are smaller than mine (the new trend) and yet they are selling at a much higher price than what I bought mine for. I spoke with the agent in the models and she told me the homes are selling like hot cakes at this higher price. To put it into perspective my home is 3,100 square feet with a 3 car garage and a decent sized backyard for Southern California. I bought it, like many of my neighbors did, as a foreclosure. The model across the street is a single story, with a 2-car garage, and ranges between 2,400 and 2,600 square feet (depending on the room options) and is selling for around $300 k! The reason the prices are higher is obvious: the interest rates are so low.

So what happens if all of these new homes that were just sold are suddenly $100k underwater because the Fed brought the rates up, especially since there are still 15 million+ homes still in shadow inventory? Do people start walking away from their homes again because they're underwater and their credit card payments are squeezing them with higher rates/ monthly payments? Heck, there are still quite a few homes in my neighborhood that are still vacant and have been that way ever since I moved in. How long can the banks sit on those? How long will they have to sit on those if the price of them plummets because the rates went up?

Anyway, it's just how I see it from my limited view of how things work. To me these are the fundamentals that cannot be ignored. We will surpass $17 trillion in US debt before this year is over; we're still running a $1.2 trillion annual Federal deficit; taxes and regulations on businesses and individuals are about to go into overdrive year-over-year (my understanding is taxes are really set to rise in 2014 to pay for Obamacare) which will only negatively effect the job market; don't forget about the staggering amount of debt in OTC derivatives on the books of banks (MBS); regardless of what they say the Fed is still printing at a rate of $85 billion/ month in order to keep the financial sector propped up (in my opinion this can never stop). Heck, it was just this week that someone proposed minting a $1 trillion coin to avoid the debt ceiling talks! These are the people running the country and this is the reality we are faced with! Weimar Republic here we come....

Something else to consider is I remember last summer there were many folks who were absolutely convinced that the Fed was not going to do anymore QE. Not only did they start more QE they started the unprecedented open ended QE in September and they doubled down on it just last month! One more thing: look at the statements from the 3 FOMC members on Friday. All 3 of them have completely different takes on what they see happening and how the Fed will and should respond. That tells me the Fed has no idea what things are going to look like later this year. We are in totally unchartered territory, here. We have never had rates this low, for this long, with a central bank employing an open-ended QE program, with this much debt before. These are all firsts. This makes the intermediate outcome virtually impossible to predict, in my opinion. The final outcome is very easy to predict.

Anyway, I should probably hit the sack as it's pretty late. The next big economic issue on the horizon is another round of debt ceiling talks. The last time we went through this gold hit its all-time high at $1922/ oz. as investors grew nervous that the US was going to default on its debt. With Republicans now seemingly growing a spine after they got fleeced on the fiscal cliff deal things could get pretty dicey again come this February. I actually think this is what's going to happen. I think the Republicans will be steadfast toward their goal of getting some type of meaningful cuts and I think the White House has no interest in meaningful cuts. So I think we will go right to the brink, again, pushing pm's much higher then they are now sometime in mid to late February. And that's how I see it.

Okay, off to bed.

WW.

[The Machine]

Nice post WW, real nice.

[geoyachtsus]

WW I really appreciate folks like yourself taking the time to share your insight - unfortunately what is taking place does not seem to be very well understood by the majority of us carrying the day. Obviously mainstram media has not yet been directed to do so. Or if one considers what is transpiring (Rep & Dem both carry the fault - pretty much equally in my opinion) due to the fact that we have a system of governance today that the constitution was originally designed to prevent. Awareness on this site and many others seems to much above the norm but the reality is so horrendous it is truly difficult to take it in. The other factor I think is that many of us are just so damn busy trying to survive this difficult and painful period of disbelief in our history. I presently work in a developing country and as I look around I am not sure which is more corrupt!!!!! Have a good one all and may 2013 bring all a better year. This is a good thread.

[WallyWeaver]

Nice post WW, real nice.

No offense but your new avatar cracks me up... I definitely like it.

Oh, and pretty nice grand piano, too! Great spot for it right there by the window.

WW.

[WallyWeaver]

WW I really appreciate folks like yourself taking the time to share your insight - unfortunately what is taking place does not seem to be very well understood by the majority of us carrying the day. Obviously mainstram media has not yet been directed to do so. Or if one considers what is transpiring (Rep & Dem both carry the fault - pretty much equally in my opinion) due to the fact that we have a system of governance today that the constitution was originally designed to prevent. Awareness on this site and many others seems to much above the norm but the reality is so horrendous it is truly difficult to take it in. The other factor I think is that many of us are just so damn busy trying to survive this difficult and painful period of disbelief in our history. I presently work in a developing country and as I look around I am not sure which is more corrupt!!!!! Have a good one all and may 2013 bring all a better year. This is a good thread.

Thanks for your good input, well said.

Panama, huh? That seems like it would be pretty interesting....

I do admit I am a history junky, I especially love our Constitution and the men who penned it. I guess long gone are the days of Washington, Jefferson, and Madison... The vast majority of those in our country today really have no idea what motivated those great men or what they believed in and fought for. There are so many to blame for this I suppose I could write a book on it. It's my belief that this is the main reason we are in the state we are in today (seems like you do, too). We have simply lost any type of connection to our Founders leaving us as a nation without a foundation. We are living with the heartbreaking results all around us...

Take care.

WW.

[20Mil]

http://www.moneyandmarkets.com/2013s-most-important-market-51173

Don't say I didn't warn you...

Just because the FED wants something doesn't mean they can control it. Interest rates will rise and it is already starting to show. I have been warned months and months ago, just like I am warning some now. Feel free to believe what you want.

The USD is at a multi-year low at this time regardless of the doom 'n gloom hype that flows so freely on the net.

[WallyWeaver]

http://www.moneyandm...nt-market-51173

Don't say I didn't warn you...

No offense but weren't you on here last summer warning us that there would be no more QE?

The bottom line is we are in some deep doo-doo no matter which angle you view it from. It's true that rates need to rise or we are in some deep trouble, I don't disagree with that. The things I said are also true, however, and equal deep trouble. To me this is just a picture of how monumental the problems are that we are facing. Unfortunately the can has been kicked so far down the road already that there are no easy answers.... Here's another mammoth problem on the horizon: what are we going to do about the student loan bubble? Keep in mind there were many who saw the housing bubble was going to pop, years in advance, but nothing was done about that, either.

I will say again that we are in a situation we have never been in before. We have never had interest rates this low for this long, we have never had an open ended QE policy before, and we have never had this much debt before. With this much Fed meddling already it's very difficult to predict what's going to happen in the near future. The truth is one could say the Fed's policy of taking action to create less volatile markets has really only created more volatility!

About the doom and gloom perspective, is it considered doom and gloom to say there are still 22 million+ Americans who are out of work and there are many who are counted as working who are actually underemployed? Is it considered doom and gloom to point out the US national debt is almost at $16.5 trillion and the current trajectory has us surpassing $20 trillion before Obama leaves office? Is it doom and gloom to point out that there is still at least one vacant, bank owned house on every street in my neighborhood? Is it considered doom and gloom to point out that student loan debt has now surpassed $1 trillion and almost 20% of that total is in default status? etc....

Some may call these things doom and gloom, I call it the reality of the situation: http://www.usdebtclock.org/

How do we find a way to avert these monumental problems? Again, there are no easy answers. So far our only solution, since 2008, has been to try to print our way out of it. My personal opinion is I would feel a lot better about our chances if we had someone in charge who understood something about how to get our economic engine running. Figuring that out would be a real step in the right direction to solving our monumental economic problems. Unfortunately that is not the case.

As far as the USD goes, it was actually lower in 2010 at this time and only slightly higher in 2011 and 2012 (we're talking tenth's of a point higher) so I'm not sure where you're going with that. The truth is the USD should be much lower but every time we print the export dependent Japanese print even more to keep the trade imbalance in check. This is an example of why many think the ICE Dollar Index is outdated. The reality is even though the USD is slightly above 80 on the index (for the third year in a row) Americans will notice that they will spend more on groceries than they did 4 years ago. This, of course, creates another problem: if Americans are spending less due to inflation how doe that affect the overall economy? We will get a very clear picture of that in the following weeks as we are in earnings report season again....

With that said, thanks for the warning. Who is right? Obviously, after all is said and done, I think I am right. But that's what makes the markets go, isn't it? Heck, just last week a member of Congress proposed we mint a trillion dollar coin as a fallback to rescue us in future debt negotiations (you just can't make this stuff up). These are the people running the country! I suppose, in the end, it is the ineptitude of the people running our country that give me no confidence that things are going to turn around. Does this make me a doom and gloomer or a realist?

WW.

[20Mil]

No offense but weren't you on here last summer warning us that there would be no more QE?

The bottom line is we are in some deep doo-doo no matter which angle you view it from. It's true that rates need to rise or we are in some deep trouble, I don't disagree with that. The things I said are also true, however, and equal deep trouble. To me this is just a picture of how monumental the problems are that we are facing. Unfortunately the can has been kicked so far down the road already that there are no easy answers.... Here's another mammoth problem on the horizon: what are we going to do about the student loan bubble? Keep in mind there were many who saw the housing bubble was going to pop, years in advance, but nothing was done about that, either.

I will say again that we are in a situation we have never been in before. We have never had interest rates this low for this long, we have never had an open ended QE policy before, and we have never had this much debt before. With this much Fed meddling already it's very difficult to predict what's going to happen in the near future. The truth is one could say the Fed's policy of taking action to create less volatile markets has really only created more volatility!

About the doom and gloom perspective, is it considered doom and gloom to say there are still 22 million+ Americans who are out of work and there are many who are counted as working who are actually underemployed? Is it considered doom and gloom to point out the US national debt is almost at $16.5 trillion and the current trajectory has us surpassing $20 trillion before Obama leaves office? Is it doom and gloom to point out that there is still at least one vacant, bank owned house on every street in my neighborhood? Is it considered doom and gloom to point out that student loan debt has now surpassed $1 trillion and almost 20% of that total is in default status? etc....

Some may call these things doom and gloom, I call it the reality of the situation: http://www.usdebtclock.org/

How do we find a way to avert these monumental problems? Again, there are no easy answers. So far our only solution, since 2008, has been to try to print our way out of it. My personal opinion is I would feel a lot better about our chances if we had someone in charge who understood something about how to get our economic engine running. Figuring that out would be a real step in the right direction to solving our monumental economic problems. Unfortunately that is not the case.

As far as the USD goes, it was actually lower in 2010 at this time and only slightly higher in 2011 and 2012 (we're talking tenth's of a point higher) so I'm not sure where you're going with that. The truth is the USD should be much lower but every time we print the export dependent Japanese print even more to keep the trade imbalance in check. This is an example of why many think the ICE Dollar Index is outdated. The reality is even though the USD is slightly above 80 on the index (for the third year in a row) Americans will notice that they will spend more on groceries than they did 4 years ago. This, of course, creates another problem: if Americans are spending less due to inflation how doe that affect the overall economy? We will get a very clear picture of that in the following weeks as we are in earnings report season again....

With that said, thanks for the warning. Who is right? Obviously, after all is said and done, I think I am right. But that's what makes the markets go, isn't it? Heck, just last week a member of Congress proposed we mint a trillion dollar coin as a fallback to rescue us in future debt negotiations (you just can't make this stuff up). These are the people running the country! I suppose, in the end, it is the ineptitude of the people running our country that give me no confidence that things are going to turn around. Does this make me a doom and gloomer or a realist?

WW.

Ahhhh.... OK I see then, so because I made a "prediction" and I was wrong then I am also wrong on this. All the best WW. You obviously know what you are talking about and are right so we will leave it at that. Good luck with your Silver investment.

[rightsonword]

The truth is the USD should be much lower but every time we print the export dependent Japanese print even more to keep the trade imbalance in check.

WW.

This is very true. I'm leaving Japan in about a year and I'm dreading what the exchange rate is going to look like when I exchange my yen to dollars. Actually thinking about exchanging my dollars now for yen in the hopes the yen strengthens within the year.

[WallyWeaver]

Ahhhh.... OK I see then, so because I made a "prediction" and I was wrong then I am also wrong on this. All the best WW. You obviously know what you are talking about and are right so we will leave it at that. Good luck with your Silver investment.

Actually, it means everyone is susceptible to being wrong (yes, even the wise old sage WW ) as we are faced with economic circumstances that we have never been faced with before in our history, or the worlds history, for that matter. That's why I have enjoyed these debates.

I guess the main irritant is when things are said like "Don't say I didn't warn you" or "The USD is at a multi-year low at this time regardless of the doom 'n gloom hype that flows so freely on the net." Statements like these imply that you are the sole arbiter of truth on these matters. If only we would listen to you then our financial futures would avoid peril, isn't that the implication? Those on our side have simply fallen for hype, right?

And then, just because I disagree with you your response is: "You obviously know what you are talking about and are right..."

Come on man, you're better than this (at least I think so).

Either way, I sincerely wish you nothing but the best, as well, as I have learned a great deal in our interactions. I hope your financial future is bright but even more importantly, I hope your spiritual destiny is sealed (John 3:3).

WW.

[20Mil]

Actually, it means everyone is susceptible to being wrong (yes, even the wise old sage WW ) as we are faced with economic circumstances that we have never been faced with before in our history, or the worlds history, for that matter. That's why I have enjoyed these debates.

I guess the main irritant is when things are said like "Don't say I didn't warn you" or "The USD is at a multi-year low at this time regardless of the doom 'n gloom hype that flows so freely on the net." Statements like these imply that you are the sole arbiter of truth on these matters. If only we would listen to you then our financial futures would avoid peril, isn't that the implication? Those on our side have simply fallen for hype, right?

And then, just because I disagree with you your response is: "You obviously know what you are talking about and are right..."

Come on man, you're better than this (at least I think so).

Either way, I sincerely wish you nothing but the best, as well, as I have learned a great deal in our interactions. I hope your financial future is bright but even more importantly, I hope your spiritual destiny is sealed (John 3:3).

WW.

I don't mean to come across rude so I'm sorry you took it that way, Maybe I came across this way as I see the "end of the world" scenario being talked about all of the time in relation to the purchase of Gold and Silver. Gold and Silver are always the solution in some people's eyes but this is far from the truth. Regardless of what people think, it is only a hedge against inflation. Nothing more, and nothing less.

Bonds are supposed to be the safest of safe investments. At least, according to many of the talking heads on Wall Street — but nothing could be further from the truth right now!

That's because long-term bonds have been driven to astronomically sky-high levels by the most reckless monetary policy in the history of the world ... which in turn has prompted the biggest influx of money into fixed income investments ever!

That pushes prices higher. And since yields move in the opposite direction of bond prices, they have collapsed to miniscule levels, dramatically raising the risk that months and months of income can be vaporized in the blink of an eye!

Just look at what happened in the first week of 2013!

Long-term Treasuries lost roughly 3% of their value in only a few days. That was enough to wipe out an entire YEAR'S WORTH OF INTEREST, given the 3% yield on long-term bonds!

Look, the world has been dog-piling like mad into bonds – Treasuries, mortgage bonds, junk bonds, emerging market bonds. We're talking about hundreds of billions of dollars in inflows, the biggest flood of money into bonds EVER.

As with just about every bubble over the past two decades, it's been prompted by reckless Federal Reserve policy. Just like the bubbles in dot-coms, housing, and other asset classes, it was always doomed to burst ...

And it's clear that we're seeing the classic signs that this bubble has already begun to burst right now!

Remember, there is an inverse correlation between Bond Value and Bond Yield. That's why Treasury yields move in the opposite direction of Treasury bond values.

So what happens to the hundreds of billions of dollars that flooded the Bond market? Well, I would imagine that most of it is going to make its way back into the stock market. A surge in demand for the US stock market does not necessarily mean that all other risk assets will be affected in the same way due to the fact that this "new surge" in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets. As you can see, money will leave the Bond market and make its way to the stock market. I'll repeat this again, this new surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets.

Gold is at a 6 month low and is actually sitting on a MAJOR trend line which has been in effect since January 2011. That is 2 years! If this breaks, then Gold will more than likely fall to previous support at $1,525. Are people here ready for Gold to drop to these levels? What would be the catalyst for Gold to drop you might ask? Simple, as Bonds lose value interest rates rise. This is a positive effect for the USD in a BIG way. Money flows to higher yielding currencies / assets which is why AUD is valued so high and also the reason why people park their money in stocks, namely stocks that pay dividends. It doesn't matter if the FED wants this to happen or not, they cant stop everything. In fact, it is already happening! I'm not going to go out on a limb again and post my prediction but just keep an eye on Bonds and Interest Rates during the coming weeks / months.

I see two possible scenarios unfolding this year:

1) USD recovery as the US leads the way to the global economic recovery...

OR

2) If global recovery slows then we get another bearish equity market in a risk averse move with capital fleeing to safety in the USD.

Either way, the USD wins...

Last thing I wanted to bring up, people on here have been recently comparing themselves, in regards to when to buy and sell Gold, to people such as George Soros. This is insane! He is a multi-billionaire and obviously has a need to hedge a portion of his funds through precious metals. There is no comparison (to say the least) between small retail traders / investors and people like George Soros! None at all...

Eldorado golden dreams... flashes of Yukon fever... or... just a general fascination with the "barbarous relic."

Whatever might compel you to keep tabs on gold, one thing is for sure:

You may have not considered a few things.

Gold above $1,000 can't really be used to rationalize anything other than speculation. Assuming, you don't already have some stored away as insurance. That is really the correct purpose. Just know that it is a hedge against inflation, but it won't pay a premium to it, it will track inflation, but won't pay a premium over it. People actually think Gold is an investment, it actually is NOT an investment. You don't hedge stocks against gold. Gold does not hedge against market downturns, believe it or not, but this can be seen time and time again.

Peter Brandt, famous commodity trader puts it like this, "speculators trade price and price alone, falling in love with an underlying asset represented by price and price only is a fool's game." Speculation is not bad, but die hard speculators that think a dormant commodity that has zero growth potential outside of price is an investment, you're barking up the wrong tree. Example: A gun, like a bar of gold, is inert, its passive. You have to do something with the gun to create value, and just like Gold it should be seen as an insurance policy you wish to never use.

Right now, I personally wouldn't touch Gold! Look at a 10 year chart! 11 year Gold channel support being tested! Whether it bounces up to $2,000 who cares, at this time why worry about it? Put it this way, the longer ago you bought gold the greater the chance you'll have that you still might get a return. WHY? It is out of WHACK! Typically, from a historical perspective, markets that are price movement based that are out of "whack" tend to get back in balance. So, let's say price goes back to $1,000 an ounce again and you bought at a little over / under $1,000 an ounce, you are teetering against break even. What if you buy now? Risk / Reward ratio is nowhere close to where it was in the past decade.

I would like the Gold bugs to ask themselves what is it that has you fixed on Gold? Why are you in it? If it's about trading price movement does gold have to be the market? What is it about stocks, for instance, that are different than an inert commodity. Companies that produce profits, pay out dividends, etc... Why Gold?

My Theory: We are going to break below the 11 year channel support line and are going to stay there for quite some time. If you're wondering where this support number is it is roughly $1,660 an ounce. So we are currently at the edge....

Let me also ask you this, is it possible for the USD to collapse say this year? How about next year? Or the year after that? Simple answer is NO! What would replace the USD as the reserve currency? Nothing comes close at this time...

A Reminder of U.S. Strength… From My Visit to The Dominican Republic

By Dr. Steve Sjuggerud

Tuesday, January 8, 2013

Greetings from the sunny, windy Dominican Republic…

I've been in the Dominican Republic for a week. I've spent hours traveling the roads, stopping in small towns along the way. And I've paid for everything in U.S. dollars, no questions asked.

You might think you'd need Dominican money while in the Dominican Republic. But you really don't… U.S. dollars work just fine here.

This trip reminded me that the U.S. dollar is clearly the most important currency on our slice of the globe. And I don't expect that to change anytime soon. A U.S. dollar crisis is certain someday… but that day is not today.

The U.S. dollar is headed for a major crisis at some point. This is certain. The U.S. government is already broke and digging a deeper hole daily. The only question is: "When will the big crisis arrive?"

My short answer is, not in the next couple years. Let me explain briefly, starting with my trip to the Dominican Republic…

For the entire trip, I haven't exchanged U.S. dollars for a single Dominican peso. I've done the same thing recently in Costa Rica, Nicaragua, Belize, Mexico, the Bahamas, and other Latin American/Caribbean countries. The U.S. dollar works just as well.

Nobody ever says, "No, U.S. dollars are not accepted here – you must pay in Costa Rican colones."

When you think about it the other way around, you see just how important the U.S. dollar is to this region…

For example, can you imagine going to your local grocery store and paying in Dominican pesos instead of U.S. dollars – even though you are in the United States? Can you imagine using money from a country that most people have never been to? That's what people in the Dominican Republic are doing today…

I talked with two successful Dominicans. Neither has left the Dominican Republic before…

"It's very hard to get a visa to leave the Dominican Republic," they told me. "It's very hard to get permission from the government to leave. The government thinks that if we leave, we will never come back."

Wow. And I thought we had it tough in the States. Successful Dominicans can't even leave their country. Ouch.

Dominicans happily accept U.S. dollars, though. And it's not just here…The U.S. dollar is the most widely accepted unit of money in the Americas… and to a lesser extent, the world.

Being the world's "reserve" currency provides the United States with an enormous advantage – we can print the world's currency.

I believe the U.S.' ability to print the world's currency will buy the U.S. government a lot of time – years – before a true debt/currency crisis would happen.

Think about this… what would replace it as the "reserve" currency here in the Dominican Republic?

The euro? The euro is actually accepted here in the Dominican Republic, too. But Europe's problems are just as bad as those in the U.S.

Gold? Hard to imagine right this second. China's currency? Not for decades.

What about a currency from some other country in the Americas?

As mismanaged as the U.S. dollar is, the currencies in many of these countries are treated even worse. For example, Mexico had its own currency crisis in 1994. Inflation grew to over 50% by the end of 1995. Even after things settled down, Mexico's inflation has doubled U.S. inflation since 2000 (4.8% a year versus 2.4%, respectively).

Argentina is a similar story. Inflation hit 40% in 2002, as the Argentinian peso collapsed. Post-crisis, inflation in Argentina still hovers around 10%… four times more than it is in the U.S.

Here's a look at the year-over-year inflation numbers since 2000 for several other key countries in the region, as well…

Year-Over-Year Inflation Since 2000

Country / Inflation

Dominican Republic / 11.7%

Nicaragua / 7.9%

Costa Rica / 9.3%

Venezuela / 22.4%

Colombia / 5.3%

United States / 2.4%

This trip was a great reminder of just how much the U.S. dollar is still king.

A U.S. currency crisis is certain someday. As I said, the U.S. government is broke AND digging a deeper hole daily. But I believe the day of reckoning won't be here tomorrow.

Thanks to the "Global Bernanke Asset Bubble," we have time – possibly years – to make a fortune in U.S. stocks and real estate… before the dollar's day of reckoning arrives.

Good investing,

Steve

Edited January 9, 2013 by 20Mil

[20Mil]

FOMC Minutes Signal End of Bond Bubble

by Tom Essaye

Last week the market's celebration surrounding the partial Fiscal Cliff agreement was cut short by a surprise from the minutes of the Fed's December meeting. You see most had expected the minutes to be a relative non-event ...

But showing you can't ever take anything for granted in the markets, the minutes offered details of a surprise rift in the FOMC about when to end its current quantitative easing program. In particular, this paragraph shook markets:

"In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted."

Previously it was thought that the Fed would keep their QE program through the end of the year. And while this isn't a declaration that QE is going to end imminently, the minutes were particularly surprising to markets because no one thought ending the current QE program was on the Fed's mind, much less being openly discussed and argued about.

The surprise news, combined with the positive sentiment emanating from the fiscal cliff deal, sent Treasury yields to seven-month highs. As you can see in the chart below, the 30-year Treasury yield jumped to 3 percent for the first time since late April.

This is important not so much because of what the Fed minutes revealed (we all know at some point the Fed will remove accommodation) but instead how the market reacted.

The market reaction to this news was pretty violent. And the sharp selling that hit Treasurys (and spiked yields) is yet another sign that the top is "in" in the bond market. Now the question you should be asking isn't so much, "will bond yields rise" but instead "how fast and how far will they rise."

Four-plus years into unprecedented Fed easing, last week's price action in response to the Fed minutes tells me that markets are accepting the fact that we are closer to the end than we are to the beginning. And as such they are starting to anticipate rising interest rates.

Bond yields have already moved to multi-month highs based on the perception that the Fed may dial back QE sooner than expected. So we can only expect yields to accelerate once it becomes clear that the Fed is actually going to remove QE from the markets — something that by the Fed's own admission could start much sooner than is the general consensus.

Yields have been kept low by the Fed's mass bond-buying program, and by their safe-haven status as a series of crises threatened elsewhere. But once the QE punchbowl is removed, holders of long-term bonds could take a beating. I hope you're not one of them.

[20Mil]

So what happens to the hundreds of billions of dollars that flooded the Bond market? Well, I would imagine that most of it is going to make its way back into the stock market. A surge in demand for the US stock market does not necessarily mean that all other risk assets will be affected in the same way due to the fact that this "new surge" in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets. As you can see, money will leave the Bond market and make its way to the stock market. I'll repeat this again, this new surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets.

Why did hundreds of billions of dollars (or possibly even trillions) flood the Bond market? The fact is that institutional investors and governments rushed to the 'safety' of bonds at the outset of the crisis in 2008 and withdrew trillions of dollars from stock markets in a state of crowd mentality. When broken down, the markets do not work logically - they are driven by human emotion; that is, the desire to avoid losses and to minimize risk. Despite their attempts to appear otherwise, Governments and major institutional investors are no different to John Doe and the vast majority of retail investors.

At the outset of the crisis, fund managers and governments did what was safe - they ran for cover. And they did it en masse; hence the dramatic and powerful downturn as funds were pulled out of stocks. Logic would have said they should have stayed in stocks as the long term historical returns for stocks are significantly better than bonds (stocks have returned almost 6 per cent per year over the past 7 decades, adjusted for inflation). Bonds, on the other hand, offer nothing approaching that, but they do offer 'certainty'. However, there are signs now that fund managers are starting to think the crisis may soon be ending. So the big boys are now emerging from cover and are searching for the higher yields that stocks typically offer.

Those trillions of dollars that have been withdrawn from stock markets which are currently in bonds must return at some time. And crowd mentality (the natural state of markets that are run by human emotion) says that those trillions will be moved in the same direction - back in to stocks.

We also now know that a surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets.

[20Mil]

Gold's Bull Run Has Hit A Long-Term Brick Wall

The whole of the 2000's as a decade, in fact, was characterized by paper asset inflation (not to mention hard asset inflation) and broad currency debasement, driven by easy monetary policy, aggressive feedback loops and exacerbating macro factors. This was a goldilocks environment for gold.

But how long do such goldilocks environments prevail? All good things come to an end… and most bad things too. Even as the long-term charts have gone from “unquestionable uptrend” to “question mark,” so too have the macro drivers for gold’s bull run become a giant unknown.

To put it another way: As traders who respect price, the charts alone are enough to make us wary of gold. But the fundamentals are a concern too because the conditions that supported gold’s rise may no longer exist.

Consider:

1) For most of the 2000?s, central banks (primarily the Fed) were openly accommodative. Now they are talking about withdrawal.

2) For most of the 2000?s, the U.S. “vendor finance” relationship with China and the Middle East was intact. That relationship could now be ending.

3) For most of the 2000?s — and actually the past few decades — U.S. interest rates have been falling (long bond bull market). That could now be ending.

4) Gold’s potential “climax run” in 2011 — reference a weekly gold chart — may have also coincided with a coordinated crescendo of global central bank intervention. If the global economy is truly recovering, this is almost certainly the case.

Bullish Gold and Bearish Long Bonds? Really?

Here is another funny thing: Many of those who are staunch long-term bulls on gold, are also anticipating a ferocious bear market in U.S. treasury bonds. They are rubbing their hands and waiting for the collapse of the long bond market, at which point U.S. interest rates will be forced to sharply rise.

I also like the long bond short trade (and have said as much repeatedly). That is some price action we can get behind! But can you really expect sharply rising interest rates and rising gold simultaneously? To borrow a British slang phrase, “not bloody likely.”

Edited January 10, 2013 by 20Mil

[20Mil]

I wanted to point out one more thing which is I don't actually see the FOMC raising rates any time this year. However, I do see them cutting back on the asset purchases. Regardless, what is more important is not whether or not they raise rates this year, but rather whether or not the market thinks they will raise rates before mid 2015. If they do, which is starting to show right now, then they will start to price it in gradually as the economic data (specifically the labor statistics) improves.

This is Gold / Silver bearish...

I'm not trying to convince anybody to sell their precious metal holdings, just pointing out another side of the coin. I'm not trying to be a "savior" of any sort, however, I hope that the points that I brought up will not be over looked because they shouldn't. Everybody has the right to do what they want with their money. Best of luck to anybody holding precious metals at this time.

Edited January 11, 2013 by 20Mil

[20Mil]

There is a simple reason that over long periods of time gold under performs a broad based basket of equities available in the stock market. The price of gold fluctuates with demand that is created by fear, and the perception of scarcity.

Like stocks, gold may be a good value at times, and not others. Is it really wise to invest in anything when it is at an all-time high, and driven by fear?

A review of history indicates that the price of gold fluctuates wildly and has not even kept up with inflation over the past 35 years.

Food for thought: Gold began trading truly freely in 1973, after post-Bretton Woods controls were removed. Since then, gold’s returned a cumulative 983% (annualized 6.8%), while global stocks returned 2,229% (9.1% annualized) and US stocks 3,552% (10.5% annualized).* Gold’s 2009 run was much hyped in the media, but even then it lagged stocks, returning 24.8% versus 30.0% for the year.

Besides lost opportunity costs, what’s even more dangerous for investors? Gold historically has been a short-term timing game. Much of gold’s long-term gains have come from very short boom periods. Since 1973, there have only been six major gold booms, each lasting from 4 to 22 months—or just 15% of the total time. Meaning gold’s done less than stellar the other 85% of the time.

In reality, gold is prone to short-term volatility just like stocks and boasts miserable returns over the long term—practically flat over the last 30 years, even including last year’s big gain.

What will happen to Gold as the Global economy starts to recover?

What will happen to Gold as the excess liquidity is pulled in by the Central Banks?

Always remember: the price of stocks — via well-run companies which sell quality products that people need and desire — increase in sustainable ways over time. The price of gold fluctuates through extreme boom and bust periods that are created by either the absence or presence of fear and perceptions of financial and/or political uncertainty.

To say it differently: eventually we humans figure out how to clean up our own collective ****… which will include that stench and stupidity coming out of Washington and other political power cities throughout the world.

I guess whether you should be buying, holding or selling physical gold today will depend on your personal circumstances, which include your net worth and how much of it is or isn’t already backed by value-increasing and/or inflation-protecting assets; your level of suspicion against our fiat monetary system and whether it can or will be sustainable during your and your children’s life; and your level of fear for a financial doomsday scenario.

“You can’t value a non-earning asset, even though you can pretend to. Gold’s valuation takes the form of a fraction: 1/n, where ‘n’ is the world’s confidence in paper currencies and the mandarins who manipulate them.” He goes on to say that, “Regrettably, ‘n’ is not quantifiable.”

In a way, that is the essential mystery of gold, isn’t it. There is no dependable metric for gold’s valuation comparable to a P/E ratio for a company’s stock or the “real” yield on a sovereign bond.

The total value of investment gold is tiny compared with traditional asset classes, and gold’s physical supply tends not to respond very much to price changes the way other commodities do.

So, what we have is an asset whose price can change rather dramatically in response to shifts in “currency confidence” which is impossible to quantify.

Edited January 12, 2013 by 20Mil

[WallyWeaver]

There is a simple reason that over long periods of time gold under performs a broad based basket of equities available in the stock market. The price of gold fluctuates with demand that is created by fear, and the perception of scarcity.

Scarcity is not just perception, it is fact. Gold miners have been steadily producing less over the past decade so scarcity is indeed a factor. Article after article has been written about how China, among many other countries, has been a huge purchaser of gold. Also central banks, who used to be sellers of gold in the 80's and 90's, have now become buyers (what does that tell you about the future price action of gold). So with more buyers and less production I don't know how scarcity is only perception.

Like stocks, gold may be a good value at times, and not others. Is it really wise to invest in anything when it is at an all-time high, and driven by fear?

The answer is yes, if the fundamentals indicate there is still room to run and the reasons behind fear are legitimate. I still go back to $16.5 trillion in national debt and no real appetite in Washington DC to do anything meaningful about it, unlimited bond purchases (this will be re-iterated during Bernankes statement today at the close of markets), continued low interest rates until at least 2015 (will also be re-iterated today), a non-recovering global economy specifically in the west (Europe heading back into a recession, US at 2% or less GDP as far as the eye can see, etc.), a recovering China (seen as bullish for commodity prices), etc. Throw in the student loan bubble, rising consumer debt, increased taxes, steep declines in household net worth and I think there are many very legitimate reasons for fear.

Ask yourself: what would happen to the DOW and the S&P 500 for the rest of the year if, at the conclusion of this months FOMC meeting, the FED announced they were going to effectively stop all bond purchases and had no plans to do anymore in the forseeable future. I would be willing to bet we would experience one of the largest stock market crashes in history before the year was over. If Fed intervention were removed the markets would be forced to correct through natural market forces and the crash would be deafening. If that is not an indicator that there are legitimate reasons for fear in these manipulated markets I don't know what else is.

A review of history indicates that the price of gold fluctuates wildly and has not even kept up with inflation over the past 35 years.

This is an unfair assessment as the last secular gold bull market ended in the early 80's. From there until 2000 gold traded in a roughly $300 range (So for 2 decades gold was basically flat). We are currently in a new secular gold bull market that began in 2000 so anyone who was interested in tracking realistic gold vs. inflation indicators to predict what will happen in the future should study either the bull market in the 70's or the bull market that began in 2000. The period in between should not be considered.

Sorry for my delay in responding. I am very close to returning back to work after 5 months (been recovering from a motorcycle accident) and have been busy getting my affairs in order. Plus, I wasn't sure if you wanted to continue.

I can appreciate what you are trying to do in bringing the other side of the debate. It's really not unique, though, as most analysts have turned bearish on gold so far this year especially because, but not limited to, the nice bearish set-up on gold charts right now. We gold bugs are holding our collective breath and keeping our fingers crossed that gold will breakout over $1680 (key resistance) and hold, slowly making a run at $1700. If $1700 is breached then the charts will be decidedly bullish and I would expect bulls to return to the market en-masse. Will this happen? I have to admit I like our chances.

It's no secret that the hedge funds are short on gold right now. In fact, I was just reading an article over the weekend that indicated there are a huge amount of short contracts at $1650 right now (Hedge funds). Since shorts have to be covered in 30 days if the direction of gold keeps going up these shorts will be forced to cover, which will further push the price up. Also not a secret is there has been some nice action in the gold-long positions as those have been steadily increasing.

As stated before, I also don't expect the fundamentals to change. The Fed cannot stop bond purchases (for many, many reasons) and we already know they are committed to negative interest rates until unemployment drops below 6.5%. Other factors to consider are US national debt coupled with the overall indebtedness of the Western financial world (this will not be remedied) and, regardless of what anyone says, we are not in the midst of a global recovery (all stated above). That is utter nonsense. I have found that to be a successful trader/ investor it is important to understand the political climate around you. I say again, politicians in the western world have no appetite right now to change the current trajectory of debt and deficits we are all currently on. If they were I would definitely become bearish on gold and silver.

As stated before, gold has dropped so far this year because Hedge funds on the COMEX/ NYMEX remain bearish based on the charts. But gold has seen strong support at $1640 from heavy physical buying (mainly governments and central banks but there is also plenty of physical buying by private investors in India, China, etc.). So it seems there is a battle between the short term paper traders and the long term physical investors. Although, gold has been steadily rising over the last week (actually closed above it's 200 day moving average on Friday) and is continuing that trend today. I still remain very bullish until a debt ceiling deal is reached in the US. I don't see that happening until the 11th hour (just like last time). Also consider that Bernanke will give a speech and take questions today at the close of the US markets. I expect him to say that regardless of how everyone interpreted the FOMC minutes there is no plan to stop bond purchases this year and rates are expected to stay low until at least 2015. This should no doubt have a positive effect on pm prices and could push the USD below 79 on the ICE Dollar Index. We'll see.

I may close out my postions just before I think a deal will be reached on the debt ceiling. I think we could see another drop after a deal has been struck. When I think it has hit bottom I will most likely buy back in. My overall outlook for the year is I expect gold and silver to reach new all-time highs before 2013 is over.

I want to give a reminder here that there are many ways to make money off of gold and silver, it's not just about holding physical:

1. I am heavily invested in AGQ which is a double-leveraged play based on the silver futures price. There are so many reasons to love this it would be difficult to mention them all. But the bottom line here is you can turn profits on silver with AGQ, it's not just a hedge against inflation.

2. The futures markets. This is another way to turn profits in the gold/ silver markets and there are many who engage in this arena (COMEX, NYMEX). It's simply a play on what you think gold or silver will do in the future. Do you think the price of gold will drop next week? Then take a short postion and cover when you are satisfied with the dip (within a 30 day period). Do you see gold being higher in 2 weeks? Go long and hold until you are satisfied with the increase. This is another avenue to turn profits on pm's. And actually, familiarizing yourself in the futures markets will give you a much better understanding about price movements in pm's. I would recommend immersion in these markets to anyone serious about investing in pm's, you won't regret it.

3. Even though I did mention owning physical is not a way to gain profits that is really only true for gold. Silver is another story altogether. Do some reading up on fluctuations in the historical ratio between gold and silver and you will see what I'm talking about. If silver even returned to 25:1 with gold that would equal a nice profit for physical silver investors.

I do have a caveat if you want to continue debate, by the way. I am not going to respond to seemingly endless copy and paste snippets from whatever source you are looking at. That is not a debate, that is simply a battle of the analysts that one can find or, a battle of the sheep. There are plenty of analysts who see things the way I do as well (David Rosenberg from GluskinSheff comes to mind) but I'm not going to make 10 posts putting down everything I can find from GluskinSheff, for instance, that support my view. If you want to debate, which I am more than happy to oblige, put it in your own words and we can have a legitimate "argument."

Take care and Aloha.

Signed,

WW. (AKA the biggest haole you probably know )

[20Mil]

Sorry for my delay in responding. I am very close to returning back to work after 5 months (been recovering from a motorcycle accident) and have been busy getting my affairs in order. Plus, I wasn't sure if you wanted to continue.

I can appreciate what you are trying to do in bringing the other side of the debate. It's really not unique, though, as most analysts have turned bearish on gold so far this year especially because, but not limited to, the nice bearish set-up on gold charts right now. We gold bugs are holding our collective breath and keeping our fingers crossed that gold will breakout over $1680 (key resistance) and hold, slowly making a run at $1700. If $1700 is breached then the charts will be decidedly bullish and I would expect bulls to return to the market en-masse. Will this happen? I have to admit I like our chances.

It's no secret that the hedge funds are short on gold right now. In fact, I was just reading an article over the weekend that indicated there are a huge amount of short contracts at $1650 right now (Hedge funds). Since shorts have to be covered in 30 days if the direction of gold keeps going up these shorts will be forced to cover, which will further push the price up. Also not a secret is there has been some nice action in the gold-long positions as those have been steadily increasing.

As stated before, I also don't expect the fundamentals to change. The Fed cannot stop bond purchases (for many, many reasons) and we already know they are committed to negative interest rates until unemployment drops below 6.5%. Other factors to consider are US national debt coupled with the overall indebtedness of the Western financial world (this will not be remedied) and, regardless of what anyone says, we are not in the midst of a global recovery (all stated above). That is utter nonsense. I have found that to be a successful trader/ investor it is important to understand the political climate around you. I say again, politicians in the western world have no appetite right now to change the current trajectory of debt and deficits we are all currently on. If they were I would definitely become bearish on gold and silver.

As stated before, gold has dropped so far this year because Hedge funds on the COMEX/ NYMEX remain bearish based on the charts. But gold has seen strong support at $1640 from heavy physical buying (mainly governments and central banks but there is also plenty of physical buying by private investors in India, China, etc.). So it seems there is a battle between the short term paper traders and the long term physical investors. Although, gold has been steadily rising over the last week (actually closed above it's 200 day moving average on Friday) and is continuing that trend today. I still remain very bullish until a debt ceiling deal is reached in the US. I don't see that happening until the 11th hour (just like last time). Also consider that Bernanke will give a speech and take questions today at the close of the US markets. I expect him to say that regardless of how everyone interpreted the FOMC minutes there is no plan to stop bond purchases this year and rates are expected to stay low until at least 2015. This should no doubt have a positive effect on pm prices and could push the USD below 79 on the ICE Dollar Index. We'll see.

I may close out my postions just before I think a deal will be reached on the debt ceiling. I think we could see another drop after a deal has been struck. When I think it has hit bottom I will most likely buy back in. My overall outlook for the year is I expect gold and silver to reach new all-time highs before 2013 is over.

I want to give a reminder here that there are many ways to make money off of gold and silver, it's not just about holding physical:

1. I am heavily invested in AGQ which is a double-leveraged play based on the silver futures price. There are so many reasons to love this it would be difficult to mention them all. But the bottom line here is you can turn profits on silver with AGQ, it's not just a hedge against inflation.

2. The futures markets. This is another way to turn profits in the gold/ silver markets and there are many who engage in this arena (COMEX, NYMEX). It's simply a play on what you think gold or silver will do in the future. Do you think the price of gold will drop next week? Then take a short postion and cover when you are satisfied with the dip (within a 30 day period). Do you see gold being higher in 2 weeks? Go long and hold until you are satisfied with the increase. This is another avenue to turn profits on pm's. And actually, familiarizing yourself in the futures markets will give you a much better understanding about price movements in pm's. I would recommend immersion in these markets to anyone serious about investing in pm's, you won't regret it.

3. Even though I did mention owning physical is not a way to gain profits that is really only true for gold. Silver is another story altogether. Do some reading up on fluctuations in the historical ratio between gold and silver and you will see what I'm talking about. If silver even returned to 25:1 with gold that would equal a nice profit for physical silver investors.

I do have a caveat if you want to continue debate, by the way. I am not going to respond to seemingly endless copy and paste snippets from whatever source you are looking at. That is not a debate, that is simply a battle of the analysts that one can find or, a battle of the sheep. There are plenty of analysts who see things the way I do as well (David Rosenberg from GluskinSheff comes to mind) but I'm not going to make 10 posts putting down everything I can find from GluskinSheff, for instance, that support my view. If you want to debate, which I am more than happy to oblige, put it in your own words and we can have a legitimate "argument."

Take care and Aloha.

Signed,

WW. (AKA the biggest haole you probably know )

Hey WW,

I guess what it really boils down to in the long run is perspective on where each of us think the market is headed in the future as that is what our own personal decisions are based off of. The second major reason for buying (or not buying) gold is the current risk / reward ratio coupled with the other available investments / trading ideas at that particular time.

Personally, I'm not really a "buy and hold for years type of trader / investor" as fundamental can change at the drop of a dime. However, I am not a scalper or day trader either. I would consider myself a swing trader and most of my positions are held for weeks and sometimes even months. This is actually a pretty long time when comparing to most other FOREX traders.

This is how I look at it: Even if Gold shot up to $5,000 an ounce within 5 years or so, that is only a 300% gain. I can do that in a year using my methods so I don't look at this buy and hold approach as being very profitable, especially if profits are "paper profits" and are never realized until you "cash out." Then once you cash out, what happens from there? Where does a gold / silver investor park their money once they liquidate their PMs? Surely you will need to sell precious metal holdings one day to liquidate for fiat currency...

So my thinking is I learn how to make money through actual income generating investments and then if I decide to protect and INSURE my paper money I can do so via Precious Metals and / or Real Estate.

I think it's important to first, have income generating investments, and second, investments or holdings to protect / insure your cash holdings. To me, they are two completely different types of investments with two completely different outcomes.

Another way of putting this is let's say I have $100,000 that I use to purchase gold and silver today. Due to the fact that Gold does not pay a premium to inflation (it only tracks it) then when I cash out I am in the same position as I was before. Purchasing power has not decreased, but it hasn't increased. Therefore, it was a hedge against inflation. 5 years later "when" gold hits $5,000 and I liquidate my holdings I now have $300,000 USD (or whatever currency was used to pay for your PM holdings) that $300,000 won't be worth any more today then the $100,000 was worth 5 years before when I bought the gold / silver due to inflation. This is because Gold / SIlver doesn't pay a premium to inflation, it only tracks it. It is a form of insurance for your paper currency.

In Summary:

1st Step: Find and utilize income generating investments which produce profits on a consistent basis

2nd Step: Protect / Insure your paper profits via precious metals / real estate as a hedge against inflation

Edited January 14, 2013 by 20Mil

[20Mil]

Almost forgot, as far as the articles go I thought it was only fair (and necessary) to bring those in to show my side of the coin as most (if not all) of the Gold / Silver articles brought over to this site are Gold Bullish or at the least supportive of gold. :D/>

There is never only one side to the story.

**However, a lot of what I posted in the first two responses was my own and you won't find them in any articles floating around on the net.

Edited January 14, 2013 by 20Mil

[WallyWeaver]

Hey WW,

I guess what it really boils down to in the long run is perspective on where each of us think the market is headed in the future as that is what our own personal decisions are based off of.

Personally, I'm not really a "buy and hold for years type of trader / investor" as fundamental can change at the drop of a dime. However, I am not a scalper or day trader either. I would consider myself a swing trader and most of my positions are held for weeks and sometimes even months. This is actually a pretty long time when comparing to most other FOREX traders.

Mr. 20,

Thanks for putting your thoughts down. I do want to say that neither I nor anyone I know would recommend putting 100% of your capital into pm's. I actually can't think of anyone that I have read who thinks you should have anymore than 30% of your holdings in pm's. I agree with that. Let the record show that for now I also love dividend paying stocks from blue chip companies with healthy earnings statements, no debt, with plenty of cash, a strong expansion strategy for the future, and a good management team. My favorites are KMP, RDS-A, MCD, and LINE. I also love the CAD.

It's important to state that I think you and I are in 2 totally different situations. My understanding is you invest for a living and are waiting for the day when your income stream from investments allows you to retire, so to speak. My hat's off to you. I'm waiting for that day myself when my house is paid off, my unsecured debt is gone, and I have a healthy income stream. But alas for me, at this stage in life, investing is something I do on the side. I have a very good job with excellent pay and benefits with a pension plan along with a 401k. This probably gives us each a slightly different perspective as to how we approach investing in general.

As I stated in my above post, I don't think it's wise for anyone to just buy physical gold and sit on it. Silver is a little bit of a different animal but I wouldn't recommend anyone just buy physical silver, either. As I stated above there are many ways to profit from pm's.

1. Double leveraged ETF's like AGQ are great. You don't have to hassle with trying to buy and sell the physical stuff; it's as easy as buying a share and selling it. It's all done on the internet from your computer at home. The transaction is over in about 30 seconds and the money is transferred from your brokerage account to your checking account. Done. It's awesome.

2. Engaging in the future's market. Same thing here. You are trading paper futures contracts based on future pm price action, or what you think will happen in the future. For someone who likes swing trades this should be right up your alley. These positions, whether long or short, are closed out at anytime within a day after you agree to a contract all the way up to the end of a contract which could be 6 months down the road, it's up to you. And again, once you cover the money is in your account. Done.

3. What about mining stocks? I just read an article the other day about a mining company, during the gold bull market in the 70's, that went from $.05 to $375 per share in just a few years! That is just ridiculous.... Several of the good mining companies even pay a dividend like Goldcorp Inc. (GG) and El Dorado Gold (EGO) which are both found on the HUI. So you are making money while you wait for gold to hit, it's beautiful!

In conclusion while we may have different perspectives it seems like there's a lot we agree on. I contest, however, that the different vehicles for investing in pm's give the trader/ investor many different avenues for making money. Whether it's double leveraged ETF's, futures contracts, dividend paying mining stocks, or just plain old physical there are plenty of ways to foster a healthy portfolio. Just don't forget about KMP (lovely, lovely dividend), RDS-A (when the world stops running on fossil fuels let me know; great dividend as well), MCD (have never been to a McDonald's and not waited in line; pays a nice dividend), or LINE (natural gas is the future, also pays a fantastic dividend) while you are on your way to fiscal health.

Thanks again.

WW.