Short Sellers Bailing Out -- Stage Set for Gold/Silver Rebound
Wow, what a week it was! And this week could be just as interesting.
Selling reached an extreme last week as second-quarter trading closed out, and the current low prices have put new mine supply of gold and silver at serious risk going forward.
Looking at trading positions in the paper markets, it appears that large commercial banks (JPMorgan Chase, HSBC, etc.) have finally moved out of their massive net short positions and taken a net long position in gold and silver futures. If this is the case, investors can expect a little carry-over momentum from Friday's rebound in prices. This news may be just what the metals markets need to put in a bottom and start a new trend higher.
Markets Can Be Irrational, but Not Forever
Trading in the futures markets, where gold and silver "spot" prices get set, is not reflecting the strong fundamentals of these metals. Much of the activity is driven by technical signals. When reading the charts, traders see the broad equity markets as bullish – and therefore buy stocks. Since the gold and silver charts look grim – they sell precious metals.
However, seeking a fundamental rationale for recent price declines in gold and silver leads to frustration and bewilderment. We urge investors to remain calm.
Last week, commentators on CNBC looked at the disappointing announcement on GDP and said that bad economic news would force the Fed to abandon the idea of "tapering" QE, which would help lift stocks. A short time later, the same pundits explained the lower gold and silver prices based on expectations the Fed would taper.
Recent jitters in the stock and bond markets over the mere hint of "tapering," coupled with lower precious metals prices and subdued inflation expectations, give the Fed plenty of leeway to continue stimulating – and driving the value of the dollar down.
Declare Your Independence from Conventional IRAs
"Specie [gold and silver coin] is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands..."
-Thomas Jefferson to John Wayles Eppes (1813)
With the S&P 500 index sitting very near its all-time high and gold and silver trading at three-year lows, now may be one of the best times of the past decade to switch funds from stocks to physical bullion.
This move could be particularly advantageous tax-wise if you happen to have realizable losses in your equity portfolio. If you are sitting on gains in shares held in a tax-deferred retirement account, no tax consequences apply when you sell (as long as the proceeds stay within an IRA).
Remember, it is quick and easy to swap paper assets in your IRA for physical bullion by converting your conventional IRA into a Self-Directed IRA. We will help you do it. Just go here for more information or call us at 1-800-800-1865.
Potential Market-Moving News This Week
Money Metalswill be closed for telephone trading on July 4th (although customers may still place orders online on a 24/7 basis). The office and our phone lines will be open on July 5th.
The holiday week will be light on scheduled news releases.
- Monday, July 1st – ISM Manufacturing Index. The May report showed weakness, and June numbers are not expected to show much improvement.
- Friday, July 5th – Employment Situation. Friday's report will provide the latest snapshot on wages and employment. Expect anemic growth in jobs – around the 175,000 level. Approximately enough to keep pace with population growth, but not sufficient to put a dent in the dismal rate of employment.