Market Analysis

by Franklin Sanders, The Moneychanger

If Bernanke’s mere mention, his hint, that the Fed might taper QE IF — if — the economy improves could wreak such havoc on markets, how will he ever taper off in fact? He can’t.

In two days the Dow has lost 3.7%, the S&P 3.4%. How many days like that can Bernanke or his successor stand? How many such days can the White House stand? Dow today lost 353.87 points (2.34%) and ended at 14,7458.32. S&P tumbled 40.74 (2.5%) to 1,588.19.

Both stock indices sliced through their bottom channel lines & their 50 day moving averages. Next support stands at 14,550 and 1545. Both indices will probably reach that.

Ahh, but silver & gold both fell more than stocks, so the Dow in Gold and the Dow in Silver both made new highs.

Dow in gold rose about half an ounce to 11.485 oz (G$237.42), up 4.32%. If it corrects 38.2% of the fall from 2007 to 2011, it would rise to 11.6 oz.

Dow in silver rose 45.62 oz (6.53%) to 744.54 oz. A 61.8% correction of its 2007 – 2011 fall would take it to 802.8 oz.

Think a moment about currencies. Major determinant of a currency’s exchange rate is what interest rate it pays. And bond prices move opposite interest rates. Bernanke’s suggestion that the Fed would stop supporting bond prices/suppressing interest rates by buying bonds sent the 10 year T-not rate gap up. Closed at 2.419%, confirming a break out above last year’s high, & setting me to wondering if Bernanke’s Bond Bubble is bursting. Oh, this is going to be a mess, after he has ruined interest rates on everything else and forced everyone into bonds. Door to escape is very low and narrow as they try to flee bonds.

Rising interest rates are not healthy for gold, either, since gold pays no interest. Higher rates rise, more income must be foregone to hold gold. But then, rising rates will also knock any housing recovery in the head.

US dollar index rose another 0.64% today (50 basis points) for a two day gain of 1.54%. It ended at 81.84. Certainly will rise through 82, perhaps to 83.3.

Meanwhile the yen and euro have hit the skids. Yen dropped down 0.92% to touch its 20 DMA and close 102.79 cents/Y100. Euro lost only 0.54%, also touched its 20 DMA, & closed $1.3220.

Gold & silver needed a break, and today got one. Gold cascaded $87.70 (6.39%) to $1,285.90. Silver caved in 8.3%, 180 cents, to 1982.2c.

If y’all think this has me puking up fingernails in my waste- basket, think again. This is, I reckon, gold’s last plunge for this correction & I am glad to see it. Ditto for silver.

Whither gold from here? It could stop at $1,260, or, if not, $1,125. That’s where trading channel bottoms hit.

Silver either stops about 1875c or drops to 1750c. Before that comes support from 2010 at about 1950c.

This ought to be the last plunge of this long correction. It shouldn’t carry much further, but for now we watch & wait, looking for signs of selling exhaustion and reversal.

You are watching Bernanke’s clever inflation web come unraveled. Since 2008 he has taken the Fed & the world’s central banks into the terra incognita of endless inflation. It was a brave bet, but one destined to come up snake-eyes.

However, all that money he has created hasn’t gone to money heaven. It’s still out there, and from here he has no option but to keep on inflating. Certainly, he doesn’t seem to have the will to stop inflating and screw up interest rates to 24%. He ain’t Iron Paul Volcker, & Obama ain’t Ronald Reagan.

What happens when the world at large grasps that stocks were rising on inflationary gas? That the bond bubble is bursting? That the economic recovery existed only in the Fed’s mind & government statistics?

Some of them will buy gold, and the door into the gold market is far, far smaller than the door out of the bond market. Gold & silver could rally savagely.

I can wait, patiently.

On 20 June 451 in France took place the Battle of Chalons or the Catalaunian Plains between a coalition of Roman & Visigothic forces and the army of Attila the Hun & some Germans. Attila’s defeat marked the beginning of the end for his power. He attacked again in Italy the following year, but withdrew. He died early in 453.

Argentum et aurum comparanda sunt — Silver and gold must be bought.

About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
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