Yesterday gold and silver staged a sharp reversal day after first making new highs for the year intra-day. There were a couple of reasons for the sharp pullback. The first was the stronger U.S. Dollar Index and the second was the sudden increase in margin requirements for silver. While we are not sure why the margin requirements increased for silver so suddenly we do know why the U.S. Dollar Index traded higher. The U.S. Dollar Index caught a bid yesterday due to the fact that Ireland and Portugal bunds spreads are the widest they have ever been. In other words these two countries are in serious trouble. Other European Union countries remain in trouble and could soon face defaults as well.
In March, April, May, and June of this year gold and the U.S. Dollar Index actually rallied higher together. So please understand that gold does not just trade inverse to the U.S. Dollar Index. Gold and silver are now being viewed by the investor community as the only true form of currency.
While many say gold is in a bubble this simply does not hold any merit. A bubble occurs when everyone owns something such as a tech stock in 1999 or a house in 2005. Ask your next door neighbor if they own any gold outside of their jewelry and the answer is likely to be ‘no’. If gold was not so important the government would not want to tax it as a collectible at the highest rate allowed. Gold is the new way of reading the amount of money the central banks around the world are creating out of thin air. Gold is the only way of reading M-3 money supply. You see M-3 money supply is no longer available from the Federal Reserve Bank since 2005 when they said that the important statistic no longer fit into their budget.
Gold may pullback or consolidate after yesterday’s action. Gold and silver staged a huge high volume reversal. Often this will lead to a correction, however, the precious metals are not selling off today. They are rebounding right back up trading higher and this is signaling under lying strength not as a commodity but as a currency. Today the U.S. Dollar Index is catching a bid as well and gold is not blinking. Obviously Europe is a mess and this is certainly one of the reasons for the rise in the U.S. Dollar, gold and silver.
Stay tuned as the G-20 meeting takes place tomorrow and many countries will be able to voice their opinion about the Federal Reserve’s recent $600 billion quantitative easing(money printing) plan. This stock market is just starting to heat up as the plot thickens. Do not discount gold and silver as long as the world remains using a fiat money system. Gold remains the Federal Reserve Bank’s worst nightmare.
