reply to post by asperetty
Gold has taken a big hit today, down over $43 an ounce on the spot market., This decline was to be expected, and even welcomed.
It’s a fact — no bull market goes straight up. We need consolidations and pullbacks, not only for the general health of the market, but for
opportunities to get into our targeted positions at value prices.
However, what is disappointing is what happened after the Federal Reserve officially announced what is being called “Operation Twist,” in which it
will shed some of its shorter-dated bonds for longer-dated ones, an effort to reduce supply and increase demand of the latter. (By doing so, the
Fed’s expectation is the price of those long-term bonds will rise, lowering the yields, which in turn drives down long-term interest rates on
mortgages, car loans and the like.)
Operation Twist will be a failure, I have no doubt. It’ll do nothing to help the economy.
But more tellingly, when Operation Twist was announced yesterday, the stock market reacted with a swift and deep drop. That tells me the recent market
rally was based on an expectation the Fed would rev up the virtual printing presses again for more “quantitative easing,” which is fuel for
short-term market gains (but also for massive inflationary conflagration in the long run).
Yes, the expectation was for the Fed to save the day — for the big wigs on Wall Street, at least! But it didn’t happen, at least not yet.
You don’t need a long memory to recall the market rallied on QE2 into the second quarter of 2011. Yet, it is now obviously clear in hindsight that
the economy was in bad shape and slowing by the first quarter of the year, conditions that continue today. In other words, when all was said and done,
QE2 did nothing for the economy other than create a lot of Wall Street bonuses!
What that screams to me, however, is bargains are underfoot. The bull market in gold is ongoing, and gold-mining stocks are very cheap when compared
to the price of bullion, which remains over $1,700 an ounce.
Meanwhile, the gold stocks do need some overall market stability, a stock market that remains relatively stable or at least only gradually declines.
When the Dow drops 400 points in a day, it instills panic and people throw out the good stocks with the bad.
Here’s the good news, though. In my analysis, I believe we are nearing a panic bottom. Whenever you begin to see that the only things going up in
price are the U.S. dollar, U.S. Treasurys, and the Japanese yen, that is always the sign of full-on-panic mode, and that you’re nearing a bottom.
Keep in mind, gold tends to get smashed near a bottom, because people are selling everything in a dash for cash. Say as a large investor, you get a
margin call on your Dow stock or more aggressive holdings; you’ll then sell gold to raise capital to meet that margin call.
This “forced liquidation” tends to be a sign that we’re near the end of something in terms of the selling environment, not at the start.
Everyone seems to be blaming this selloff on the European debt crisis. However, what people fail to note is other than Greece, the other so-called
PIIGS (Portugal Ireland, Italy and Spain) have interest rates that are lower than their highs of the summer.
So the market is not moving down solely based on the issues facing Europe. All in all, I think the market is very oversold and will rally shortly.