Today James Turk told King World News that what is happening right now in the gold and silver markets is extremely rare.
Extremely Rare Trading Action
James Turk: “The Comex spot gold contract closed lower nine days in a row coming into trading today, Eric. That kind of selling pressure resulting in a consecutive 9-day unbroken string of down days is rare…
The net result is that gold was down 4.5% over this period. But fortunately, support at the $1,200 area has held, at last so far.
The selling pressure on silver has also been severe. Even though it closed lower on only six of those nine days, over this period it was down 8%. Silver is now trying to hold support at the $17 level, which is being severely tested.
Bounce Not Spectacular
Once the uptrend line going back to the December lows was broken, the selling in both precious metals was relentless. After declines like these, one would normally expect prices to bounce, and we got that today. But it wasn’t spectacular. I think today’s lackluster bounce occurred because of a big distraction. It seems most everyone is talking about what the Fed might do on Wednesday. But I find that to be somewhat surprising.
A small jump in interest rates seems to have been very well telegraphed by Fed officials over the last few weeks. So I expect that the Federal Reserve is going to announce it will raise interest rates by 0.25%. That also seems to be the consensus expectation. So what are the odds that the Fed will surprise the markets by doing something different? It is always a possibility, but the odds are low.
The Fed has often said that it doesn’t like to surprise the markets. Further, all their statements recently indicate that a rate hike is in the cards. So doing nothing or raising rates more than 0.25% is a low probability. The important point of all of this is that the Fed is a distraction. The steps it is taking and its announcements are designed to give an impression that the Fed is in control and knows what it is doing.
But inflation is rising, and not only in the US. It is global. Europe recently has been reporting some of the highest inflation numbers in years. When it comes to central banks, whether the Fed, European Central Bank or any other, the important point is real interest rates. In other words, real interest rates are how much interest income can you earn after accounting for the loss in purchasing power from inflation?
The Bottom Line
Right now real interest rates are negative most everywhere. When depositing money in banks, you have less purchasing power at the end of a year. The minimal interest income you earn is not enough to offset the loss of purchasing power arising from inflation. While the Fed is giving the appearance that it is fighting inflation, the ECB, in contrast, is continuing to strive for more inflation. And there is no doubt in my mind that they will get it.
Central banks are not protecting the purchasing power of currency. They are all well behind the curve, with the result that inflation will continue to worsen as this year progresses. So notwithstanding what happened the last nine days, the case for owning physical gold and silver remains strong.”
***KWN has now released the remarkable audio interview with legendary James Dines and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Gold Soared $325 The Last Time The Fed Went On A Rate Hike Binge CLICK HERE.
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