Decision Time For Gold Bugs!

| December 9, 2013 | 0 Comments

precious metalsDiehard gold and silver bulls are likely getting nervous…


Both metals are trading just above the 52-week lows set earlier this year.  Gold is trading around the $1,233 area, which is a stones throw away from the yearly low of $1,180 set in late June.

Take a look…


As you can see, if gold’s recent downward trend continues, we’ll likely see the commodity test this important support level very soon.

And now for silver…


Silver is struggling at the $19.50 area in recent trading.  That’s not far from the 52-week low of $18.17, also set in late June.

Why such weakness for these two metals?

Recent US economic data is coming in strong.  In fact, last week’s US Nonfarm payrolls report revealed 203,000 jobs were added in November.  The surprisingly strong number was better than consensus expectations.

But more importantly, it brought the unemployment rate down to 7%…

Such a big drop greatly increases the chances of Fed Chairman Ben Bernanke starting his much-anticipated bond purchase tapering program soon.  As a matter of fact, many economists and investors now believe the scheme will start at the next FOMC meeting on December 18th.

But the real reason gold is falling is because of inflation.

Or should I say, the lack of inflation…

Recent Consumer Price Index (CPI) data shows year-over-year inflation is running at just over 1%.  That’s substantially less than the Fed’s target rate of 2%.  And now that the source of so much inflation worry is likely coming to an end soon, the fundamental reason to own gold and silver is weakening.

Now, before any of you gold bugs send me hate mail, listen to this…

Gold and silver may actually rise after tapering is officially started. 

In fact, gold and silver may be very close to their multi-year lows even if tapering is announced at the December meeting.  That’s because investors have been discounting the start of tapering for nearly eight months now. 

It could be the classic “sell the rumor, buy the news” sort of scenario.

So what should you do?

Keep a very close eye on gold and silver at the important support levels mentioned above.  And when the Fed announces the results of their meeting next Wednesday, watch the precious metals market’s reaction to the news very closely.

If the metals start rallying on the announcement of tapering, I suggest you jump on board.  If not, let the metals fall and don’t touch them.

A great way to trade gold and silver price swings, without exposing yourself to complicated and risky futures contracts, is via the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV).

Until Next Time,

Justin Bennett

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Category: Gold, Silver

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.