While the traders of gold and silver are not dancing in the streets, they are quietly rejoicing. Their assumptions, knowledge and expectations that gold and silver have been oversold and undervalued have been amply rewarded today. Prices for goods and services continue to get more expensive and the fact that the Federal Reserve’s four consecutive rate hikes have made only a tiny difference to “core” inflation is strong confirmation that the Reserve government is ineffective in bringing inflation down to its target level of 2%.
However, when it comes to “headline” inflation which adds the costs of energy, food and housing into the equation, the net result of their monetary policy has had no impact, with inflation continuing to climb to higher levels.
Since March, the Federal Reserve has raised its federal funds rate by 2.25%, leading to only one major achievement if you can call it that. They have effectively contracted the US economy for the past two consecutive quarters. Consumer spending is now growing at the slowest pace in two years as business spending declines. Whatever spin government officials put on today’s second quarter GDP report, the facts speak for themselves.
If I could convey the current economic environment better than Reuters News I would, however, it is the most eloquent description of our current economic environment.
“The United States is on the verge of a recession as GDP contracts in the second quarter”
The title above is based on the following facts; First, second-quarter GDP fell 0.9%. Second, inventories explain a sharp decline in GDP. Finally, consumer spending slowed and business investment contracted.
The Oxford Language Dictionary defines a recession as “a period of temporary economic decline during which commercial and industrial activity is reduced, usually identified by a decline in GDP in two successive quarters. The country is at most depth of a recession”.
It is abundantly clear that the US economy meets the definition of a recession, no matter what the government wants us to believe. Therefore, today’s extremely robust movements for gold and silver are highly justified and long overdue.
As of 5:15 p.m., August EDT gold futures are currently up $34.30, a net gain of 2%. The December contract which will soon become the most active futures contract and is currently up $35.50 and set at $1773.30.
However, it was silver that eclipsed the precious metals complex today up 7.45% with the September futures currently up $1.385 and set at $19.98.
Over the past month, our daily articles have assumed that gold prices are extremely undervalued and oversold. More so, we identified a key price at $1680 which we believed had a realistic probability of defining a major support level in which a key reversal could take place. Because of this assumption, we recommended our premium subscribers on July 14 to place an August gold buy order at $1681 or better. On July 21, gold traded at a low of $1678.60, allowing our open order to be filled. Today we recommended to close the trade and our effective exit price was just above $1745.
For weeks before gold traded below $1700, we informed our Kitco readers in our “After Hours” column that $1680 was a major support level giving them not only the opportunity but also time to act on this assumption.
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Wishing you as always good exchanges,
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.