Why Gold and Silver Will Break to New Lows and Tax Moves to Capitalize UponSubmitted by Doug Eberhardt on Mon, 12/23/2013 - 23:16
We have seen the perfect storm come down on gold and silver this past week with the Fed taper, Congress agreement on the budget for two years and higher than expected GDP, but there is another reason why gold and silver prices are falling. This stems from the year-end tax moves that the big players in the precious metals market; Hedge Funds, Mutual Funds, Banks and Professional Traders, are doing by locking in dollar for dollar their losses against gains. The good news is, individuals who own the ETFs like GLD and SLV can lock in those loss deductions too and convert those paper assets to real wealth by acquiring the physical metal. First, let's look at what's going on in the precious metals market.
Gold is experiencing its worst year in 32 years. The media, especially CNBC, loves to harp on gold as much as they can. They ignored the last 12 years straight of gold moving higher, and jump on the bandwagon of gold haters with any downturn. What will they say about gold in the future when it begins to take off again and stocks decline? What would cause such a scenario to occur again? See http://usdebtclock.org
The "perfect storm" I speak of was the following;
1. The Fed is doing a $10 billion taper beginning in January ($5 billion cut on mortgage buybacks and $5 billion cut in longer term treasury purchases)
2. Senate voted 64-36 on Wednesday to send a government spending plan to President Barack Obama, who has signaled his support.
3. An increase of 4.1% in GDP growth as reported for the 3rd quarter
Fed Taper of $10 Billion
In my last article I said the Fed might do a token $10 billion taper if rates were low enough.
Is there a chance the Fed may do a token taper to make the market think they still have control of the situation? Sure. Especially if the stock market is out of control and interest rates are low enough. But it won’t be much at all. Probably like the $10 billion that the market thought the Fed would do last time they met.
Fed Chairman Bernanke is retiring and he wanted to go out on top or at least the perceived top before hitting the talk circuit like his predecessor Alan Greenspan did (the guy who didn't see the 2008 Financial Crisis coming). Maybe Bernanke will be knighted by England like Greenspan was before the next financial blow up in the years ahead caused by unprecedented Federal Reserve action and abuse of their once solid balance sheet.
If we had a good balance sheet in America, then Congress wouldn't have had to pass TARP or the Fed wouldn't have had to implement Quantitative Easing (QE). But that's not the case with a ballooning National Debt of over $17 trillion that represents the elephant in the room. All the Fed said in their latest statement regarding the future is this;
The Committee now anticipates, based on its assessment of these factors, that it unlikely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.
Only one member of the Fed disagreed with Bernanke and the other Board members, Eric S. Rosengren, who "believes with the unemployment rate still elevated and the inflation rate well below the target changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate." This is a more realistic view of the economy. The taper was premature.
In fact, in the aftermath of the decision, Bernanke was on television saying how they have to keep interest rates low. This is the problem the Fed has with any tapering because any perceived strength in the economy, higher interest rates on the National Debt are sure to follow. This higher debt payment has to come from somewhere, and with trillion dollar deficits already adding to the National Debt, and small reductions in the budget, isn't resolving the overall issue of what effect higher interest rates will have on the budget. Congress can't think that far ahead and neither does the Fed. That is why if there is any uptick in rates, it will surely be followed by more QE. It's all the Fed knows how to do; destroy their own balance sheet and "hope" the economy improves.
Senate Approves Bipartisan Budget Plan
The second whammy put on gold this last week was the Senate passing a bipartisan budget proposed for the next two years. This budget includes continuation of the current sequester that helped reduce the budget deficit. While reducing a budget deficit is good, it can be compared to the savings the individual had in the following video where a man goes to a banker and asks for an Increase his Debt Limit), telling the banker that he cut $380 out of his $17,000 a year deficit on a $21,000 a year income.
Link if video doesn't post: http://bit.ly/1e7eFPu
This is truly an incredible video and the numbers used correlate to the actual budget and National Debt from a few years ago, when the debt was only $14 trillion. Today we are over $17 trillion and we should congratulate congress on saving a few billion on a trillion dollar debt? When you watch the video, keep in mind that the banker does give the man more money, despite the fact that he knows too well that it can never be paid back on the income he currently makes. Does anyone else see the lunacy in this type of thinking?
This is how Congress works, but you only see the lunacy when it is put on a scale of an individual trying to do the same thing as this excellent video portrays. This is what you should be talking about at Christmas to wake people up and prepare for what's to come (along with spreading cheer in celebration of the birth of Jesus Christ if you are Christian of course or celebrations of whatever religion one practices).
From this list you can choose the next Republican candidate for President (among those like Christ Christie and others who may be running), not from the Republican Senators who voted for this spending bill including Senator Ryan who helped draft the bill. Why? Because the one's who voted for it are supporting what the banker is doing in this video. They are not solving any of the problems that are plaguing our country, they are contributing to future problems. They are simply kicking the can down the road until their own retirement, hiring by the corporations that supported them or book tours as they like the kings and queens we tax payers have made them by supporting them. They don't have our best interest at heart. Their votes are good for gold and silver however as time will show. Unfortunately at the expense of the many. And this spending is not a Republican vs. Democrat issue. They both are guilty as charges. The Bush administration expanded the debt and with Bernanke's Fed, the Obama administration is like the Bush administration on steroids.
Increase in GDP Growth
When looking at the 4.1% growth number, we must note that a good percentage of that number comes from Consumer Spending (the last to know of any crisis) and Change in Inventories, which could be considered bullish OR bearish.
There is growth in some parts of the country. I have clients tell me of the buying of homes on the East Coast in the area where John Kerry has a home and they are buying more than one home as investments. But this is eerily similar to the 2006 era where many were buying second and third homes, only to be ultimately disappointed with the eventual crash. Perhaps we are not quite there yet, but in due time. Just look at what's going on in Florida and Nevada again. When these cash buyers disappear as banks run out of repossessed inventory, coupled with any potential rise in interest rates, which we are seeing come to fruition now, look out below.
What Gold Investors Sitting on Heavy Losses Can Do Now
Continued at http://bit.ly/Jhqkku
NOTE: I am as bullish as anyone and sell gold and silver for a living, but I call it as I see it. I have included my 2014 predictions as well. For those that don't want to read further, I do see a strong January for gold and silver, then possibly one more dip to the lows before we are off to the races. These things will play out over time. Debt isn't going down. QE's not going to end. Obama hasn't saved the day.