Friday, August 5, 2011

Gold and Silver Update

Live New York Silver Chart [ Kitco Inc. ]Gold and silver both rallied overnight, and both are now down hard after the NFP beat at +117K (to be revised down to +5K in Sept, and to -250K when it comes time for annual BLS revisions).
As numerous readers have asked us why this caused a sell-off in gold and silver this morning, the answer is simple:  QE3.
Naive traders were looking for a just turrible NFP in hopes that The Bernank would respond by announcing QE3 at Jackson Hole.
With the payrolls report beating expectations, traders rushed to dump silver and gold as the likelihood of imminent QE3 is much diminished in their minds.
Personally its clear that this whole mindset is faulty. 
The main purpose of QE is NOT to reduce the unemployment rate or bring jobs back into the US economy.  Perhaps that was part of the purpose initially (even that is debatable) but the continuation of QE is all about funding the debt.
There is simply NO ONE who will purchase $3+ Trillion in Treasuries over the next year other than The Fed.
Seriously, think about it for a moment. 
China? Don't think so. 
Japan? Don't think so, they're trying to raise capital to rebuild.
Europe? Bwahahaha.
The UK? Bwahahaha.
Russia? get the point.

Gold sold off nearly $20 from $1670 to $1650 following the NFP report, but has already retraced almost all of those losses in less than an hour.  Clearly many buyers are waiting for any dip in gold and are stepping in on the buy side with ANY dip.

Live New York Gold Chart [Kitco Inc.]

Silver sold off $0.80 following the NFP release, but is charging higher as I write, and has now retraced ALL of its losses and even gained $0.20!  The cartel will NOT be pleased to see silver knocking on the door of $40 again.  Look for every attempt to be made to cap silver under this level for the weekly close.
Yesterday was an important step for gold and silver, as GLOBAL QE to Infinity became apparent to all.
In time, gold and silver WILL RESPOND to the global inflation in the supply of currency to prevent a massive debt default.
As sure as the sun rises in the east, PRICE inflation in gold, silver, food, oil, and other real assets will follow the inflation / hyperinflation of the money supply known as QE.

Live New York Silver Chart [ Kitco Inc. ]