When will Gold and Silver Turn Bullish?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We are in an election year and since this is the case, we need to keep in mind that it only makes sense that the powers that be will do all they can to make economic conditions favorable to get re-elected. This includes a strengthening economy, low inflation, and a strong dollar.
One thing that does not appear to go hand in hand right now is a strong dollar and increasing value of precious metals. The powers that be do not like high gold - ETFS Gold Trust (NYSEMKT: GLD) or silver - iShares Silver Trust (NYSEMKT: SLV) prices during an election year. That means people are looking for a safe haven for trouble brewing in the world. No matter what the Feds say, they will act this year if we see gross domestic product (GDP) slow down of if it doesn't maintain a 2% inflation rate and/or unemployment starts to creep back up. If Operation Twist (which ends in June) does not do the trick, there is a good chance we may see more quantitative easing take place.
It is very likely that we will not see out ETFs go up anytime soon. Supposedly the economy is slowly growing. Bits of it are, but when we look at cold hard facts—realizing how high our deficit is running while about 21.5% of spending comes from the government (not including social security and other such programs) it may not be growing after all. Take out the $3 trillion stimulus and the numbers do not show the free U.S. market growing. We are about the size we were around 2006-2009. Is that a real recovery?
Eventually the smoke and mirror money printing crutch that has attempted to prop up the economy will fail. The powers that be will do all they can to keep it from failing before the election. They will try to keep the GLD and SLV down. Unemployment is not as rosy as it may appear. John Williams of shadowstats.com calculates these numbers and had it recently almost at a record high of 22.5%.
Look for a stalling economy or inflation picking up and the Fed trying to do something about it. The answer…print more money! The spigots will go on and money will flow freely again. If (or when) this happens, we will see investors turning to precious metals again. Bernanke will do everything within his power to assist in the re-election of President Obama. There is nothing new about this. Look toward the end of summer for something to happen if it will at all. But I do not see gold or silver moving much at all until after Operation Twist expires.
It is an election year. Rising gold and silver prices do not mix well with a strong dollar. They do not sit well at all in an election year. But—if they grow—look for it to take place after summer, after Operation Twist expires, and toward the end of the election.
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