Gold And Dollar Weekend Report

Originally published by Chamber of Merchants

Yesterday I dusted off the reserves and took a position in Evolution Mining Ltd. I also took additional positions in RMS, SVL and MOY. This is why.

Gold & the Dollar’s Price Action

I was on the road yesterday, so while I did post an update, I did not email it out since I don’t have access to my system. For future reference, please visit the site just in case there is an update that hasn’t been emailed.

I mentioned earlier this week that I believe we witnessed the bottoming of gold’s sell-off. Likewise, I also mentioned that I believed the cat was out of the bag with regard to the U.S Dollar.

Yesterday, about an hour before the close of the market I took the following positions:

EVN 20,000 shares at $1.89-$1.91

SVL 20,000 shares at 0.185c

MOY 20,000 shares at 21.5c-22c

RMS 10,000 shares at 49c-50c

Why did I do this?

I did this because I knew that Friday we would see the newly released non-Farm Payroll numbers as well as the unemployment rate.

One would logically think that it would be wiser to see the results first and take a position afterward.

However, as a Merchant, I saw an opportunity and took it.

What was the opportunity? I mentioned it several times throughout the week.

I clearly explained that every time there is good news for the U.S Dollar, it would rally slightly, fail to reach a new high and be sold off. I said, the cat is out of the bag.

So, while usually we would all be worried about the economic indicators, I reasoned the following:

If the U.S economic indicators were to be disappointing, then the U.S Dollar would drop, which is good for gold.

On the other hand, if the U.S Economic indicators were great, then there would be a slight rally, followed by a sell-off the, repeating the same pattern from the last two weeks, which is still good for gold.

You see, either way it would be good for gold given the pieces of the puzzle fitting together.

Here’s the U.S Dollar. Note that each spike on good news, such as great GDP, great consumer sentiment, etc would be followed by a powerful sell-off. I recognise that as selling off or distribution where large holders of dollars are selling into the buying rally and so exiting their positions while the general market buys the dip and expects a major rally.

Therefore I weighed the probabilities and it made sense to increase my position as it appears the downside is limited to gold while the upside to the Dollar also appeared to be limited.

Remember, the media are not to be trusted for financial advice. The media are the mouth piece for particular interests and those interests benefit the few, not the many.

When all articles start to say “sell gold, buy the dollar, cash is king” then it’s usually the final push to shake the pockets of the remainder of the market. likewise, in a few months when the media finally starts churning headlines like “gold shortages, gold best year on record, gold the best investment” then one should consider that big and smart money will start to offload their positions as the masses all rush to join the gold club.

Economic Results: USA

On the surface the economic results were stellar. The headlines in the news are going to focus on two things and two things only. When you see these headlines or hear it on the news, know that they’re pushing news onto you, hoping that you’ll believe the hype. The two headlines are:

1. USA unemployment improves to 4.6% | Best unemployment rate in a decade!
2. Non Farm Payrolls beat expectations! 178k jobs created, beating estimates of 175k.

I’m not going to write an essay about it, because the truth of the matter is that regardless of this great news, the dollar failed to rally. Banks are getting out of the dollar. That is why I was disappointed to read the repeated dollar shortage articles on Zerohedge which is still #1 in my book. But with such a “shortage” of dollars, I would be inclined to expect the dollar to appreciate into infinitum. Yet, each rally was swiftly sold off. So I guess that even though there may be a U.S Dollar shortage, there is simply not enough demand for the dollar for the price to reflect the apparent “shortage”.

Let’s just briefly look at the numbers from the U.S.A. You’ll see that the government reported payroll number is actually different to the private number. Remember, if you’re the government, you need confidence in your product to raise funds by having good economic data. The product of course if Bonds/ Treasury Notes. If nobody wants them, then the USA has no way of raising funds to pay debt and continue spending on welfare and infrastructure.

Am I saying the U.S Government fudges the numbers? Heaven’s to Betsy No! That would be immoral and governments are not immoral. Plus, it would be foolish of me to suggest that since I would be whisked off into the night by men in black suits that would question my patriotic loyalties.

No. Rather, the way that statistics are measure can be changed over time, to better adapt to our evolving economy.

It may be that the way in which we choose to measure particular numbers, and the underlying assumptions that are used, may just coincidentally produce results that make us all feel better and keep us spending.

The way we measure things will produce different results. It’s not dishonest, it’s simply statistics.

So here are the numbers:

Notice that government reported nonfarm payrolls beat expectations while while private results actually disappointed. Also note that government payrolls tripled. Manufacturing payrolls were much worse and hourly earnings showed that workers were receiving fewer dollars per hour. The unemployment rate decreased, but so did the participation rate. That means many people stopped looking for work all together.

Remember, even if you don’t have a job, if you’re not registered with a job seeking agency, you are not considered to be unemployed. So if you lose your job and simply stay at home, you won’t get counted as unemployed until you register at an employment agency. Are the numbers under reported? Do the numbers that are published reflect the reality? I’ll let you decide.

Hint: The polls and media said Trump can never, ever, ever , ever , ever be President.

Let me show you the ridiculous nature of our economic measuring system:

While the latest payroll number beat estimates, the previous payroll number that was reported as 161k jobs (the goldilocks number) was actually DOWNGRADED to 142k jobs.

Yes. You read me right.

The payroll numbers that they report get changed because the data changes after the report is made.

(The changes are never reported by the media).

So this GREAT payroll number of 178k could very well be revised downward in the coming weeks as more data is released. We just don’t know. So take the numbers with a grain of salt.

Moving on…

Gold

While the price of gold may still fluctuate downwards, I believe the momentum has bottomed out. That’s why I increased my position.

Earlier in the weak we read all about how Gold is about to tank further on import bans from China and India. Now we read that physical gold demand is out of control as Chinese buyers rush to acquire the physical metal.

Quote:

“While paper gold traders can’t seem to dump the precious metal fast enough, physical gold demand is soaring around the world. India retail premiums are spiking (amid demonetization), local China premiums soar to a 3-year-high (as capital controls loom), and coin sales from the US Mint have risen for the 4th straight month, accelerating post-election to the highest since July 2015 since Trump’s victory at the election.”

In the chart above we can see that the gold price has not yet broken its downward trend line. Once Gold breaks through that trend line, and I expect it soon since I believe we’ve bottomed, we will see a moment drive upswing. For now, the general market is oblivious to the apparent upside to gold.

But not everyone is asleep.

Now remember, the gold price has not really budged. It’s currently sitting around $1179 USD.

However, while the gold price is at this oversold level, check out the action on the U.S Gold Miner’s Index, which visually shows that the U.S Gold miner’s ended Friday’s trading with a boost of 3.39%:

Gold short/negative bets fell over 6%:

And I always like to mention JNUG since it is a 300% leveraged gold fund that is ultra sensitive to gold sentiment, ending almost 11% up with good green volume (better returns than bank deposits, not so?):

“The last interest rate hike resulted in the dollar selling off while gold sky rocketed.”

Lying ahead

The 4th December marks not only the Italian referendum which I believe will be no vote, but also the Australian re-elections.

Note that the Italian referendum is not a Brexit vote. It’s a vote for giving government more power, which they also want to use to stave off a banking crisis. I believe the vote will be a “no”, to the chagrin of the powers that be on the basis that the Italian people would like to avoid another Mussolini moment. If you’re a Millenial, just google it.

So the 4th December is almost done.

Then the 6th of December should see the new Sharia gold standard come into play. Note that this doesn’t mean gold will suddenly sky rocket. It’s a framework which will allow more financial gold investment products to be created and traded, such as EFT’s, but, and this is the important part, all trades will be required to produce physical delivery of gold.

Maybe this is why Shanghai just saw over 28 tonnes of physical gold taken off the Shanghai Gold Exchange (in one day),..”easily the biggest day this year for physical gold withdrawals in Shanghai…”

This is why I am 100% in gold and silver miners.

Finally, 14th December Interest Rates.

Remember what I discussed above regarding the dollar selling off on good news?

So here goes: the Merchant’s thesis is as follows:

1. The last interest rate hike resulted in the dollar selling off while gold sky rocketed.
2. I expect the same to occur this time around.
3. The interest rate hike is 100% certain in financial markets, yet the dollar refuses to rally further.
4. The interest rate hike is 100% certain in financial markets, yet gold appears to be holding out above $1170 even though the news that should send it tumbling simply isn’t.
5. If the rate hike occurs, a sell-off could occur in the dollar as it has over the last 2 weeks on each release of good news.
6. If the rate hike is cancelled, a dollar sell-off will ensue as the market got it wrong, again.
7. Either scenario is good for gold.
8. The miners are showing reversal even though the gold price has not yet reversed. This means big and smart money are most likely taking up positions in the gold sector before the next rally.
9. And finally, if this is indeed a new bull market in gold, the gold price will reach significantly higher than $1377…very likely $1450-$1550 before peaking in the short run. This means my current drawdown will be a blip on the radar when considering the upside potential.

No guarantees, but that is what I’m trading on.