You’ll notice that gold and silver are a bit more volatile of late. This is what happens when you have buyers and sellers in conflict with each other. It should also precede the next move in the metals. The question remains, will that move be a bit higher or are we topping? Let’s look at each scenario and see what the data tells us.
Is gold going to move higher or lower from here? We have to look at the dollar to get a better grasp on answering this question. As you can see in the following chart, the dollar is still in a bull mode, since September 2011. It has not broken down. To break down it has to fall below 88. Please note we are above 94.
There is an exception to the “all out of gold” scenario and that is something I've written about: if we have an expedited credit contraction where money will flow to Treasuries, Federal Reserve notes and gold all at once. I first made reference to this in my book Buy Gold and Silver Safely which I wrote in 2010 and update with the release of my next book Illusions of Wealth due out any week now. I also wrote about it in this article. Please note the inverse pyramids in that article. I have tweaked them a little bit for the book.
Milton Berg, founder and CEO of MB Advisors was interviewed by Bloomberg recently and during the interview brought up many of the issues I address. I recommend listening to this interview. Yes, it may go over the head of many investors, especially those who are perennially bullish like CNBC journalists, and pay close attention to what he says is the “most likely scenario” moving forward; deflation.
To make the case for gold to move higher from here you have to also make the case for the dollar to fall from here. If you understand what’s going on in Greece, Italy, Portugal (euro related), Japan (yen) and China (world), it is very difficult to come to that conclusion as the contraction Berg speaks of and I write about is on the horizon. If we can make that case of a higher dollar then there is still pressure on gold moving forward. This pressure will also be on oil and most all other commodities.
The only alternative to this scenario is the helicopter drop, but the Fed is known to be reactive, not proactive. Just look at the last move they made with interest rates, raising them in December. I said back then it would be a one and done while 60 percent of Wall St. saw another hike coming in March, 21% saw 3 rate hikes and 33% saw 4 rate hikes for 2016. We have had zero and it’s mid-May. Some are talking a hike in November.