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Gold & Silver Prices Rise On…Everything?

Gold and silver both made substantial jumps price-wise today, as they have been doing more for the last couple of months. Here are the specifics (figures in parentheses represent % change up or down since July 11, 2013) :

Gold                                                                      Silver

July 11, 2013……..$1,281                                 July 11, 2013…….$19.95

January 1, 2014….$1,207 (-5%)                    January 1, 2014…$19.40 (-2.5%)

April 1, 2014………$1,290 (+1%)                   April 1, 2014……..$19.99 (+1%)

June 11, 2014…….$1,265 (-1%)                     June 11, 2014……$19.32 (-3%)

July 11, 2014……..$1,337(+3.9%)                 July 11, 2014…….$21.41 (+6.2%)

Gold is up 0.1% today, 5.98% in the last 30 days and 3.92% in the last 365 days. By contrast, silver is even for the day, up 11.49% in the last 30 days and up 6.2% in the last 365 days. Why? Let’s count the ways.

Jobs – Or a Lack Thereof

There were 304,000 first-time unemployment claims filed last week. Since 2008, an average of more than 300,000 people per week have filed jobless claims for the first time. This means that in the last six years over 96 million unemployment claims have been filed.

There are 2.6 million individuals currently receiving unemployment assistance in the United States, and that number rose by 10,000 last week. The 304,000 people who filed for unemployment last week are a slight reduction from previous weeks. The four-week moving average currently stands at 311,500, but this slight improvement was not nearly enough to give investors confidence. The rate of first-time unemployment claims being filed in the United States is more than double what economists believe should exist in a healthy economy, and the trickle-down effect from this staggering figure is one reason investors are buying gold now.

Unbelievably, there are still individuals who believe that the economy is truly improving. The minutes from the last Federal Open Market Committee (FOMC) meeting revealed that the people who set U.S. monetary policy (i.e. the people who are responsible for this mess in the first place) believe that our labor market is looking up! Private sector analysts are falling for it, too.“The latest fall in claims continued to suggest gradually improving labor market dynamics as the four-week moving average edged lower to 312K from 315K,” said T.D. Securities strategist Gennadiy Goldberg. I’m sorry, Mr. Goldberg, but if it looks, walks, and quacks like a duck, it’s a duck.

The Dollar’s Value is Going, Going, Gone

The U.S. Dollar Index is one of the most vital technical factors utilized by gold investors to save and make money on gold.  Ira Epstein, division director for The Linn Group, puts it quite succinctly: “Simply put, as long as the dollar stays under selling pressure, I favor looking for gold to try to maintain an overall bullish stance,” he says. “If the dollar breaks out the downside, look for gold prices to increase.The performance of the U.S. dollar may be the next key catalyst for gold.”

The greenback has lost substantial value over the years, as the Federal Reserve has printed approximately 20% more money in the last three years alone. Critics of U.S. monetary policy have argued that increased and incessant printing of paper currency is a strategy destined to fail. Come to think of it, how long has the longest-standing paper currency been in existence? The British Pound Sterling lasted 319 years, but the historic average lifespan for a fiat currency is a paltry 39 years. We are long overdue for a reset.

Stock Shock

The Fed’s now infamous “Operation Twist” has dumped $85 billion into U.S. financial markets every month for years in the form of quantitative easing. Each round of QE has boosted stocks, but now that the Fed is finally talking about ending stimulus measures, stock investors are getting cold feet.

Many analysts believe that stocks could lie flat or even crash once the Fed starts to raise interest rates. During the last rising interest rate cycle of the 1970s, stocks suffered with each rate increase. The parallels between the 1970s and today are uncanny. Once corporations can no longer borrow for free from the Fed, we can expect the unemployment rate to rise and for our GDP to fall.

Many stock investors have already started to hedge their portfolios with solid gold, which could act as an insurance plan for those investors should stock markets crash. By the way, when interest rates were rising in the 70s and stock portfolios were getting hammered, what was gold doing? Only increasing by more than 1000%.

War, What is it Good For? Absolutely Nothing…Except Gold & Silver Prices

One of gold investors’ best friends throughout the years has been geo-political strife and international armed conflicts. There is certainly no shortage of either these days, and it doesn’t look as if that will change anytime soon.

Syria, Palestine, Israel, Somalia, Iraq, Iran, North Korea – take your pick. The United States in particular has its tentacles in a handful of conflicts at the moment, and mom-and-pop investors sleep a little better at night if they have some gold and silver under the pillow.

It’s not very likely that any of the world’s current wars will play a major role in the demolition of the dollar, and an invasion of our shores is, for all intents and purposes, a pipe dream. After all, this is the U.S. of A. Nonetheless, it never hurts to have some American Eagle gold coins, Credit Suisse gold bullion bars and some silver Peace dollars in the gun safe next to the Ruger.

Truth in Numbers

Data releases are a great way for gold and silver to gain or lose value. The U.S. Department of Commerce, as well as private data collection companies, release new reports each, day, week, month, quarter, and year. The figures, more often than not, dictate the direction in which gold and silver prices should move in the short term.

The minutes from the last FOMC meeting provided a boost for gold, as we learned that the Fed does not have a strategic plan for ending QE or for raising interest rates.

The non-farm payroll/jobs report showed that an excessive number of people cannot find, or keep, a job. The current administration has touted job creation as one of its highest priorities but each week we see how little progress is made. When first-time unemployment claims drop below 300,000 per week, gold and silver might take a hit. For now, though, the general consensus seems to be that the job market will remain stagnant.

The ICSC chain store sales trends report was released this week, and guess what? Business is not exactly brisk. The summer months tend to be slow, and retailers expect a back-to-school boost in August, but summertime spending is down year-over-year and has been on a steady decline since 2007.

What’s Next for Gold & Silver?

In a nutshell, nobody knows. We can plan a picnic but we can’t predict the weather. Right now it looks like our policymakers are having a hard time getting the economy ontrack. Jobs and income are scarce, it seems as if almost every country in the world is at war with at least one other country, leading analysts have been calling for a pullback in the Nasdaq, Dow and S&P…and let’s not forget about interest rates.

Nothing is impossible, but one would be hard pressed to figure out a way for the Federal Reserve to keep interest rates at 0.25% for much longer. Corporations are forcing the inundation of more paper currency into the markets by their incessant borrowing, which is enabled by the Fed’s free money policy.

All we need to do is look at the U.S. economy from 1960 to 1980. During those 20 years most investments had a pretty straightforward track record. Stocks, bonds and cash accounts performed horribly because of rising interest rates and inflation. Gold, silver, oil and other commodities did well because more of those devalued dollars were needed to purchase the same amount of any commodity. It just happens to be much easier to buy gold and silver than to invest in barrels of oil or a corn field.

It might take a month, six months or even a year for the Fed’s back to be so tightly-pressed against the wall that it is finally forced to admit that there is no painless way out of this funny-money situation. When the bottom drops out, however, it should be the sterling opportunity for investors who buy gold and silver now to profit.

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