Gold and silver price are climbing higher this morning following an unexpected downward revision of Q1 GDP to -2.9%. Not too long ago, Q1 GDP was expected to rise by 2.6%. However, it has instead contracted by -2.9%, far below the -1.8% expected and well below the -1.0% second revision. In fact, this is the worst print for GDP since the depths of the financial crisis in Q1 of 2009!
Goldman Sachs called the sharp drop in GDP an ‘aberration’ and made a prediction of robust Q2 GDP growth. This news comes after higher-than-expected inflation in the most recent month, which Yellen simply dismissed as ‘noise.’ Well, the bankers can try to pretend that the U.S. dollar and U.S. economy are not in trouble, but the data is painting a different story.
Inflation deniers should take a look at the following table…
Let them eat iPads! And here we see TIPS beginning to forecast higher inflation on the way…
The dollar has dropped today on the GDP news and precious metals are re-establishing themselves as a safe-haven investment. The charts for both gold and silver are pointing higher this morning, building on recent gains. The fundamentals for precious metals continue to strengthen in 2014, as the true underlying health of the U.S. dollar and U.S. economy come to light.
Going forward, I believe the trend of a weaker dollar, sluggish stock market and higher gold prices will continue. The recent advance in precious metals is very bullish for a number of reasons. It was led by mining stocks with increasing volume and triggered significant short covering. In addition, the advance over the past few weeks has yet to be followed by a sharp reversal, as has occurred during previous breakout attempts. The banks and their government minions like to keep gold sentiment bearish, utilizing paper contracts to cap any major advances. But this time around, the initial price advance has been followed by consolidation and another move higher. Is the manipulation coming to an end or at least on the decline?
The technical charts support this bullish view, as the downtrend channel was broken last week for the first time in months. Both gold and silver also climbed through key moving averages and have held above these trend lines. We are likely to see these price points, which were previously resistance, turn into support going forward.
I would not be surprised to see gold climb above $1,500 in the next few months and make a run towards $1,800 by year end. If this happens, watch for mining stocks to awaken from their long slumber and return to offering leveraged gains. Of course, not all mining stocks are going to do well as gold advances. It is critical to pick mining companies with high grade/low cost projects, strong growth prospects, experienced management, strong balance sheets and mining-friendly jurisdictions. These companies will far outpace their peers as prices climb back towards previous highs.
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