Right on cue the Federal Reserve delivered a rate cut of 75 basis points and the DOW put on a whopping 420 points as if this move was the cure all. The US Dollar gained 0.44%, possibly relieved that the cut wasn't a whole point and gold which had been trading in the $1020/oz area dropped to below $980/oz, before recovering to trade at $987.40/oz, as we write.
Not quite the script that we had anticipated with the dollar staying firm and gold taking a bit of a fall. Along with gold taking it on the chin the gold mining stocks also felt the pain with Agnico-Eagle Mines down 7%, Kinross Gold down 5.88% and Yamana Gold down 6.48%.
We are now at a very interesting juncture with the economy slowing down, an election race speeding up, a recession on the way, growing distrust of our financial system etc. And so we look to our administrators to put the world right. The Feds may indeed cut the rates a few more times with the corresponding 'feel a little better factor' coming into play, but as we have said before 'increased liquidity is not the solution to insolvency' and insolvency is the problem as evidenced by Bear Stearns and the real estate mess. When the rate cuts can't go any further and the loan junkie cannot get his fix, what then? Cold Turkey, that's what! A rather unsavoury scenario isn't it?! Easy money and an abundance of it lead to massive inflation and as gold leads inflation and is at an all time high, then the rates will have to move up rapidly in the future in order to control what is coming down the line.
So the question we wrestle with once again is whether to take more profits or not at this stage? It is tempting to behave accordingly when the market has been kind to us, but the water is just too murky at the moment for us to be able see clearly where we go from here. Long term we remain gold bugs and volatility has been the order of the day, with the oscillations becoming more violent as we go forward.
To trade or not to trade that is the question! Just where is William Shakespeare when we need him?
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