Pinnacle Activity Ticker
US Economy News Goes From Bad to Not That Bad
Pinnacle Digest writes: The US economy is a mess. It’s fading into a recession yet all we keep hearing about is the improvement taking shape. Stewart Thomson stated that “Morgan Stanley predicts that US business investment & exports will show a decline, to the lowest point since mid-2009.”
He goes on to state “The inventory-to-sales ratio is approaching 2009 levels now, and yesterday's Empire State index report came in at -6.16.
This important report shows the contraction or expansion of New York area manufacturing, and obviously things don't look very good.”
Thomson explains that a large portion of recent GDP growth is simply inventory building and that is coming to an end. The ‘fiscal cliff’ is stalling any big expansion decisions by companies and it also is preventing many from hiring.
However, as Thomson explains, despite all this bad news, the markets are steadily rising, particularly in the US. Good news from Europe (if you can call it that) is that Spain will likely be receiving a bailout, which will enable the ECB to print more money and try and keep pace with the Fed. And now, more than ever before, the stock market believes money printing is the catalyst for growth. In reality it is the catalyst for inflation and nothing more. However, perception is reality and you can’t fight the central banks of the world.
On that note, Thomson highlights the fact that silver can thrive in this type of an environment, where perception is that markets are healthy, growth is decent and money printing is here to stay.
From a technical standpoint, according to Thomson, silver is looking oversold at these levels. “In a trending market, the turn often comes from the zero area. I expect MACD to turn up very soon, and the silver price to move towards the high at about $37.50” stated Thomson.
While Thomson cautions investors that during a criss like we find ourselves in (although the market seems to be ignoring it) silver has a hard time outperforming gold. Nonetheless, both are viable investment options at this moment in time. And if Spain does in fact get its bailout, the ECB will open the printing press once again, which we believe will have a short-term negative impact on the euro, but eventually bring traders back to the currency. And once traders come back to the euro (when it is perceived by the market that the problems in the region have been subdued), gold will thrive as well. The euro represents a risk-on trade in this market and is bought to counter a declining dollar - as is gold.
Interestingly, Thomson believes that the recent correction in gold, from $1,798 two weeks ago to $1,739 this week, has been timid. He believes the pullback in gold’s price has been minor simply because central banks have been upping the pace of purchases in the precious metal, which in turn has supported the market tremendously. When central banks buy gold at a healthy pace, it has a tremendous impact on the institutions of the world who try and replicate these purchases. It is Thomson’s belief, and ours, that the support in the gold market is stronger than ever and central banks (along with financial institutions are accumulating on weakness).
Thomson states that “I realize that many investors in the gold community are concerned about the possibility of a major price correction, but the longer term charts don't really support that premise.”
Click here to read Stewart Thomson’s full report.