What The Data Really Tells Us And How It Will Affect Gold And Stocks

The U.S. economy is on the cusp of something big. The questions on everyone’s mind are as follows;

1. Who will be our next President and how will that affect the stock market?

2. Will gold and silver be viewed as a safe haven or fall in price like they did in 2008 if the recession deepens?

3. Will the Fed follow through with QE3 or just “talk the talk?”

I am limiting the discussion to these three topics and will be adding a fourth topic on the banking system in the near future. The banking system deserves it’s own analysis.

Who Will Be Our Next President and How Will That Affect the Stock Market?
The real answer to this question is, “does it matter?” Data is data and we must look at the data to determine where we are and where we are likely headed. Whomever the person is in charge is just a side show, albeit their Executive powers can play havoc at some point should we enter into any economic crisis.

To speculate that one President will take over the oval office and make a difference in the economy or the stock market means you don’t have internet access and can’t read the alternative to mainstream media that provides you the awareness you need to profit in this day and age.

For those you know who only get their news from the television or newspaper, please print this article out and hand it to them. The goal of this article is simply to bring awareness based on my own research, but you need to do your own research as well. These articles I write are a continuation of the research I started in the first four chapters of my book, Buy Gold and Silver Safely.

If Romney Becomes President
It’s not going to happen. I wrote about the reasoning here: Gold Set for Dramatic Fall If Central Bankers Disappoint . And that’s what it comes down to for the short term. What will Central Bankers do in Europe this week, and what will the Fed do next week. Alternatively, if they do anything, is it already priced into the metals? If so, it really wasn’t that big of a move, so the CNBC article would be correct in saying that a fall could come.

NOTE: You won’t find me quoting CNBC often, because they are extremely biased in their reporting. The article I referenced was referencing two guests, and not the opinion of CNBC.

This brings us to the Fed and if they will follow through with their comments.

Will The Fed Follow Through With QE3 Or Just “Talk the Talk?”
People believe what they want to believe, but action is what I look for. Until I see real action taken, I am calling the bluff of those that make policy decisions. This doesn’t mean I don’t speculate some, but put on your Federal Reserve hat for a moment. You’re looking at the ECB and knowing they have to print money to “save” the countries that overspend.

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We here in the U.S. have the same problem. It’s just that we have an active Fed that will do anything to put out potential fires. This action they take however will just make matters worse, which is why gold and silver go up in value every year. Investors understand this.

But if you are Bernanke today, you also are aware that this pattern of throwing money at something can only work for so long before people become fed up with it not working and realizing our sink hole just got bigger and it will take us longer to crawl out.

The Fed has to keep its credibility. They haven’t done well in their mandate to stave off unemployment, so this leaves stability of prices for the most part as the only thing they can try and claim a success. While we can’t look at food and energy as a sign of inflation because of what I outlined above, we are at low inflation overall and I think this will continue as the world contracts (see China).

If Bernanke and the Fed continue to add more rounds of QE or call it something by a different name, and people have to start paying more for things, the Fed becomes irrelevant. This scenario will come one way or another in the future. The Fed is just pulling rabbits out of a hat to keep the waters calm today.

As long as interest rates stay low, and Treasuries are where all of Europe and other countries invest for perceived safety, which is where we are today, why would the Fed want to make it worse? Why would they want to rock the ship and take on water when the stock market and treasuries are doing fine and the dollar is above 80 on the index? That’s a pretty stable picture is it not?

That’s why I think Bernanke, for now, will keep his mouth shut and just do what he did a couple Friday’s ago and just “talk the talk.” Why do anything drastic when your words still carry power?

But the stock market will at some point face reality and the cracks will start to grow larger for this Humpty Dumpty economy.

We will bottom out in gold and silver. Are we there now? I just don’t know. In 2008 when our economy headed south, gold and silver fell with it. It all depends on what comes from Bernanke’s mouth and the last think I think he wants is for gold and silver to go to the moon quickly. It would reveal just how weak the Fed is. While I believe the Fed is weak, it is still relevant in the minds of investors…..for now.

Written By: Doug Eberhardt