Lear Capital: Gold Winning After Shutdown Showdown

2010_01_05_17_53_260001A friend called me yesterday and told me, when the House passes the proposal to end the government shutdown, to sell everything I got and put it into stocks.  He believed stocks would skyrocket on news of an end to the shutdown.  I told him not to be so sure.

Then, as markets opened today, stocks were down sharply.  Even the talking heads were baffled.  It made no sense.  In the days leading up to the debt ceiling, stocks had rallied and all believed it was in anticipation of an 11th hour deal.  Surely, if a deal was made, the stock rally would continue with new exuberance.  That was the perception.  More often than not, however, perception is not reality.

At the same time stocks were rallying, gold and silver prices were drifting lower amidst a hailstorm of rhetoric that suggested precious metals had seen their day and that it may be months before rising inflation and rising interest rates could influence metals’ prices higher.  Then as the “deal” was made, gold and silver prices headed in the opposite direction of stocks with gold prices leading the way up $40 in early trading.

Now the 6 million dollar question – Why?  I think the answer is simple.  Once the showdown ended we are back to business as usual. Or, should I say, slow business as usual, and . . .   more uncertainty!  The economy will continue down the same path it was headed prior to the shutdown.  All that was accomplished was another kick of the can down the road.

As I said in my last article, the markets cannot bear uncertainty.  Hence the drop in stocks.  Nothing has been settled.  There is no budget deal, no deal on tax reform, no farm bill, no immigration reform and no certainty.  Precious metals on the other hand, see the future.  Rising debt, more money printing and another showdown ahead between rising inflation or default.

As always this is just my opinion.  One you may agree with or not.  If you do agree, I would be honored to have you follow me @DaveTheGoldDr.

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