Impact Of Taper Weighs On Precious Metals

The news that the US economy created over 200,000 new jobs gave the upper hand to those who were short precious metals. Some out there feel that a taper (or reduction) of the nearly 1 trillion dollar a year bond buying plan by the Federal Reserve means all is well with the world’s reserve currency and its economy.

Of course, if you were trying to paint the tape of group thought patterns, this is precisely the reaction you would hope for from the market. Because not only did the precious metals drop but the stock market breathlessly raced on to new all-time highs.

So I guess everything is just fine, right?

Well, not so fast. Even with the good news, the labor participation rate continues to wallow near 30 year lows, median wages in this country have stagnated, and news from the real estate sector is far less encouraging than what this morning’s job report would have you believe. And- lest I forget– consumer confidence, as measured by the Gallup organization, is actually at a two-year low– even with the stock market at all time highs. When you couple this with the shaky recovery in Europe, the mess that is otherwise known as the Japanese economy, plus growing concerns regarding a hard landing in China, I very much doubt that the Fed will choose to take away the punch bowl until they have either a) created high levels of inflation that warrant tightening, or b) they are forced to tighten by a severe downdraft in the value of the greenback.

Neither of these two things are happening now– not that they won’t happen later. But with the arrival of a new Fed-head, Janet Yellin, known for her love of quantitative easing, I think QE may be increasing in the months ahead, not decreasing.

Stocks are priced to perfection, while it seems gold and silver just can’t catch a break. Along with the VIX (volatility index or measure of fear in the markets) falling to very low levels, complacency reigns on Wall Street. If you have been riding high with equities, isn’t it time to diversify over to assets that are underowned and unloved? Whatever happened to buying low and selling high??