Since this is an Election year, it only makes sense that the powers that be will do all they can to make economic conditions favorable to get re-elected. This includes a strengthening economy, low inflation, and a strong dollar.
One thing that does not appear to go hand in hand right now is a strong dollar and increasing value of precious metals. The powers that be do not like high gold or silver prices during an election year. That means people are looking for a safe haven for a trouble brewing in the world. No matter what the Feds say, they will act this year if we see our gross domestic product (GDP) slows down of if it doesn't maintain a 2% inflation rate and/or unemployment starts to creep back up. If Operation Twist (which ends in June) does not do the trick, there is a good chance we may see more quantitative easing take place.
It is very likely that we will not see out ETFs go up anytime soon. Supposedly we have the economy slowing growing. Bits of it are, but when we look at cold hard facts-realizing how high our deficit is running while about 21.5% is government spending (not including social security and other such programs) it may not be growing after all. Take out the $3 trillion stimulus and the numbers do not show the free U.S. market growing. We are about the size we were around 2006-2009. Is that a real recovery?
Eventually the smoke and mirror money printing crutch that has attempted to prop up the economy will fail. The powers that be will do all they can to keep it from failing before the election. They will try to keep the GLD and SLV down. Unemployment is not as rosy as it may appear. John Williams of shadowstats.com calculates these numbers and had it recently almost at a record high of 22.5%.
Bernanke will do everything within his power to assist in the re-election of President Obama. There is nothing new about this. Look toward the end of summer for something to happen if it will at all. But I do not see gold or silver moving much at all until after Operation Twist expires.
For the short term, if one would play the Gold ETF, a safe way to play would be a Bear Put Spread that could provide good profits for small risks.
The Option Play
Presently trading at 159.54, we like to follow the present trend.
- Buy the June 2012 159 put (priced at $4.95)
- Sell the June 2012 158 put (priced at $4.40)
- Net Debit to Start: $0.55
- Maximum Profit: $0.45
Reasoning behind the Trade
- It is an election year and the powers that be do not want this going up.
- It is presently in a bearish pattern so we are following it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.