To Taper Or Not To Taper - Go Long Gold Either Way

Aug. 27, 2013 9:09 AM ETCSCO, DGLD, DGP, DZZ, UGLDF, WMT20 Comments
Dave Kranzler profile picture
Dave Kranzler

It seems that the biggest topic of debate in the financial media and in the investment community is whether or not the Fed should and will taper QE either at the September meeting, at any of the subsequent meetings this year or whether it will even taper at all. My view is that the economy, regardless of how the Bureau of Labor Statistics chooses to run the numbers, is structurally in a state of economic contraction and the Fed will not taper. I first discussed the QE/taper issue right after Bernanke uttered the word in this article, "To QE Or Not To QE...", in which I suggested that the Fed would not taper. A month later I discussed the consequences of a "taper" and stood firm in my conviction that the Fed would not: Taper/Stock Market Avalanche. At this point there is a small possibility that the Fed will offer up a token amount of taper, but whether the Fed does this or not gold and silver are a table-pounding buy once the decision has been released.

The reason I don't think the Fed will taper yet, if at all, is that it is clear - at least to me - that the economy is in trouble. Just today the monthly durable goods report came in at -7.3% vs. the -4% expected. The previous month's gain was revised lower. While it's true that largest component of the drop was from transportation/aircraft orders, which is always volatile in both directions, ex-transportation the number was still -.6% and non-defense capital goods excluding aircraft orders fell 3.3%. The market seems to like to use copper - euphemistically called Dr. Copper - as its indicator of economic health. This was copper's reaction after today's durables report:

(Click to enlarge)

Clearly the market is nervous

This article was written by

Dave Kranzler profile picture
I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance. Currently I co-manage a precious metals and mining stock investment fund in Denver. My goal is to help people understand and analyze what is really going on in our financial system and economy.

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