Dear Member,
According to the latest updates, a government shutdown is probable at midnight tonight. If so, I want you to know what I think it means for gold and silver.
Many are saying gold and silver will explode higher. I don’t agree. While there might be an initial rally, as long as gold remains below the $1,375 level on a closing basis, a government shutdown could easily lead to massive liquidation of gold and silver holdings, and a big move lower.
How so? The main reason: In terms of major uncertainty, savvy, big money prefers cash over just about everything else. Gold or silver won’t get you anywhere when the government shuts down. Only cash will.
For historical precedent, take a look at the last time Washington shut down, from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. Gold and silver did not rally.
In the first period, from November 14 through November 19, 1995, the nearby spot futures contract for gold fell from roughly $654 to $652, a minor $2 loss.
In the next shutdown, from December 16, 1995 to January 6, 1996, gold traded in a very narrow range, moving up slightly to the $660 level.
But then, gold resumed its bear market, which stretched another five years into 2001 before bottoming. Silver followed pretty much the same pattern.
No, we are not in that kind of long-term bear market now. But we are in a short-term bear market and it’s unlikely that a government shutdown will cause anything more than a brief bounce.
Hold your positions in ProShares UltraShort Silver (ZSL) and Direxion Daily Gold Miners Bear 3X Shares (DUST) with your stop limit orders in place, good-till-cancelled.
And stay tuned!
Best wishes,
Larry
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