Yellen A Yawn

By Brien Lundin

It was only last week that the world was afire with speculation and turmoil.

The Fed had reacted to the terrible May jobs number by holding off on a rate hike and signaling that, if anything, they were adopting a more dovish stance than before.
At the same time, polls in the U.K. showed that the Brexit referendum was leaning toward the leave option…until sentiment shifted when, tragically, a British pro-stay politician was murdered on the street by a pro-leave supporter.

The markets were roiled day after day, and none were more affected than gold.

Last Thursday, for example, gold had soared $24 in New York…then the news of the politician’s death sent the price crashing. The metal settled with a loss of $13 on the day.

The very next day, gold soared $20 higher in the afternoon to go into the weekend on a high note. But as overseas markets opened on Sunday evening, new Brexit polls showed the stay vote surging into the lead, and gold was sold off viciously.
But after having lost about $20, gold spent the rest of the day Monday regaining ground, ending the session down by only $8.50.
On Tuesday, the metal was sold off again, losing about $24 as Janet Yellen’s testimony in front of Congress brought no surprises, merely confirming their new, more-dovish stance.

In addition, latest Brexit polls revealed that the remain faction has extended its lead to as much as seven points over the leave faction, and this was the primary excuse for gold’s sell-off.

Meanwhile, other markets have calmed down somewhat, accepting the new reality of ultra-low, even negative, interest rates everywhere.

But if there’s one thing you can count on in today’s world, it’s that when things calm down…that’s when you need to buckle your seat belt.

It seems certain that volatility will return in the days ahead, from some direction.

In fact, there are three potential, near-term events that could send gold skyrocketing at any time….

Brexit: Still The Big Question

Right or wrong, the Brexit issue is perceived to have been a big driver behind gold’s latest rally.

The drop in gold early this week shows that the market is discounting a win by the remain side. So, if the vote goes that way on Thursday, the reaction in gold may be muted.
By the same token, some polls still show the vote very close, and a victory by the leave faction would send gold leaping higher immediately.
The odds don’t favor it now, but there’s still a very good chance that gold will be trading much higher on Friday.

An Ongoing Employment Slowdown

It’s only been a couple of weeks, but investors seem to have completely forgotten about the stunning miss on the May jobs number, with just 38,000 jobs having been created during the month.

This couldn’t have been a one-off, anomalous result, because the jobs numbers for the previous two months were also revised much lower.
As Janet Yellen reiterated on Tuesday, the data is showing weaker employment trends than the Fed had expected. If this continues with the June payrolls report — as seems likely — the chances that the Fed will raise rates again this year will disappear.
In fact, it will be a prime indicator that the U.S. economy is downshifting toward a recession.
That would force the Fed to begin accommodating once again — with quantitative easing and perhaps even negative interest rates.
Mark my words: If that happens, gold will be hundreds of dollars higher than it is today.

The Commercials Running For Cover

In the background, there’s a war going on over gold.

You see, the “large commercials” category of traders in paper gold have built up an absolutely massive net short position. This is being balanced by an equally large net long position accumulated by the large speculators.
These two groups, as loosely defined as they may be, are now fighting for control over the gold market, with the loser likely to pay dearly.
And the stakes are growing larger: Friday’s Commitments of Traders report from the CFTC shows that, as of last Tuesday’s cut-off date, the commercials had resumed their paper-gold shorting exercise to an amazing degree…adding an eye-popping 54,000 short contracts (over 5.4 million ounces) to their net short position.
They are now at a record level.
If these large commercials are forced to begin covering their short bets by either of the two events mentioned above (or some other development we can’t foresee), gold will take off like a banshee.
This is what happened during the 2004-2007 rise in gold. And the profits that this run yielded were simply extraordinary.

Get Ready For The Fireworks

Obviously, we’ll know more about where gold is headed over the near term by Thursday.

But over the long term, the path seems assured: The Fed will not raise rates soon. They may be forced to actually lower rates…and begin quantitative easing again…if the economy begins to slow down further.
In the meantime, the rest of the world continues to print money and force rates below zero, in a secular trend that now seems generational.
You need to protect yourself with gold in this environment. And you need to own the top gold and silver mining stocks, which will multiply gains in the metals.
So continue to educate yourself on these markets, and make sure you’re prepared.
Want more insight from Brien Lundin? Subscribe to Gold Newsletter here.
This article was originally published in Brien Lundin’s Gold Newsletter. 
Brien Lundin is the editor and publisher of Gold Newsletter, a publication that has ranked among the world’s leading precious metals and resource stock advisories since 1971. To learn more about Gold Newsletter, visit www.goldnewsletter.com. Mr. Lundin is also the host of the famed New Orleans Investment Conference, the world’s oldest and most respected gold investment event. To learn more, visit www.neworleansconference.com.

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