Moody’s ‘Threat’ Sends Gold, Silver Reeling

Bullion prices seem likely to remain under pressure for the rest of the year now that Moody’s has trained its water hose on…Spain!  Yesterday, the ratings firm dithered its way into the headlines with a threat to downgrade Iberian debt.  Presumably, this was done at the behest of Geithner, Bernanke & Friends.  Regardless of who ordered the hit, it sufficed to touch off yet another headless-chicken scramble into the alleged “safety” of  the U.S. dollar. The timing of this conspiratorial boost to the buck suggests that the Plunge Protection Team is getting better at its job with each passing month. By our runes, the dollar was poised for a breakdown. Lo, just as the selloff begun on Monday was starting to snowball, the dollar whipped around and began a steep rally that was still in force at yesterday’s close.  If we’d stage-managed the turn ourselves using Hidden Pivots to time the announcement, we could not have picked a more opportune spot for Moody’s and its masters to spring a trap on dollar shorts.

Curiously, although the threat did its job, turning a weak dollar lethal to anyone betting against it — while of course knocking gold and silver futures for a loop — Spain’s borrowing costs remained largely unchanged. Spanish bond yields actually ended the day lower, suggesting, as the Wall Street Journal put it, that “investors may have become immune to such warnings.”  Do lenders know something that the rating service does not?  At the very least, it would appear that they had the jump on Moody’s, since yields on 12- and 18-month bills issued by Spain had risen a full percentage point since mid-November.

 Dealing Off the Bottom

From a technical standpoint the Dollar Index, currently trading around 80.24, will become an odds-on bet to hit a minimum 82.23 by year’s end if it can blow past a “Hidden Pivot” resistance at 80.57 today or tomorrow.  But the target will become a virtual lock-up as far as we’re concerned if the Dollar Index closes above 80.57 for two consecutive days. That would equate to a rally of about 2.5%, and it would surely put some weight on gold and silver quotes. However, bullion investors should have become used to playing in a rigged game by now, especially when Europe’s problems are the distraction used to allow the likes of Moody’s to deal from the bottom of the deck. Such shenanigans may slow the rise of gold and silver for a short while, but if you look at where they were trading a year ago, or two years, or three years, or a decade, it becomes clear that market forces are prevailing over political muscle.  (To gain free access to Rick’s Picks precise daily forecasts for gold, silver and all other trading vehicles, click here.)

Rick Ackerman

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Rick Ackerman is the editor of Rick’s Picks, a daily trading newsletter and intraday advisory packed with detailed strategies, fresh ideas and plain old horse sense. Access to it and to all other Rick’s Picks services is available via a free seven day trial subscription available by clicking here.