What has been completely overlooked or not mentioned during this sizable run up in stock market profits, including the precious metals sector, is the imminent advent of tax loss selling. Every year around this time, as sure as snow falls in Vermont, more than ever, there are reasons why this unmentioned event is apt to be at least modestly affecting stocks before the year end especially precious metals. Gold has risen over 18%, silver has shown a rise above 50% on the year. Price are reaching new highs but can they be maintained? I believe we may see more volatility as a breakout on GLD must be monitored especially as investors who have made impressive gains may decide to take profits before the end of the year. The reasons for this are manifold. Tax Loss Selling is an annual event. It takes on added significance in that investors have the shadow of increased taxation looming ominously. So tax loss selling is apt to be more severe, in view of the possibility that the Fed has already murmured that there may be a tax increase. Not to worry they say, the Fed will try to make it “gradual.”
Already the Debt Reduction Commission is on record of citing the need of increasing taxes and how they agree with the bold steps to save the Economy. In 2009, China has dealt with imported inflation from the Eurozone and The United States who have both had to essentially print money to save the markets. Both currencies came under pressure this year as investors fled to precious metals. The U.S. and European economies are weakening with high unemployment, yet food costs and hard assets are soaring. This current economic situation could exacerbate affecting the quality of life for many. Right now we are in the midst of an euphoric period reminiscent of “happy days are here again.” Oddly enough the rosy news is occurring smack in the middle of the holiday season. Do not be misled tax loss selling will occur as investors rethink 2011 and the investment challenges ahead.
A most important factor that is occurring as 2010 winds down and 2011 is ahead of us is that the Federal Reserve Board is launching a full out offensive on the American Economy called QE2, impacting every household. This action is a latter day version of the battle of the bulge in World War II. The bulge is not in the average citizens pocket, the bulge is in how much it is going to cost global investors and their portfolios. QE2 is nothing more than a metaphor for the profligate printing of dollars. This can not avoid having a significant effect on every one of us and prompt many to take profits now in 2010 as the price of gold challenges new highs. Many have large profits and investors should be aware yearend profit taking.
In 2009, GLD moved from a low of approximately a share to 0. In December of 2009, we saw some profit taking without any warnings except extremely overbought readings. Be careful as this recent break to new highs has not shown much enthusiasm. Most of the excitement has been in silver, uranium and some top quality junior miners.
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