Will Sequestration Bolster Gold? – SPDR Gold Trust (ETF) (GLD), Goldcorp Inc. (USA) (GG)

Page 1 of 2

As the market and U.S. economy prepare for a flurry of activity this week — including results from elections in Italy, testimony to Congress from Federal Reserve Chairman “Helicopter” Ben Bernanke, the release of the January minutes from the Federal Open Market Committee, and more housing data — the defining event must be the onset of sequestration, set to go into effect on Friday. In the type of political theater that has become decidedly commonplace, President Obama is demanding an extension for cuts that he helped to set in motion, while Republicans are sticking to their stance that no agreement will be passed that doesn’t include federal spending cuts and tax reform.

SPDR Gold Trust (ETF) (NYSEARCA:GLD)Each of the events I mentioned is likely to have an impact on the gold market, and they’re all critical in positioning yourself for the week ahead. The Italian elections will speak directly to the austerity measures that have been passed and are considered critical in maintaining European debt stability; ongoing stability is bearish for gold. News from the Fed will signal to the market not only the current state of the economy, but also how the central bank is likely to approach quantitative easing throughout the year; an improving economy and less inflation-creating money printing are also bearish for gold. The health of the housing market will probably serve as a general barometer for the strength of the overall economy; a healthier economy is bearish for gold.

Still, with sequestration cuts looking increasingly probable, the gold market looks poised for a positive week. Coming off of a more than 2% decline last week, as represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD), gold prices have struggled over the past three months, down nearly 10%. Still, as quantitative easing continues and the economic turmoil that sequestration could cause looms large, gold has the potential to reverse and head higher. While Wall Street hasn’t reacted with anything near the concern that was shown leading up to the fiscal cliff, it’s hard not to believe that there is a bit of a “boy who cried wolf” phenomenon going on. Gold looks attractive at current levels for both the short term and the potential for a more meaningful reversal higher.

Sequestration
On March 1, a series of automatic spending cuts are set to go into effect. The cuts were initially conceived as a way to force the two parties in Washington to come up with agreed cuts, lest the automatic ones go into effect. Surprising nobody, the negotiations failed and the automatic cuts are now ticking ever closer to becoming a reality.

While there seems to be a disconnect between Republicans insisting upon cuts and those set to take effect, much of the commotion deals with the magnitude. Under sequestration, $1.2 trillion will be cut over the next 10 years. Just a big, scary number, right? Well, here are some of the details that should give us all a little pause. Federal law enforcement will lose 1,000 agents, 31,000 teachers could be laid off, the FEMA budget would lose approximately $1 billion, and the Department of Defense would lose $500 billion over the next 10 years. And before anyone starts thinking these are cuts we can all happily live with, the Congressional Budget Office has stated that sequestration cuts are likely to result in the loss of 1.4 million jobs.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!