Posted August 12, 2008 by Francis Schutte

Gold has suddenly taken many people out of their summer dreams. Not because of the 20% correction of Gold expressed in Dollar (we have seen similar reactions in the past), but rather because it all happened so swiftly without any consolidation or correction and because on its way to the 64 week Moving Average it simply ignored all technical support zones.

On the PF chart the selling climax is a straight line down. In these volatile financial markets it is good to be stubborn but this kind of happening must make one think and reassert the situation if so needed.

 The August seasonal factor (the 12 moon cycles) has, whether or not assisted by the PPTeam, definitely played an important role. Historically, Gold sees a bottom during late summer and it seems that after all this year won’t be an exception.

Professional Gold miners judge that selling their production foreward will continue to cost more than it will yield. Hence, they are one after the other closing their Hedge books. Stupid decision if gold would have fallen in a secular bear trend.

The Dollar may still be labeled as a reserve currency, (Reality may be different) but today it would be a huge mistake not to accept Gold is also quoted in other currencies: Yen, Euro, Sterling, Swiss,.. Looking at these charts, as of August 12, the Secular Bull trend is intact, alive and well.

Nothing goes up in a straight line, but nothing goes down in a straight line too. Gold, Silver and Gold and Silver shares are ‘heavily oversold’.  In two weeks time, August will be history and by the time we will be entering September, there will only be 4 months to go before the New Year. This period and the beginning of the year traditionally see the strongest up leg for Gold and Silver.

Real interest rates are still negative and no changes are visible at the horizon. Due to the weakening EU economy, the ECB will probably halt any further rate hikes and a Volker effect (double digit interest rates) would just slaughter the American economy. Having said this, assuming the Fed does hike the interest rates, Gold would still be one of the few investment vehicles able to rise in tandem with these.

We all know the financial system still has to overcome the worst: the Credit default Swaps. Problems around Fannie and Freddie haven’t been solved yet. With the help of accountants and any possible potential tricks, financials are desperately trying to wash the red ink out of their books. Meantime, the Fed and the ECB have decided to keep bailing them out.

The Real Estate bubble keeps on deflating in the USA and the UK has also started in the EU. Even Greenspan confesses it has way to go.

In the USA and Europe Monetary inflation is growing at a rate close to 20%. Published core cooked inflation figures are hovering around 5%. But everybody with some brains knows it is way more. Double digit price inflation figures are seen in many other countries of the world.

I would not be surprised to see Price inflation accelerate again during the last quarter of 2008. Even after the present correction, Crude oil prices have more than doubled and the result of this will clearly become visible towards the end of the year. Whatever is said, we have Peak Oil and what the Western World is saving gets used by China and India. Hence, it is extremely dangerous to talk about Demand destruction.

As much as Gold and Silver are in a secular bull market trend, Stock markets are in a secular Bear market Trend and not the ideal place to keep one’s savings. Nominal Bond yields are lower than published core inflation rates. Not an ideal place to place one’s savings either. Saving accounts aren’t any better and Real Estate hasn’t seen its bottom yet.

The 64 week Moving Average has been a support ever since the beginning of the Secular Bull market for gold. Today my opinion is that this mainstay will hold again.

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