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 wonít 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 Ďheavily oversoldí. 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 havenít 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 oneís savings. Nominal Bond
yields are lower than published core inflation rates. Not an ideal place to
place oneís savings either. Saving accounts arenít any better and
Real Estate hasnít seen its bottom yet.
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
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Goldonomic, Florida, USA -