Sunday, August 26, 2007

Bad Medicine. Good For Gold?

The week ending August 24th, 2007 may, or may not, prove to be a pivotal week in the evolution of this secular bull market in Precious Metals. ...a bull market that has been stuck in the mud for weeks. Fundamentally, technically, and seasonally this bull is ready to rage. I do not believe that it is a question of "if" this bull market will resume, but WHEN.

I, along with many other prognosticators and Precious Metals Counselors, have tried vainly to predict "the next big move" in Gold and Silver. It has been a humbling experience for us all. Everything I have learned and been taught about Gold suggests that we should be half-way to the Moon by now. Alas, we've yet to break orbit. Gold launched the day the markets in New York reopened following the 9/11 tragedy. Gold has risen, to date, 165% since then. It would be safe to say that in May 2006, Gold achieved "orbit". We are still a looooong ways from the Moon. It would also be safe to say that unless, and until, we decisively break the $700 barrier, we will not have broken orbit and set flight for the moon. And who's to say the Moon is where Gold will stop. Gold may well find it's way to Jupiter or beyond. I will go on the record here and now and suggest that $1000 Gold will not even be half way to the Moon.

It is interesting to note that Gold's ascension, begun following 9/11, coincided with the slashing of interest rates by the Fed to stave off the negative "effects" of 9/11 on the US Economy. Gold rose relentlessly as the Fed pumped US Dollar sewage into the global sea of liquidity.

Today facing the effects of the "sub-prime credit crisis" on the US Economy the Fed has gone on record stating it would provide "unlimited" credit to banks. More US Dollar sewage is on the way. Gold, circling in orbit high above the filth, has been waiting ever so patiently for a refueling by the Fed so that it may break orbit and head for the Moon. In an effort to "inflate the Nation's debt away", the Fed seeks to flood a World Economy already drowning in US Dollar sewage, with an unending supply of more!

The Mega-Trend is Your Mega-Friend
by Joel Bowman, Rude Awakening

That the unbacked currency of one country is now the core holding of all the countries in the world is unprecedented in the history of the world.

Books have been written about how it happened. The short version of this fascinating story is that it came about as a direct result of the U.S. being the "last man standing" after World War II. In 1944, as the war wound down, delegates from 44 war-battered countries gathered at Bretton Woods, New Hampshire, and, after some arm twisting, agreed to accept the role of the U.S. dollar as the currency of global commerce. The decision to make the greenback the supreme currency was made easier because, as a component of the agreement, the U.S. agreed to make it forever convertible into gold.

Unfortunately, when dealing with politicians, "forever" has a different meaning than to regular folks. In 1971, when a rush of European dollar-holders began converting their greenbacks into gold, Richard Nixon unilaterally canceled the dollar's gold convertibility. From that moment on, the U.S. dollar became an abstraction, backed by nothing at all... and unrestrained by anything other than political whim.

The growth of dollars outstanding since Nixon ended convertibility has been stunning. There are many implications attached to this global flood of unbacked money. But the primary concept to understand is that the supply of dollars increases rapidly; the supply of gold increases slowly. The debasement of the dollar knows no limits. Over time, therefore, gold's value in dollars should increase substantially.

Since the end of gold convertibility, there have been no limits on what the politicians can promise or what they can spend. A fresh example is provided by the sub-prime credit crisis, in response to which the government has gone on record stating it would provide "unlimited" credit to banks.

But "credit creation" is just a clever way of saying: "dollar-printing." That's why credit creation is a dangerous game - one that threatens to eliminate the U.S. dollar as a serious competitor to gold.

Any number of the investors who entered the gold trend early look at the price action of the yellow metal over the last year - which has been flat to slightly down - and worry that this is a sign that this gold bull market is over.

What they are doing is letting their emotions run their investment portfolio, a classic reaction during the "Wall of Worry" stage of any bull trend. They have made big money in gold shares, they understand the fundamental arguments, yet declining prices or volatility in the shares (which is especially prevalent in the summer months) gets them to thinking, then worrying, then selling.

Big mistake.

Simply put, Gold is an option on future monetary inflation, which is the Fed's typical response to all financial and economic problems. In other words, the gold complex reacts positively to the monetary "medicine", not the sickness. Lance Lewis addresses Gold's reaction to "monetary medicine" in his essay:

Shocked That No One's Buying Gold?
by Lance Lewis

The Fed has still yet to cut the Fed funds rate (which would be the most beneficial for gold and gold equities), but I expect that to come shortly (and probably inter-meeting). And when the Fed does begin to ease and people see that the Fed has indeed chosen to inflate its way out of this mess, I suspect we'll see gold bulls return in force to gold equities.

The question is (much like three weeks ago) where will gold and the gold shares be before that "confirmation" comes (ie- how much will investors anticipate), even though the probability of the Fed beginning to ease is now obviously much higher than it was three weeks ago? As for the answer to that question, I think it's unknowable. If one believes the Fed will choose to print, then one simply needs to be long gold and the gold shares and ride things out because you never know when the mirror image of last week's downside panic will appear (i.e. an upside panic).

In other words folks, it may be painful at this time, trying to hang on to this bull, but it could be much more painful if you allow yourself to be tossed off his back, and too scared to climb back on.

An international boycott of the US Dollar and all assets associated with it is brewing across the globe. Foreign nationals own a LOT of these derivative debt bombs that are becoming worthless as each hour of a day ticks past. Retribution for these losses will be devastating for the US Dollar and American consumers. The inflation that will soon begin washing up on our shores will make even Al Gore forget about Global Warming and the rising oceans. America, Americans, and the US Dollar are in deep do-do.

I can only laugh at these clowns that want to be President of this once great nation. Do any of them even have a clue? LOOOOOOOOOOOOOOL!

Stock Market Gyrations and the “Yen Carry” Trade
by Gary Dorsch, Editor, Global Money Trends

For long-term buy and hold investors in the US stock market, who simply sit through wild market gyrations, it’s good to know that you have “Plunge Protection Insurance.” The dynamic duo of US Treasury chief Henry Paulson and Federal Reserve chief Ben “B-52” Bernanke are working overtime these days, and using all the weapons in their arsenal to prevent a bear market from materializing, while Wall Street faces its worst financial crisis in many decades.

“I asked Chairman Bernanke if he would use all the tools available to him and he said, Absolutely,” said US Senator Christopher Dodd on Aug 21st, after a meeting with Paulson and Bernanke, the top commanders of the “Plunge Protection Team” (PPT). “Historically the federal funds rate has tended to follow movements in the discount rate,” Dodd added, alluding to the PPT’s most potent weapon.

Gary Dorsch's essay is a scathing review of the games the PPT has been, and may be about to, play in their unending effort to rig and manipulate markets across the globe. Which leads one to ask the question: How did these clowns get so much "power"? Glad I asked. The essay below by Chris Powell leaves one to wonder what can be done to take their power away, and see to it that they never get it back. It is absolutely disgusting that a small band of greedy SOBs are on the verge of destroying "The good faith and credit of the United States of America". This is a must read.

Country's top decisions made in secret by Fed
By Chris Powell

As it always does in crisis, the Fed has responded with secret meetings and telephone conferences with the great financial houses, deciding in secret whether to increase the money supply and government lending to financial houses and to raise or reduce interest rates. Such actions by the Fed will change the value of every dollar around the world. They will change the price of labor, goods, services, and real estate, as well as the return on savings.

But there will be no public hearings or public meetings at which the basis for the Fed's actions will be examined and those actions explained. It all will be accomplished in secret, with a vague communique issued afterward.

In any case, however the Fed's power is used, it is the power to influence and even rig markets and to decide all winners and losers in the economy. It is the ultimate patronage. And the exercise of that power, the monetary power of the United States -- the power to determine what money is, how much there is, its price, and the terms of its circulation -- is completely undemocratic, which is exactly why it is exercised in secret. For its exercise cannot bear scrutiny.

A few participants in the system occasionally have acknowledged as much, as when the Fed's vice chairman, Alan Blinder, remarked on national television in 1994: "The last duty of a central banker is to tell the public the truth."
Gold and Silver had a small dose of "panic buying" Friday afternoon. Both suddenly launched upwards at 12pm est. Was this real buying, or a heavy round of short covering? Monday's action should be telling. Gold hurdled resistance at 663/664, but stop short of strong resistance looming at 670. Silver vaulted 11.80 and once again hit a wall between 11.95/99. Fibonacci lines have played a big role in the containment of both metals lately. These little mathematical "zones" of resistance and support never cease to amaze me. Above I have posted two simple charts of Gold and Silver and their Fibonacci lines associated with their July highs and August lows on an hourly chart. The hourly chart really allows you to see the BS that goes on in the markets every 24 hours.

As we open the week: Gold finds near support at 663/664 and resistance at 670. Silver should find support at or near 11.72. Resistance remains near 12, and Silver may need one more retreat to support before she musters the strength to knock down 12. 12.28 will be waiting to take a shot at her should 12 fall.

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