Monday, October 12, 2009

Charts Suggest Caution

GoldCore Precious Metals Update
Support for gold is currently seen at $1,040 and resistance at $1,062. The record weekly dollar close was bullish from a technical perspective but gold may need a correction and consolidation (in dollar terms) prior to challenging the next psychological level of $1,100/oz.

Contrary to the popular perception that gold’s rally has been purely a function of dollar weakness is the fact that in the last 3 weeks the dollar has actually strengthened against the euro and other major currencies (EUR/USD was above 1.48 on September 22nd and is at 1.4750 today). In that same time period gold has rallied from under $1,010/oz to over $1,050/oz. Uncertainty regarding the declining value of the dollar and its prospects as the global reserve currency is leading to increasing investment demand for gold. But the outlook for the Euro, Sterling and other currencies is not much better and thus as Alan Greenspan recently warned investors are buying precious metals to hedge against declines in currencies and that this was "a monetary phenomenon." Greenspan, (significantly now an advisor to hedge fund manager John Paulson – the largest holder of the gold ETF) said that this was an indication of a very early stage endeavour “to move away from paper currencies." Few if any of the weekend papers and media even bothered to report gold reaching record highs on three consecutive days last week and gold sentiment amongst the public remains lukewarm at best with many retail investors selling and sales of gold jewellery or scrap gold remaining near record levels.
--Mark O'Byrne

Central banks are engaged in a desperate battle on two fronts
by Peter Warburton
What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200bn, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices.

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.

[The whole point of derivatives, and the lack of position limits in much commodity trading [particularly gold and silver] was precisely to suppress commodity prices and to divert massive monetary inflation into financial assets and away from things that might get measured by consumer price indexes. -Ed Steer, Casey Research]

1 comment:

  1. A recent CNN television broadcast gave the impression that Esperanto aims to be a single global language. The comparison was with a global reserve currency, instead of the US dollar.


    May I put the record straight? Esperanto intends to be an auxiliary language, or a second language for all.

    Please see for confirmation.