Five Contradictory Reasons for Golds Swings

December 5, 2012 | By | Reply More

Today is noteworthy in the gold market for five contradictory reasons:

1. South Korea continued to buy gold bullion, adding 14 tonnes to its stash in November. A South Korean Bank statement explains why.

“ Gold is a physical, safe asset and allows us to deal with changes in the international financial environment more effectively”.

2. US federal unfunded debt and liabilities is growing 21 times faster than the economy and has now reached $86 trillion.

Forget the the so called “fiscal cliff” and get really worried about whether Washington’s “great & good” have the will to stop, let alone shrink, this massive danger to all that the US holds dear.

3. The gold price has crashed through support at $1700 an oz., the line it has held, with the exception of one small blip, since September.

4. The worlds largest gold holding ETF, SPDR Gold (GLD) rose to an all time high yesterday of 1351.2 tonnes, up 5.3 tonnes on last weeks record.

5. Open gold futures dropped 10% since last week.

China Must Be Delighted with the Gold Markets Downturn

My guess is that the Asians and the oil producing nations are delighted to see the London and New York gold markets downturn when all logic dictates that hyper inflation will eventually ensue as their fiat currencies become worth less than toilet paper.

Anybody who thinks that China et al are not aiming to increase their trading worldwide through the increasing use of gold ought to be a Western politician.

Fiscal Disaster

Sad to reflect that it will be our children and grandchildren who will have to face the consequences of the profligate promises and appalling bad government determined by the power hungry politicians of the West in their continuing quest for votes at the expense of facing up to a fiscal disaster

As surely as night follows day, printing money under any pretence other than backed by sound solid assets is a recipe for fiscal disaster.

Gold Market Illogical

Despite both the encouraging technical indicators and the very obvious bullish fundamental reasons, written about here ad nauseum, the gold price not only is unable to break out it is actually continuing the weakness it has been showing for the last year.

It seems unrealistic to think that this is entirely due to the manipulations of governments, the IMF or major central banks but undoubtedly something illogical is at work in this market and it is not just shaking out the weak hands or the usual speculative suspects.

SPDR Gold Sets Another Record

SPDR Gold (GLD) purchases its gold on the basis that it is receiving the equivalent in investors considerations so it does seem that there is a solid foundation of retail gold investors putting their faith in the yellow metal, unless GLD is perceived as a highly speculative vehicle.

If so, that is something that we were not aware of and are not inclined to believe.

Questions for the Big Gold Players

Futures are losing their lustre. Now this where the big players come into their own!

  • What are they up to?
  • Are they looking for liquidity as stock markets flounder?
  • Do they anticipate a rude awakening when, or more likely, if the “fiscal cliff” negotiations between the Democrats and Republicans come up with a (temporary) solution that might hurt them.
  • Is there any active insider knowledge in their trading equation?

Gold Bugs Must Keep The Faith

Our take is simple. Right now it is all smoke and mirrors. There is no reason that we can believe in that will result in any long term decline in the price of gold or for that matter in silver.

Everything points to an eventual gold breakout to a spectacular upside and nothing the Fed or any other government agency can do to halt or do more than temporarily slow down the inevitable.

The West as we know it is in terminal economic decline, its influence in world affairs is waning by the day with the dollar as the worlds reserve currency already beginning its death throws. We know it is hard to keep the faith in gold when the price action is so negative but at least these are times to buy if you have the confidence.

Beware of missing the market as it is quite possible any breakout will be rocket fuelled, but think long term.

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