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Gold Shows Signs For Bullish Optimism

PreciousMetalInvestment.com — Fri, 12 Feb 2010 12:54:45 +0000

At first glance it looks as if gold has not done a lot this week but looking beneath the obvious there are encouraging signs for bullish optimism. Since the plunge earlier this month there have been indications that could be interpreted that the gold bull market may be coming to an end.

The oft repeated calls by so many of the economic fraternity to the effect that gold is a played out, and out of date hedge against inflation, store of value etc., etc., have become more strident in recent weeks. Our thoughts are that so many of them rely for their fat lifestyles on the salaries, commissions and bonuses derived from persuading clients in and out of the stock flavors of the month, whereas many gold investors will have much of their portfolio in either the bullion or coin elements of the metal, and will have a long term outlook. Put our thoughts down to a rush of cynicism to our pen if you will!

Of course it doesn’t help interest in the precious metal market that it is a miniscule sector compared to stocks and bonds and that analyzing their mining and production prospects requires a high level of study outside the scope, and irrelevant to, the vast field of opportunity open to analysts of the general stock and bond markets.

As to why we believe that gold is on course for greater gains before long is more than just a gut feeling.

Annual global production of the metal continues to decline, shades of peak oil, so, unlike the great paper money `con`, more unlimited quantities cannot be manufactured at the touch of a printing press button.

There are no signs that any major holder has been selling the physical metal. The Chinese still have a long way to go to bring their gold reserves up to a significant level in relation to their hoards of dollars, although in the short term they are likely to welcome any price drop as a buying opportunity.

Our scan of the technical analysts shows a considerable difference in opinion, as usual entirely dependent upon their own personal preferences from the multitude of indicators available.

Inflation is reported as higher than expected in most of the major western economies despite deflationary prospects as quantative easing etc. is phased out and the prospect is that we are seeing the imminent end of a `dead cat bounce`.

Demand for essentials, such as oil and food continues to grow from the BRIC group of countries. To put this into perspective India now has a middle class population more or less as large as the entire population of the USA, all having the resources to satisfy their middle class aspirations. Neither should the Chinese middle class be left out of the equation, where as a bonus to us gold bulls, they are being actively encouraged by their government to buy gold.

As for the downside, and there always is one or more in any investment argument, there seems no criteria that matches the strength of the `pro gold` camp.

Many major investment trusts and similar heavy weights are dedicated to technical analysis and follow their choice of indicators unswervingly. Such is their size that those who have entered the relatively small gold sector can have a major, if only likely to be short term, negative price effect if their signals indicate a pull out.

The gold market can be pulled down by the rest of the stock market as investors take flight to liquidity. This is probably the most likely negative scenario but can reasonably be expected to be of short duration.

With our `conspiracy theory` hat on we should mention attempts to manipulate the gold market via the even smaller silver market. The US fed is the usual prime suspect.

Our parting shot is to keep an eye on that gold/silver ratio now standing at over 70. If and when gold pulls out of this present price corridor expect fireworks from silver!!

What Caused Golds Record Leap?

PreciousMetalInvestment.com — Wed, 07 Oct 2009 11:49:11 +0000

Rumours and facts combined caused gold to leap to a record high of $1043.50 an ounce yesterday quickly followed by hitting $1048 in today’s early European trading before falling back to $1041 at 13.25 Central European Time.

The rumour that the Gulf States are considering dropping the US Dollar for oil trading, and using a basket of currencies, including gold, together with no little encouragement from China and Russia, has gained some ground.

We have mentioned before that these countries have expressed reservations about the continued use of the dollar as the world’s reserve currency but have doubts that the complexities of such a change over can be satisfactorily sorted within a short timescale.

We anticipate that if, or more likely when, this comes to fruition it will be after a long period of negotiated agreements between individual nations before a practical consensus evolves over the make up of the alternative trading currency.

The consequences for the value of the US currency should this come about will be little short of catastrophic bearing in mind that China and others will dump their vast dollar holdings as the US economy slides deeper and deeper into the mire.

Why hoard dollars if their purchasing power erodes almost on a daily basis and with little or no hope of US bonds ever being repaid, or perhaps even defaulting on the interest. Simple but grim!

Be that as it may, the fact is that the Australian decision to become the first significant economy of the developed west to signal an interest rise has added impetus to the rise in gold, with other precious metals following suit.

Our theory is that the Australian interest rate rise is being perceived by some investors as the first of many to come from other nations, with the likelihood of high inflation following close behind leaving gold in its centuries old situation as the store of value of the last resort.

There is still one outstanding opportunity for precious metal enthusiasts to cash in on the current bull run in gold. While gold has hit new record highs, silver is still shy of its March 2008 high of over $20 an ounce.

The gold silver ratio is over 60 (but only just) while we expect the historical average ratio of the lower fifties to reassert itself before very long. This will mean a silver price of around $25 an ounce if gold hangs onto the upside of $1040 an ounce.

One final observation, do not expect the US to take this situation lying down. The Fed and its minions will continue to play every trick in the book to undermine the rise in gold, ranging from manipulating the gold and silver markets to mounting any propaganda campaign that will scare the dollar doomsayers and encourage the voters.

How could anybody think that the dollar and US treasuries were a safe haven bet just a few days ago when the markets hiccupped but the dollar rose and yields fell? But it happened and no doubt will happen again as President Obama continues to initiate and authorise more and more government spending that the nation cannot afford.

As an example every socialist administration that the UK has had to endure has eventually had to constrain their spending, even to the point of going bankrupt and cap in hand to the IMF for a loan.

Each and every period of socialist government in the UK, from Attlee after the war, through Wilson, Callahan, Blair and now the mentally challenged Brown, has ruined this once powerful and influential nation and left the Right of centre Tory party to clear up the mess.

Looks like a similar scenario is developing in the United States.

Just as in Britain, short-term socialist style populist measures are being cobbled together with no thought of future consequences. The cash for clunkers is a case in point.

Did nobody think through the eventual outcome when the scheme was closed? Now new vehicle sales are way, way down, while Japanese owned manufacturers took the bulk of the artificially stimulated sales. Oh yes, we nearly forgot that cutting pollution, although we wonder by how little, was a major benefit according to the government’s spin doctors!

Right now the US is heading for the abyss, but it is a large and resilient nation with many natural resources and a population blessed with many entrepreneurial and innovative citizens.

It needs a government capable of grasping the long-term essentials for rebuilding the nations prosperity regardless of any short-term voter unpopularity. Unless President Obama, who has some admirable qualities, has a serious rethink, it will be over three years before the voters will have the opportunity to vote in an administration that can straighten out the mess that seems likely to be left.

In the meantime we must hope that a politician emerges who has the integrity, intelligence and desire to put the good of the nation above all the vested interests and can gain the votes of the majority, whatever his party allegiance.

“Cometh the hour, cometh the man”

Until then put your faith in gold and silver.

Gold and Silver Set To Go Off With A Bang

PreciousMetalInvestment.com — Tue, 08 Sep 2009 09:17:47 +0000

Gold and silver have started the shortened US trading week with a bang.

Eastern trading saw the metals advance into higher territory with early morning in Europe consolidating the gains.

Gold has powered through $1005 and as we write (03:50 EST) and has touched $1006.50.

Silver has fared even better with a 3% rise since Friday’s close to $16.75 an ounce.

We hope that our followers took the advice we have been recommending for the last four weeks and more and bought SLV $15.00 Oct. calls or later.

The gold/silver ratio is now hovering around 60, if it breaks below that for 24 hours or more expect silver to continue to out perform gold by a considerable margin.

The New York open will determine whether gold and silver will continue the present bull run with gold’s next step challenging $1050 an ounce and silver marching steadily up to $18.00 an ounce.

No doubt there will be hiccups along the way but with the probability that US traders closed short positions in the metals before the Labor Day weekend it is reasonable to expect that the metals will open firm and rise before any profits are taken before the close.

Wednesday should provide the final verdict on whether the market for the metals blows out and gold retreats below $1000 or buyers will flock to the precious metals market place as inflation fears and dollar weakness gains ground.

Of course such is the state of world economies, when every day brings up a different prognosis from apparently well respected economists, and not so well regarded politicians, that calling the market shots on a day to day basis is, in truth, no more than guess work.

Who really knows what tomorrow may bring to the price of oil or the Chinese stock market, there may even be a flight to the dollar as other world currencies plunge!

In the longer term, no government can continue to create money, let alone promise to up their spending on popular or vote catching social schemes while at the same time their tax take diminishes, without severe inflationary consequences.

Government buying up their own debt because the bond market is played out is probably the most extreme example of governments short term, hope for the best, many policies that will come back to haunt this and future generations and more than likely to start in the near future.

In conclusion we believe that investors and traders worldwide recognise the dangers. Lets face it nobody should be allowed to play anything requiring more intelligence than putting coins into a slot machine if they can’t recognise the currency hazard lights flashing.

Even if this week does not develop into the major break out we expect for the safe haven and inflationary hedge that gold and silver represent, there can be little doubt that, sooner rather than later, it will happen.

Anyhow it is always nice to see over a 100% profit in four weeks, with maybe more to come in the next four days. Time to watch gold and silver prices like a hawk!

Is Gold /Silver Ratio Important?

PreciousMetalInvestment.com — Tue, 17 Feb 2009 14:38:17 +0000

One of the effects of a financial crisis in the past has often been a narrowing of the gold/silver price ratio.

In what is promising to be a recession equal or worse than the thirties, that ratio is now running true to form.

As the crisis deepens can we reasonably expect the ratio to continue to narrow, meaning that if gold continues its bull run, as is now the consensus opinion of analysts, then will silver climb faster percentage wise than its yellow metal cousin?

Dealing with other factors that contribute to future projections of silver’s price performance throws up some contradictory signals that should be taken under consideration before entering this volatile market.

The technical analysts will point to the fact that two key indicators, Stochastics and RSI, are telling them that the metal is overbought.

The same has been said of gold but it has not so far stopped it bounding ahead in the last few weeks, or at least not yet.

As usual, the charts paint a conflicting picture but overall, despite being overbought, many technicians see indications that silver is in a bull trend following the path of gold.

The fact that silver is used in many industrial applications could be a potential damper on the price as demand is expected to fall away as the crisis deepens.

In the first half of 2008 when gold peaked above $1000 an ounce before falling back below $700 in November, silver dropped even more sharply from over $20 an ounce to below $9 an ounce.

This scenario saw a significant rise in the gold/silver ratio at a time when the stock market was tanking and the financial crisis was well underway, suggesting that the ratio is a lagging indicator that should be treated with some caution.

Silver’s volatility can be accounted for by the much smaller market for the metal than gold, and, as a consequence, it is easier to manipulate.

There seems little doubt that for a period in the last quarter of 2008 and on other occasions this manipulative activity focusing on the silver futures market took place in seemingly successful attempts to impede the rise in gold prices.

How this works has been dealt with in earlier articles.

In the last two years there has been a considerable growth in silver ETFs, with the Ishares Silver ETF, a major buyer of silver bullion, showing a 38% rise in its share price in the last three months as the ratio narrowed from over 80 to below 70.

In the mining sector, a significant proportion of silver production is as a by-product to mining for base metals.

The major fall in prices for base metals has resulted in a slowing of activity in the sector exacerbating the already low stocks of silver. The indications are that demand continues to outstrip supply.

We suggest that the silver market is best avoided by short term speculators who are not specialists in the precious metal sector as there is always the possibility of sudden developments in silver’s narrow market that would prove extremely difficult to anticipate.

However in the longer term, silver should prove a profitable market to investigate and action, but keep a close eye on the behaviour of gold and the price ratio.

Bear in mind that experience shows that silver prices will move faster than gold’s, particularly in a downturn.

Investment Guide|Precious Metal Investment Expert » gold | silver ratio

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