Gold Shows Signs For Bullish Optimism

February 12, 2010 | By | Reply More

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The oft repeated calls by so many of the economic fraternity to the effect that gold is a played out, and out of date hedge against inflation, store of value etc., etc., have become more strident in recent weeks.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!!

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Category: Review

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