Gold and Silver Shaking Out the Weak Hands

May 4, 2011 | By | Reply More

We are being led to believe that bubbles now abound in any stocks, indecis, ETFs, miners or any other investment vehicles associated with precious metals, particularly gold and silver. Before answering whether gold and silver are shaking out the weak hands we should set the scene as we see it.

We live in a particularly manipulative world. The advent of the internet has opened the flood gates to goverments throughout the world to distort the values of their currencies to their own advantages with, sadly, the U.S. in the vanguard.

The persistent and, to date, successful attempts to devalue the dollar looks set to continue and begs this question. Can the ongoing devaluation of the dollar be simply to make its repayments of interest and capital to the Chinese and other holders of US debt less onerous or is there some other game afoot?

It looks to us as if the Fed is deliberately avoiding  giving America the dose of unpleasant financial medicine it desperately needs in order not to jeopardize the chances of Obama being re-elected. Many a plum Washington job hangs on the outcome.

We offer no apology for our cynicism! Americans have lived in a cocoon of insularity for a hundred years or more. This is not the time or place on explain why. Simply the US has never to this day been able to shed its introspective attitude to the rest of the world. It has been unable to understand that the so called American way is neither wanted, appreciated or desired by many nations, most particularly when they feel that this is being imposed upon them by either force, or more subtly by economic and other factors.

The US has not yet realised the extent to which their previous overwhelming influence, in economic and military terms, has diminished. For example, as a bystander, would you bet today on the United States seeing off China either militarily or in economic terms if it came to the crunch. I know I wouldn’t.

Anybody thinking that this current, almost standoff, situation between these two super powers, one of which is in an accelerating decline with its status as the worlds’ reserve currency increasingly vulnerable, will  not reflect on the price of gold is in serious need of a reality check.

Forget the all the chartists prognostications. In the long term the Chinese, together with the other emerging economies that seem likely to join it in becoming economic super powers, are looking for a tradeable currency, backed by a common stable denominator.

Gold has historically been such a denominator and now that China has become the largest producer of gold it surely cannot be surprising that already efforts are being made to revert to the gold standard in the currency markets and dump the dollar.

Lets face it the Fed has, and continues to, play into the hands of the emerging world.
It seems its masters cannot understand that electing a pliable president who seems to have no idea of the consequences of the economic path he has allowed to take place is leading his country to the status of a banana republic.

Americans, and all those other citizens of the so called western developed nations, should ensure that their wealth, or just their standard of living, remains intact by putting every cent they can afford into precious metals, gold preferably, otherwise silver or a Platinum Group Metal via bullion held in a vault outside the US or shorter term in an ETF that holds the physical metal. It is imperative that such action to avoid the consequences of a looming dollar melt down takes places with the minimum of delay.

We do not want to be classed as scare mongers and we do not believe that our doomsday scenario is going to take place in the immediate future, nevertheless it is waiting in the wings! We just think that the sooner the readers of this blog take the action we have just discussed then the pain of the eventual outcome will be lessened or even profitable.

So why are these weak hands fleeing precious metals?

A combination of media hype where bubble talk has on two recent occasions, namely the dot com  and property crashes, peaked the attention of the public once again proving that ‘bad news sells newspapers’ with the writers, such as ourselves, of internet investment blogs, TV pundits et al. gaining the attention they think they deserve.

Then there are those chartists, the technical whizz kids, who are not backward in telling us that the metals are oversold, a ‘head and shoulders’ is taking shape or a cross over of moving averages is happening.

These and so many more interpretations of bearish or bullish moves cannot be taken lightly and shrugged off as so many speculative and longer term investment decisions are made solely by the use of technical indicators while the fundamental issues for buying, selling or holding an investment are ignored.

So far this week the bubble proponents along with the bearish technicians have held the floor. An element of government manipulation could conceivably be added to the mix. An ‘upside down head and shoulders’ pattern, a bullish signal, is said to be developing in the euro/dollar exchange rate indicating that the dollar may at last be reversing its down trend to strengthen against the euro.

The interplay between two of the weakest currencies in the world does not seem to us to be a logical reason for a global slide in silver and gold. The killing of Bin Laden is just about as relevant.

The fact is that the issues surrounding the dire state of the US and European economies and their currencies are showing no signs of improving. This has been a principal driver of the precious metals sector.

No other viable alternative to trading with gold and silver acceptable as a means of preserving value to the world has yet emerged.This is why we are happy to see the weak hands in gold and silver being shaken out, giving us an opportunity to buy into the pull back and add to our holdings.

Mr Market can, and often does, play some nasty tricks but we find it difficult to see how this master of the unexpected can reverse the continuing long term uptrend in silver and gold while the US and Europe seem helpless to reverse their economic decline.

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