-- Posted Tuesday, 17 March 2009 | Digg This Article
| Source: GoldSeek.com
April Gold: Open= 921.1 High=925.3 Low=912.4 Last= 915.6 -5.5
There are perhaps a few explanations as to why, despite one of the worse economic times in the past century, gold prices have yet to breach prices from a year ago. Questions are abound as to why, despite the cratering of the stock markets, gold is not performing uber-bullishly.
First off, the initial response to this recession was deflationary, which hit all commodity sectors hard. Gold actually managed to perform better than almost every other market during the past year. And when looked at in terms of foreign currencies, the price of gold has been a great asset to own or trade from the long side. But when money and assets are being drained of staggering amounts of value and consumer demand grinding to a halt, it is very difficult for any commodity to rally in that environment.
Although much moaning and groaning about bankers’ greed takes place, there’s not been an overwhelming failure of banks to prompt widespread fear of a true financial meltdown. The only fear people have right now is of unemployment and a perception that inflation, at some point in the future, will be higher. But that is rational thought, not panic.
Secondly, as bad as a time we are in, this is still not the undisputable 'worst economic crisis since the Great Depression' that people have been claiming for seemingly the past three or four months. There has been an awful amount of hype about this recession to make it out as bad as possible. But have some of the 'meltdowns' in the financial sector been of our making?
There is much hand wringing about the mark-to-market accounting rules, which have devastated many balances sheets. What we’ve seen in the last few days of the stock market rally have been bank CEOs defending their cash flow. If these companies were to use a cash-inflow basis of accounting then the whole notion of writing off billions of dollars in losses might be a moot point. Could we change the accounting rules to turn balance sheets more profitable and stop forcing companies to write down billions and make them cut dividends in order to raise capital that isn’t necessarily needed?
Well, the Fed has pumped all the trillions of dollars into the system based on the idea that we are in the direst of straits. They have more than "primed the pump" but have created a turbo fuel injection system. So, where’s the beef?
Indications of higher inflation have simply yet to appear and that is causing gold bulls some dismay. One can only chase phantom ideas for so long before people lose interest. For gold to turn substantially higher, the market needs fresh, compelling news to take this market to new highs. There needs to be some indication that inflation is real, that the market is turning away from deflationary grips. Gold bulls have done a marvelous job over the past four months to rally this market but it needs more evidence to support its cause. And perhaps more time is needed for evidence of inflation to appear.
All said, traders should be patient and wait to see what comes of this most recent consolidation pattern. Be light on one’s feet and try not to get too heavy in positions that cannot be easily defended. The trend-line remains in tact, so far. But to turn the technical picture bullish again, prices need to close above $944.
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Thomas Hartmann
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-- Posted Tuesday, 17 March 2009 | Digg This Article | Source: GoldSeek.com
