LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
Gold Market Update

By: Clive Maund


-- Posted Monday, 24 March 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

Gold is back in buying territory after its dramatic correction back to key intermediate trendline support.

In the last update we were looking for gold to break out above the $1,000 level. It did and briefly got to about $1030 before it turned tail and dropped precipitously. Interestingly, the short-lived run at $1030 occurred last Sunday at the time of the Bear Stearns emergency, and the time when the crisis was at its most acute was the point at which gold topped out, which is what one would expect.

The action in both gold and silver early last week was short-term bearish, with gold backing off rapidly after its run at about $1030, leaving behind a bearish “gravestone doji” candlestick on its chart, and silver backed off from a run at its highs early this month, thus marking out a small Double Top. These bearish omens were noted and a warning that a possibly heavy reaction was imminent was posted on the site.

 

The size of the drop last week appears to have been due to the market suddenly becoming aware of the Fed taking action over a period of time to curtail money supply growth behind the highly publicized façade of big interest rate cuts. If they were and are in fact doing this, it would of course have deflationary implications and deflation is the kiss of death for commodity bull markets. This issues several very important questions. If they have been and are continuing to do this, then a tug-of-war situation must surely exist between deflationary and inflationary forces, for into the foreseeable future boatloads of new electronically created money are going to have to be created for the line of dominoes of collapsing major banks and other financial institutions, in addition to which other countries and trading blocs are likely to continue their policies of competitive devaluation, and even if the Fed succeeds in curtailing the rate of growth of liquidity it would be a Pyrrhic victory, for the current mess and mayhem in the global financial system DEMANDS rapid liquidity growth, and if it doesn’t get it the result would be an almost instant credit gridlock leading to a deflationary implosion. This brings us to the next important point, which is just how much control the Fed actually has in the present situation. One thing is clear and that is that if the Fed does have control of the situation, it has done a decidedly poor job of showing it these past 6 months or so. The Fed is thought to have about as much control of the current situation as a trucker does whose brakes have failed halfway down a steep canyon - he doesn’t have control, he has influence. The truck is going to go over the cliff, we know that, but by skillful handling, he can significantly delay the point at which it hurtles over the cliff. So let’s stand back and review the 2 main scenarios; the Fed succeeds in curtailing liquidity, which inevitably leads to a credit freeze and deflationary implosion. The Fed obliges all comers and goes all out to save the big banks, brokerage houses and mortgage institutions from going under by manufacturing as much electronically created money as they need to avoid insolvency. This, given the gravity of the crisis, would lead to hyperinflation. However, there is a third route, which is a highly unsavory and prolonged period of stagflation, that would involve recession coupled with high inflation. This is essentially a muddle through situation in which deflation and inflation exist side by side - we have already seen this with house prices collapsing even as gasoline prices rise. This would be a situation in which most everyone loses. At this point it is of course not at all clear which of these scenarios will play out, and everyone involved in this giant mess appears to be taking it one day at a time, but what is clear is that gold is certainly set to continue to advance in both the hyperinflation and stagflation scenarios, and even in the deflationary implosion scenario, after a possible initial shock drop when most everything goes into the tank, it should then ascend as it would be “the only game in town”.

While the correction in gold and silver was an accident waiting to happen, on account of their being extremely overbought with record levels of bullish sentiment, it appears to have been exacerbated, as we have already noted, due to the deflationary implications of the recent liquidity drain that has caught the market’s attention and led to the vicious sell-off this past week. It is the Catch 22 situation with regard to the money supply and the eventual chaos that will result, which should ensure an ongoing bull market in gold and silver as safe haven investments, even if commodities as a whole tank due to a global recession/depression. Let’s not forget that gold and silver are REAL MONEY, despite the comprehensive and largely successful campaign over many years by the mainstream financial press to relegate them to the status of mere commodities in the minds of investors.

The 1-year chart for gold is most interesting at this time, as it reveals that despite the ferocity of the plunge last week, gold dropped back to - but not below on a closing basis - the support of the lower intermediate uptrend channel that we had delineated some weeks back, and it also fell into a zone of strong support arising from earlier sellers around the $900 level, and closed off its lows on Friday. What this means is that gold is back in buying territory, even if we see further modest retreat in coming days/weeks that results in a trendline break. A trendline break would be unlikely to lead to further significant losses - instead a trading range would likely form for a while probably above the upper support level shown on the chart centered on and above $900. Right now the RSI indicator shown at the top of the chart has dropped to a level which indicates that gold is deeply oversold short-term and due an immediate bounce.

The turnaround in the dollar last week after a severe and prolonged downtrend was of course another factor behind the savage correction in gold and silver. We had been monitoring the critically oversold condition of the dollar for some time, which almost guaranteed the emergence of a snapback rally. Although there is scope for the dollar to rally further back to the underside of the lower resistance level shown and the vicinity of its falling 50-day moving average, it is thought unlikely that it will get that far, on account of the dire fundamentals.

 

There has been some speculation in recent days that the reason why gold and silver fell so heavily last week was that a part of the rapidly dismembered carcass of Bear Sterns was a large gold position that got dumped onto the market. This may be possible but it seems far-fetched. What is more believable is that Bear Sterns may have been scapegoated because it went its own way and didn’t play ball with the other big players on the block and is believed to have been heavily shorting the dollar. So it was scuttled and JP Morgan, a major shareholder in a private corporation called the Federal Reserve, which just happens to have a lot of influence on the US economy, was granted first rights of salvage, the name of the game being to cherry pick the assets and farm the debts and trash off onto the taxpayer. The JP Morgan elite must feel like the islanders on that Scottish island Eriskay when a boat crammed full with crates of whisky was shipwrecked and washed onto the rocks, which story inspired a highly amusing film called Whisky Galore.


-- Posted Monday, 24 March 2008 | Digg This Article | Source: GoldSeek.com



Web-Site: CliveMaund.com



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.