-- Posted Monday, 22 September 2008 | Digg This Article
| Source: GoldSeek.com
By: Peter J. Cooper
After the tumultuous swings in financial markets last week - with gold having its biggest one day rise for 26 years - and closing up more than $100 at $874, we can well speculate on the week ahead.
It is perfectly possible that we will see more wild gyrations in precious metal prices, and even a return to $1,000 an ounce gold. Silver will follow in gold’s wake and show its usual gearing ratio to the yellow metal, which should make it the better performer.
Coming up by the mid-week will be the $800 billion Wall Street rescue plan from Ben Bernanke and Hank Paulson, the dynamic duo of this crisis. However, the euphoric market reception of this plan in concept may be lessened by reflection of what the reality might mean.
US house prices are still falling and that is the route cause of the current chaos. Falling house prices mean home loans are going bad on an epic scale and bringing down the global financial system like a house of cards with its interlinking via derivative products.
Fixing the bank balance sheets stems the blood but it does not eliminate the flow. The housing market will still have to find its market bottom - unless the Fed proposes to buy up the unsold inventory and create a ‘bad housing corporation’ of toxic properties.
To my mind the outlook is still a very sharp global recession for 2009 and into 2010 with rising unemployment, bankruptcies and a falling stock market. What the Fed market intervention will do is to slow this process down, which may make it longer but not so deep.
The price to pay for this intervention - apart from a longer recession - will be the inevitably higher rates of inflation and dollar devaluation that will follow the printing of a lot of money. That should sustain commodity prices at elevated levels, and precious metals are the most probable asset class to gain in such a market of limited alternative opportunities for investors.
This should be a very good week for stocking up on quality junior gold explorers - whose shares just have to be at rock bottom in view of the outlook for bullion - as well as gold and especially silver producers, and of course bullion.
Peter J. Cooper
http://arabianmoney.net/
-- Posted Monday, 22 September 2008 | Digg This Article | Source: GoldSeek.com
