-- Posted Sunday, 14 June 2009 | | Source: GoldSeek.com
While helping one of the younger ones study for finals yesterday I ran across a word I haven't heard in quite some time. Mercantilism. It’s defined as; “an economic theory that there is a fixed amount of wealth in the world and that a nation’s prosperity depends on it’s success in accumulating wealth by exporting more than it imports.”
There is a fixed amount of wealth in the world today, ie. Gold and silver. Paper money is not wealth and is the antithesis of this definition since it can be created without limit. It seems that China has been following this definition to a tee be exporting, and the US has been the largest ignorer of it by importing. We all know how much wealth China is accumulating and how much the US is losing.
The week was pretty flat and a bit of a sleeper. Whether this is the calm before the storm or the pause that refreshes is still up for debate.
The Dow rose 0.41% while the S&P 500 went up 0.65% and the Nasdaq was lifted 0.51%. Up in Canada things weren’t much better with the TSX rising 0.72% but the junior and exploration heavy Venture bourse came back with a 1.48% gain. As gold and silver were hammered all week the S&P Global Gold Index gave back 4.57%. The HUI fell 4.94% and the XAU lost 3.68%. The GDX index fell 4.33%.
Metals review
Gold actually only fell 1.62% for the week but them big nominal falls tend to scare people even though on a percentage basis they are not a big deal. The bullish wedge formation is becoming more clear now. The Fibonacci retracement lines are excellent support levels. We may see a further fall here to the 61% level at 928 which happens to correspond with both the 50 and 100 day moving. All three should support the price and help to push it higher.
While it can be aggravating to see gold fall in these economic times it’s actually good that the indicators came down from overbought levels. The RSI is bearish and moved just below 50 late Friday. The moving averages are fine but the 50 day did move below the 100 day which is not great but that level should still show strong support. MACD is bearish as well as the Slow STO which is fast moving into oversold territory.
Silver slid 2.91% for the week and is approaching the 61% Fibonacci retracement level. Really a consolidation was to be expected before the $16 resistance level can be beaten decisively.
RSI is bearish and looks to be ready to move below 50. The 25 day moving average is supporting the price so far as the close was exactly at that level. The other moving averages are moving higher and in textbook order for a bullish posture. MACD has turned lower as well as the Slow STO indicator. I am looking for a move to $14.50 before another attempt at $16.
Platinum was off 0.95% on the week and held up very well indeed. It is now in the second wave if you follow the Elliot Wave Theory at all. I do, but vaguely.
There is not much to say about platinum right now. It’s uncanny how accurate the Fibonacci retracement lines can be and are right now for this precious metal. The 61% and 50% retracement lines represent perfect resistance lines. The up-trend channel is very intact and the price is very near the top which is right around some good resistance.
What I am looking for now is a consolidation trade between $1,200 and $1,300 perhaps throughout the summer until enough steam can be built up to power through resistance at $1,300. That being the mostly likely scenario in my view. However if the economy begins to fall apart and the major indices follow then we could see a sharp move up, or down if mass liquidation of anything showing a profit occurs, as happened last year. When panic hits you can never know what will happen.
Palladium was down 1.46% for the week but managed to close above resistance at $250. This precious metal is also near the top of it’s up-trend channel and may move back below $250. The 25 day, 50 day and 100 day moving averages are tracking and supporting the price as it moves higher.
The up-trend is not nearly as steep as platinum’s but I do expect it to steepen to match it’s sister metal. It’s probably going to take a bit more work to move up to the next line at $275. RSI is bullish and not too high. MACD is bullish and can run much higher. Slow STO is trying to flash a buy signal and move back into overbought territory. No matter what happens this precious metal is also into the second wave in Elliot Wave speak and has a long way to go on the upside. Nothing happens overnight in these markets but eventually all the precious metals will regain all time high ground.
Fundametals Review
The US Federal Reserve of all people is hiring lobbyists to counter skepticism in Congress about their growing power over the financial system. That’s great. Wine and dine them until they sell their souls and the taxpayers future. To make it even more comical the head lobbyist is a former head lobbyist for Enron...we all know how that one ended. I’ll try and be more optimistic. Maybe she learned something from her past failures. Nope, she would have found a new career path rather than continue to lobby for fraudulent organizations if she had. Sorry, I tried.
Egypt has been reopening their doors to miners over the past few years and are continuing along that, so far, successful, path. It seems as if the country is doing things right and has had little conflict with companies or the public. Most of the deposits I am aware of are highly amenable to mining with flat terrain and easy to deal with metallurgy. The country is now accepting bids for seven blocks in the Eastern Desert. The country is littered with artesian mines and gold was a major ornament back in the day. Today’s mining techniques have the potential to do great things. As I mentioned it’s still early days there and I see great potential as time passes.
It has only taken two weeks for the National Union of Mineworkers (NUM) in South Africa to threaten strikes. The NUM says that strikes are unavoidable. The outrageous demand of a 15% pay raise by the NUM and the low offers by miners of a 6% originally, now 7% is sending the negotiations to the Commission for Conciliation, Mediation and Arbitration. From there if the issues cannot be worked out the NUM will strike. Both parties are being unreasonable but the NUM has a history, and is living up to it, of being very stubborn. They have not moved at all and are demanding a rate increase almost double what the rate of inflation is.
The NUM general secretary said; "It has always been our intention to bargain in good faith, to try reach a settlement through negotiations..., but this year looks like we will have to use a different tool in strike action,". If that was their intention then why haven’t they budged on any issues to date. Negotiations means coming together and working out a deal both parties are happy with, not taking a stance and staying put and then coming out with this balderdash.
Couple that with the 13% decline in gold production from a year earlier in South Africa and that number will likely grow substantially. What is most shocking to me though is that the timeframe is compared to last year when Eskom, the South African power provider, had a blackout from too much demand. Mines were down for sometime and only operated at 40% to 60% and not at all on other days. How this years production can be lower is not foreshadowing anything good for the countries status as a major world gold producer.
China has announced they have further increased their gold reserve by about 4.5 tons at the end of April to about 1,059 tons. This is significant in several ways. The more important reason being the continued increase in gold reserves is another shot across the bow of the US. They are very worried about their US paper assets and are signalling this to the world as a whole by announcing the increases in gold reserves.
China quietly accumulated gold for years without a peep. Now they are openly saying they are increasing gold reserves. If you know how the Chinese work, they never talk their book, so they can continue to buy at the lowest price. However they do talk their book as a warning. Rather than saying something outright, their culture likes to mask their threats. This is the biggest threat to date. The Chinese could unravel the gold market themselves and in turn bring down the US currency. I hope US authorities are paying attention and you are paying attention. Gold is the place to be since it always has and always will represent money, silver even more so. Mark my words, this is a threat equal to nuclear war. Chances of an all out war today are slim and would result in near total annihilation of the entire world. A monetary war is taking place and gold is at it’s centre.
A senior executive at the World Gold Counsel says that justification is warranted in central banks having up to a 40% to 50% weighting in gold of total reserves. This was said at a conference organized by ETF securities. The fact is that this is impossible. At $937.90 USD per oz all the gold in the world is worth roughly $1.646 quadrillion. But when you consider that all the privately held jewellery coin and bullion in the world accounts for 71% of the total that only leaves $476 trillion in USD terms, most of which is already held by central banks and ETF’s etc.
The fact is that the gold is encumbered. If even a few large countries increased their gold reserves that much it would drive the price to levels not imagined by anyone. It can’t happen. There simply is not much gold available in the world for sale today. The only way that would be possible is through an ETF which doesn’t actually hold gold. It’s bad enough every currency is fiat, now gold is becoming fiat as well.
Some good news for the platinum group metals industry surfaced this week in the form of Chinese light and heavy vehicle demand increasing 14% in May and for the first five months of the year. German demand in May was up 40%, France’s up 13% but for Europe as a whole the April number was -7%. Incentive programs in Europe and China are seen to have helped car sales. However there is concern that this demand will lift once the incentives are ended. When that will be is not yet known.
I think I’ve found the reason why domestic cars have had such poor quality for a good many years now when compared to imports. Keep in mind this video is from the eighties and things have become much more complicated since then. I implore you to try and understand this video and pay close attention to the end when they say to tell the customer the problem is normal! http://www.gvsmedia.com/video-2/pbVY5teBzlg/Hilarious-Chrysler-Dealership-Training-Video.
And for fun this parody poking fun at an oil tanker which split in half in 2007 in Australia, had me rolling around and I hope it sends you off in fine form. http://www.ebaumsworld.com/video/watch/252808/
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Until next week take care and thank you for reading.
Warren Bevan
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-- Posted Sunday, 14 June 2009 | Digg This Article
| Source: GoldSeek.com
