-- Posted Wednesday, 19 December 2007 | Digg This Article | Source: GoldSeek.com

Can the financial system be in as big a mess as central banks' actions suggest? Year end is rapidly approaching, and accounting convention calls for all to strike balance sheets. Those financial statements influence the evaluations of firms by investors, regulators, and rating agencies.  Because of credit chaos, those institutions want to show sound, liquid balance sheets. As a consequence of the unusual demand for liquidity, the inter bank market for funds is under serious pressure. The ECB had to provide $500 billion of liquidity to the inter bank market. In part, this situation is due to investors developing an aversion to investing in credit creation. Investors do not want to lend to lenders. All of those markets built on debt, from housing to paper equities, will feel the affect of this growing aversion to investing in credit. Liquidity is being denied and withdrawn as investors shy away. Less credit means less less money flowing into markets, and that means lower prices.

The Federal Reserve surprised markets by adopting a rifle like approach, though term loan auctions, to provide year end liquidity. That action crushed hopes of markets for an immediate and ever ending series of rate cuts.  The U.S. dollar had already become seriously oversold, and was coming off a short-term bottom. The shift in rate sentiment further strengthened that rally, as shown in chart. The Dollar's rally, which likely will persist through year end, has pressured Gold. That pressure may continue. Consolidation is not yet complete. Recent bullishness has not yet capitulated. Investors should prepare themselves mentally for adding to positions below $750. Consolidations are important to investors as they generate investment fuel for the next rally, which will be the next step on the way to $1,400+.

 

GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly.

For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

-- Posted Wednesday, 19 December 2007 | Digg This Article | Source: GoldSeek.com

Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here

Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.

Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.

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