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Why Hasn’t Gold Caught Fire?

By: Rick Ackerman, Rick's Picks


-- Posted Monday, 23 March 2009 | Digg This ArticleDigg It! | Source: GoldSeek.com

In forecasting gold's price trends, Rick's Picks has generally been careful not to let our long-term bullish bias color our observations from one week to the next.  We think readers deserve straight talk, even when it has less than bullish implications for the precious-metals sector.  Such as now.  We are not so much negative on bullion as we are more cautious than usual.  Specifically, we don't expect gold to leave the $1000 barrier behind any time soon -- meaning within the next three or four months; rather, we foresee a choppy correction over that time that could bring quotes down to $800 or even lower.  There are no compelling Hidden Pivot targets to buttress this prediction, only a Fibonacci level at $811 that we would not count on too heavily for precise support.

Why the dour outlook for the intermediate term? The reason is painfully obvious: With fiscal and monetary policy more inflationary than ever in the U.S. and around the world, gold should already be trading well above $1000; but it is not. We won't dwell for long on why, since there are many plausible reasons. Suffice it to say, deflation has decimated the investment resources that institutional players might now be deploying speculatively and/or defensively in gold.  Yes, we too have read about all of the cash supposedly sitting on the sidelines. We don't believe it, not at all, nor should you.  It seems entirely likely that much or most of it will turn out to have been, in a manner of speaking, Bernie Madoff money.  For no one should doubt that the global financial system is every bit as fragile and ephemeral as Madoff's criminal empire.  His financial edifice was a Ponzi scheme through design; ours was a Ponzi scheme that we perpetrated on ourselves -- a manifestation of greed and stupidity that swelled our faith in free lunch to an epochal flood tide.

A Bulletproof Defense

 

The resulting bust has brought on a true global crisis that has devastated financial markets and erased perhaps $80 trillion of asset values from investment portfolios.  As a consequence, institutional investors have grown so fearful of a systemic crash that they have shifted allocations toward the only "sure thing" their feeble imaginations --and the Rules of the Game -- will allow:  Treasury paper.  Not stocks. Not real estate. Not derivatives. Not even gold, which has been buoyant but hardly frenzied.   Gold may be a riskless investment according to some gurus well-known in hard-money circles; but in the world of pension funds, insurance companies, banks and other agents of investment orthodoxy, gold is still the province of lunatics, schemers and enemies of the American Way.  Contrast this with the spectacle of white-shoed money managers climbing onto the Treasurys bandwagon. They have good reason to fear the day when they will be hauled in front of a tribunal to justify their investment decisions. Can you blame them for thinking U.S. Bonds will offer a bulletproof defense?

 

Goldbugs should therefore be neither surprised nor disappointed by bullion's failure to catch fire.  They should instead take heart from the fact that gold has performed quite well relative to all other classes of investable assets and is likely to continue to do so regardless of how things play out.  Concerning the big picture, we can only imagine two possible scenarios. The  more likely, in our view, is that deflation will deepen until all debts have been liquidated through bankruptcy.  This is the only possible outcome if fiscal and monetary nostrums continue to dribble out a "mere" trillion dollars at a time. This is nickel-and-dime stuff compared to the asset deflation occurring throughout the world. But if  the slow, deflationary death this approach produces proves too painful economically and politically, then hyperinflation will at some point be employed, even if it destroys creditors and savers for a generation in the process. 

 

Targets for Comex Gold

 

In the meantime, our outlook for gold in all time frames will remain flexible, subject to subtle changes in the technical picture. Most immediately, we are looking for a decline Sunday night or Monday morning to 949.00, (basis Comex April) or to 938.50 if any lower.  A penetration of the lower number, a Hidden Pivot, would increase our bearish bias for the near term. Alternatively, the short-term picture would brighten considerably if the futures are able to close above 984.80 for two consecutive days. (Want to learn more about the Hidden Pivot Method we use to identify these price targets? Click here to register for a free webinar demonstration Tuesday morning during market hours.)

 

***

 

Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 


-- Posted Monday, 23 March 2009 | Digg This Article | Source: GoldSeek.com




 



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