Seeking Alpha
Profile| Send Message| ()  

Latin America data points recently indicate a generational change is on the way in how they view gold as a percentage factor relative to the individual region's reserves.

Ever since Venezuela's President Hugo Chavez put last year Latin America gold reserves on the map by requesting to repatriate their gold reserves on deposit in English banks, we really did not have much data available regarding the region's central banks' gold reserves.

Now the gold bug appears to be catching in Latin America.

"We bought some gold," Alexandre Tombini, central bank governor, confirmed to journalists recently in Brasilia.

The shift by Mexico and now Brazil could prompt some of their neighbors to reconsider gold as well.

As the rest of Latin American central bankers continue to increase their gold reserves, it is simply another confirmation of gold becoming more accepted as a protection asset or insurance against Latin American currency risk and relationship to the U.S. dollar as the world's reserve currency.

With the U.S. economic prospects of increasing debt obligations, the potential for another recession and no signs of any economic policy that would support the U.S. dollar long-term fundamentally, we can expect more emerging economies like Brazil, Mexico or Colombia to consider moving more of their fiat currency reserves into gold.

A few have already begun to dip their toes in. Paraguay bought 7.5 tons in July, while Argentina added seven tons last year and Colombia purchased 2.3 tons.

New buyers from Latin America could help maintain the current pace of roughly 500 tons a year - equivalent to the jewelry consumption of Europe and North America combined.

With less than 1% of Brazil's $379bn reserves in gold, i.e., in one of the largest economies of the region, the paradigm shift in gold demand might be on the way as the rest of Latin America catches the gold bug.

By the end of 2012, European central banks probably will have purchased more than last year's record 457 tons, paced by emerging market buyers like Russia, India, and Turkey. Read more about central banks' demand for gold.

As we conclude, we can clearly see a pattern that puts into question as to how much physical gold is currently available to meet this exponentially explosive global demand shift for the yellow metal.

We will explore this in more detail on a LIVE interview scheduled for December 21, at 10:30 PST (The end of the world!), with Billionaire Eric Sprott and CEO of Sprott Asset Management and soon to be published on Seeking Alpha.

Let's take a look at the technical picture for gold and silver and see what is the price forecast for next week.

Click here to enlarge

GOLD

The gold contract closed at 1697.5. The market closing above the 40 day MA is confirmation the trend momentum remains bullish. With the market closing below the VC Weekly Price Momentum Indicator of 1704, it confirms the price momentum is bearish. Look to take some profits, if long, as we reach the 1718 and 1739 levels during the week. Buy corrections at the 1684 to 1670 levels to cover shorts and go long on a weekly reversal stop. If long use the 1670 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Click here to enlarge

SILVER

The silver contract closed at 32.37. The market closing above the 40 MA is confirmation the trend momentum remains bullish. With the market closing below the VC Weekly Price Momentum Indicator of 32.83, it confirms the price momentum is bearish. Look to take some profits, if long, as we reach the 33.42 and 34.47 levels during the week. Buy corrections at the 31.78 to 31.19 levels to cover shorts and go long on a weekly reversal stop. If long use the 31.19 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Source: Is Gold Ready To Explode?

Additional disclosure: TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.