Gold Will Shine in 2009 (Part II) 50 comments
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by Sean Hyman
Get ready for the “economic pipes” to be unclogged and for a tidal wave of inflation to head our way!
I assure you that Obama’s economic advisors will be the “drain-o” that gets the pipes unclogged. When this happens, the Fed knows that it will have to “mop up” this excessive liquidity in the financial system.
However, here’s what I predict will happen: The Fed, while it wants to be a forecaster of the economy really just ends up becoming a “responder” after the fact to what’s going on in the economy. Therefore, between the time that the Fed starts to see the inflationary signs in the economy and starts the process of draining the excess liquidity from the economy, it will be too late. The hyper inflationary effects will already be in play. They will be “late to the ball game” yet again.
When all of this starts to happen (and possibly a bit beforehand), savvy gold investors will sense it coming and will buy up gold ahead of time…positioning themselves like a surfer that gets out ahead of the coming wave that will propel him forward.
The Fed will do its best at that point to drain the money supply and hike rates, but there are delays from when they start to act and when it actually starts to effect the economy. This “lag time” will cause a huge return of inflation in a big way that will propel gold ever higher and will eventually dilute the dollar as well.
You see, when there’s more of something in existence, it begins to hold less value. So as the money supply is quickly increasing, the dollar will eventually feel the effects of it. Remember, there’s that delayed “lagging” period which is why it hasn’t already been felt even now.
However, as sure as the sun is coming up tomorrow…it’s coming. So get prepared ahead of time. For, the key to successful investing is to buy just ahead of the massive move. This requires an investor to “think ahead”. You can’t just see what’s happening at present and prosper like you should in your investing. It requires one to be “forward looking” and thus “forward thinking”.
When all of this unfolds, investors will buy gold (which is essentially exchanging their dollars for gold) as they seek safety, liquidity and an “insurance policy” against runaway inflation.
Gold production will continue to shrink and Central Banks will hold onto their gold in 2009!
So with the economy deeply damaged, unemployment claims hitting almost 600k as of this writing, there’s not going to be a huge incentive for investors to sell gold. That’s why gold has only come off of its top by 17.9% and stocks have been 40+% off of their highs on average. You can see its underlying strength just in that fact alone.
Also, remember that gold supplies will continue to tighten in 2009 just as they did in 2008. Why? Africa’s production of gold sank 14% which was the lowest levels since 1899. That’s serious! But it’s not just a South Africa story. U.S. gold production fell 2% last year. While China (which has now become the world’s biggest producer of gold) had their production rise 3% last year, the “net” result collectively among all countries is a net slowdown in gold production.
Central bank selling in gold was down a full 42% last year. And you’d be an idiot of a central banker to sell a bunch of gold in 2009 with the U.S. and global economy still hobbling along. Therefore, you can count on these guys not adding to the selling.
Therefore, get ready to buy gold, sell dollars and buy foreign currencies like the euro and especially the Aussie dollar which is greatly helped by rising gold and other commodity prices.
Most of the increase in gold and selling of dollars may come more in the 2nd half of the year than the 1st half due to the delayed effect of Fed policy and as the Obama administration starts to get its feet wet in tackling the economic woes.
But be aware and watch for the change just in case it happens even a bit sooner than I think.
Gold consolidates its multi-year gains as it catches its breath and prepares to run “ever higher” in 2009!
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On Jan 24 05:21 PM YellowHoard wrote:
> Anyone have any experience trading Rhodium? I've looked at it on
> Kitco's site and it looks pretty attractive at these levels. However,
> the spreads are really wide between buy/sell.
Out of self interest the powers that run and advise in the financial system choose to ignore the fact that for eight years the price of gold has been moving in a moderately rising uptrend. Friday's increase now puts the price solidly above the then bull market top it reached twenty five years ago. A study of commodity charts reveals that a rising price trend generally resolves in a geometric movement followed by a collapse of the bubble created in the market reflected by any particluar chart. The resolution of the gold and silver price charts in the 1980's followed this pattern. Unless markets are fundmentally different than they always have been, the future resolution of the price of gold and silver will be the same as it was in the past; sooner or later the charts will trace a geometric incease in those prices.
The current and continuing bear market in stocks and all bonds except Treasuries has proven costly to investors with capital committed to paper assets that have a value only because of the promise of somebody, somewhere, to pay what they owe. And the losses in stock and bond investments will continue. As economic production (GDP) declines, the individual debtors of the world and their governments are becoming less solvent by the day. By contrast, gold and silver are nobody's liability. Moreover, these metals have been recognized as money, ie. a store of purchasing power, throughout history. Unless human nature has changed the public's perception of the intrinsic value of silver and gold in the face of the already occuring avalanche of printing press digitized currencies created worldwide to bail out impecunious borrowers and their cupdious lenders will drive the price of these metals higher and higher.
Period.
Well, I guess that closes the topic then, eh? The yen has also gone up faster than gold lately, so I'll tell you what...you buy up a lot of tuna and yen, and I'll buy up gold and silver (I actually have already, starting in '99), and we'll compare the change in value of our stashes from today to say 1 year from now. Winner takes the other's stash...deal?
On Jan 25 04:26 PM Catch a Falling Knife wrote:
> The price of canned tuna is appreciating faster than gold.
Buy: 28
Sell : 3
The Bears are going to have their paws removed.
So, hopefully, it will be the BULLISH year here in America.
Given some follow through from the action friday, my guess is Bill along with other gold bulls will have more to smile about in the days and weeks to come.
Congrates to Bill and everyone at Gata.
On Jan 25 04:30 PM Catch a Falling Knife wrote:
> They called it the "Five o'clock follies." -- The 5:00 PM briefing
> in Saigon -- We are getting that all the time on the economy...
> Prosperity is just around the corner. Or should I say, Quarter?
>
>
>
> On Jan 25 12:39 PM OldLimey wrote:
Thanks for reading my articles.
On Jan 24 03:22 PM xpatUSA wrote:
> Many articles are making similar predictions with reference to Fed
> actions and resultant inflation when all that money escapes from
> the Banks. My question is always "When?". But really, the question
> should be "what are the indicators for the onset of inflation for
> the price of goods and services, and what do those indicators do?".
>
>
> T.C.
On Jan 24 04:45 PM Toeser wrote:
> I can see the possibility of a gold rally from a collapsing dollar,
> but not from inflation - at least for quite a while. The asset destruction
> that is going on is unprecedented. The velocity of money has dropped
> like a rock. Housing prices are probably at least a year from bottoming,
> and I doubt there will be any race back up. The Fed and the Treasury
> have us at breakeven at best. Normal measurements of money supply
> simply mean nothing right now.
Thanks for reading my articles. I'm glad you liked it.
Many find it hard to believe that macro economic trends can be predicted. The exact "whens" are hard to judge when it comes to days or weeks...but it's been very easy for me to predict trends over the years because fundamental forces shift and that's what causes trends to be formed and shift. It's like the tires that lead the car and not the other way around.
So when you connect the dots, its easy to become forward looking and position yourself ahead of time. While I can never say, on "X" date, it's going up...if you get positioned and ready for it...and you've invested with cash, not margin...then you don't have to "time" the exact point at which the rally starts. That's the great part....yet you're there and positioned for when it does rally.
On Jan 24 11:20 PM 5142152-337 wrote:
> Excellent article! Thanks for writing! One question: How do you
> see silver during the gold runup?
Thanks for reading my stuff whether we agree or not.
On Jan 26 08:02 AM maxe wrote:
> Yet another "hyped" gold story, it's clear from reading all these
> posts, that imply gold is a certainty to rise that it is now in "bubble"
> territory. There are two bubbles left, treasuries and gold.
The buck has many flaws. It's only enjoyed a rally as a defensive play. But once the markets actually break higher...the party for the dollar is over once again.
Thanks for reading and thanks for the comments.
On Jan 25 06:49 PM jt wrote:
> <<Catch a Falling Knife 577 Comments Jan 25 04:26 PM The price of
> canned tuna is appreciating faster than gold. Reply |Report abuse
> | Link to Comment +10>>
>
> Well, I guess that closes the topic then, eh? The yen has also
> gone up faster than gold lately, so I'll tell you what...you buy
> up a lot of tuna and yen, and I'll buy up gold and silver (I actually
> have already, starting in '99), and we'll compare the change in value
> of our stashes from today to say 1 year from now. Winner takes the
> other's stash...deal?
>
>
> On Jan 25 04:26 PM Catch a Falling Knife wrote:
On Jan 25 06:35 PM Roy M. wrote:
> The word "Gold" means " Confidence and Sfaety."
> Period.
and just as i was about to get suckered into those "cash for gold" late night direct response ads.
Thanks for the humor and the kind words. I appreciate it...and for you taking the time to read my articles.
On Jan 26 06:18 PM BColb wrote:
> good article.
> and just as i was about to get suckered into those "cash for gold"
> late night direct response ads.
"The Down trend from the $1000 level has yet to be broken ...."
I responded:
“This chart [which I linked to] shows the downtrend from 9000 being broken Friday, although the trendline was drawn through the peak in July in order to make it touch the peak in October and be parallel with the trendlines below the lows.”
Paultaut responded:
"The Red Downtrend line starts at $1000+, point A. The Tip of A to be exact. The next connector should be the Tip of B, in the middle of July of 2008, not the congestion below, just the tip and extending it down.
"This puts a breakout at the $910 area. If the tip is not used for point A, and you use the congestion which is slightly below, to connect the dots. The Same $910 area is resistance.
........
“You can crisscross any chart, any way you want. It does not change the Highs or Lows. Two connected points still make a Line. The Line Above skips the July high because it does not fit the posited scenario.
"Rodger, all I did was take my trusty straight edge to connect 2 points, I did not deviate from the line those highs represented. There IS NO breakout, Yet."
To which I respond:
There are four highs on the chart: March, July, October, and December. Connecting the first two highs of March and July, as Paultaut has done, creates a downtrend line with a breakout point that is higher than drawing the downtrend line through the last three peaks. If the latter trendline is used, a breakout had occurred when I made my post. The reasons that using the latter trendline appealed to me are these:
1. Doing so parallels the line across the lows and thus creates a nice trend-channel.
2. Doing so relies on a greater number of data points, which seems more "weighty" and reliable.
3. Doing so is at least as correct as using the peak price as the start of the trendline. Here is what asset manager Kevin Tuttle wrote about the choice of trendline points, in his essay "Evaluating Probabilities to Improve Profitability," in the book "Master Traders," p. 72:
"When drawing a trendline you should never come off an absolute peak or trough. There may be times when they do coincide with the overall trend, but for the most part they have the tendency to give many false positives. A proper change-of-trend line should be built off the first re-test of the prior break-of-trend ... because most peaks and troughs are just that, emotionally driven spikes and/or abnormalities in price that don't truly correspond to the overall trend."
IOW, it is indefensible to define “the” downtrend line as the one drawn from the peak and rule out a line drawn from the subsequent high.
Paultaut also wrote:
"I do my own charting, right or wrong. The Fact that you have to link somewhere means that the view is NOT your own."
That's like saying, "I won't look through your telescope because it was manufactured by someone else." And anyway, so what if the view is not original with me? I wasn’the pretending that it was.
"I do not have a clue as to what chart your guru is using."
So why not click the link and get a clue? Your snooty comment (“my guru”) tries to make out that I was referring to some inaccessible arcana, or that it would be too much of an imposition on you to take a look.
"I do not care what another Chartist has to say about what they are looking at."
What a surprise.