hedgeman

The End of Gold, Part Two

Gold will surpass last years highs and our view is extension towards 1200. If this rise happens orderly and not in a blow off top manner it may have further to go.

Anyone trying to go long without a gigantic stop loss looses at least part of his position before it moves higher. Weak longs are washed away therefore limiting supply higher up. Since it is hard to make money as a leveraged bet on gold usually this means it is not over yet. I also like the monthly charts.

I do not pretend I know why markets move where they move and will therefore choose not to "analyse" further. KISS (keep it simple stupid) shows it made a brake and has room to the uspide on a daily close above 935.

Five New Forces to Drive Gold Higher

Sometimes it is better to simplify things (taking the "why?" out of the equation)... Gold deserves to be the champion of conspiracy theories out there given its long long history but thinking too much about it doesn't help to make some money with gold.

If you just look at the market with no bias (bias meaning believing something moves due to the factors we have identified) it is consolidating. It reminds me of the time EURUSD first hit 1.367 and then fell back almost 2000 pips and consolidated until majority of short term money lost patience with it. We all know what happened later on...

So a detached view shows a very high probability gold is at a similar point in time. It will most probably go higher to some 1200$ level in 2009 where everyone will buy the 2000$/oz idea. That will be a turning point. From there it can again consolidate or move up parabolically. 1200$ coincides with a long term DX target of 65.xx and should be hit for the cycles to reach their decision points. 1200$ gold and 65 DX is where USA empire will be in front of historic jury. The vote is yet unclear.

Disclosure: Long and not in a hurry, would decrease exposure on daily close bellow 825 by 66%.

Will We See a Big Upward Move in Gold?

Pushing gold prices up is the cheapest way to postpone the inevitable. Without a thorough system reform the growth will not be reignited. In the mean time to slow the pace of declines in employment FED should create another "bubble" which would increase the "perceived wealth" effect. If you force banks to start lending again and revaluate a widely held asset (gold!) you jumpstart the system (it solves nothing but postpones reform and gives some breathing space...) Consumption would rise globally and also other asset classes would stabilise - correct higher...

Bubble "order" - Equity - Realestate - Commodity - Precious Metals

Give consumers credit and convince them something they hold is rapidly increasing in price and they will start to spend. A jumpstart so to say.

Inflation - USD falling - Deflation debates will become irrelevant once the FED decides that cheapest reflation is through gold.

But one of conspiracy lines goes like this : there is no physical gold left at the FED, China holds it somewhere as collateral against US Treasuries... :)

There should be a clear distinction between what should be done and what will be done. ECB and EU almost never do what they are supposed to do due to their organisational inneficencies. USA should lead the way.

And this time they will do it. Nothing worse for politicians then a bunch of workers staying at home (after a few days of family life a night out with union guys, after a few beers you can spark a riot easily...) Look at the Greece example.

Something should be done fast to alter perceptions and the most effective way ( - cheapest) is to push gold sharply higher.

Disclaimer: will buy brake of 835 on a daily closing basis for XAUUSD.

Own Gold? Time to Fold

Inflation doesn't matter for the current price of gold. Total collapse is also not imminent. What matters is how to duplicate the wealth effect created by housing and credit bubbles.

And here the large quantity of gold and its wide dispersion among different types of stakeholders around the world is the easiest way to increase perceived wealth (and if you arm twist banks which government now owns to start lending again) and subsequently consumption. A sharp increase in the price of gold in the next few days would have the desired psychological effect as we approach xmas.

Disclosure: Stopped from gold longs last Friday.

The Manipulation of Gold Prices

Nice article. We got burned buying the 792 brake on the way up, our stop was triggered Friday. It means there is a nice chance for a rebound Monday :) Anyway taking deep analysis aside, tech picture shows failure on weekly charts and deflation camp may be winning short term. However sooner or later "fiat" confidence will dissapear (Ben and Co. are putting up a good fight so far) since fundamentals are just not there. Some sort of fractional gold backed banking system should emerge (although it may be transitory in nature) in due time.

As for Comex and the bacwardation. Could be some commodity funds are exiting without looking at the optimal price (liquidation in a hurry) and the rebound that will follow will produce yet another great opportunity for "the naked shorts" bunch to have another short term party. Our target for 2009 (when USA default story picks up speed) is more modest at around 1200-1300 level.