Gold: Two elephants in a lifeboat

Who's rocking the boat? 

There are currently two players destabilizing global financial markets — like elephants in a lifeboat.

One is the Bank of Japan, with markets uncertain as to how massive expansion of the monetary base will play out.

The second is the Fed, where hints of a taper were enough to send the market into a panic, forcing the Fed to tone down its rhetoric. Emphasis now is on marginal rather than sizable decreases in QE.

Gold broke resistance at $1400, respecting primary support at $1320 and headed for another test of $1500. Uncertainty is high with the metal as likely to break resistance at $1500, signaling a primary up-trend, as to break primary support, which would offer a target of $1200*.

GOOD LUCK 

GOLD Technical Analysis >>> Put Egos Aside & Respect the Charts

I would like to repeat the idea that it is best to subordinate yourself to markets at all times.  To put your ego aside or at least check it daily to make sure it is not leading you astray.  The gold bug ego for example, hardened by a solid decade-plus of relentless bull market is in my opinion too set in its ways on balance.  That is because it is an ego that knows it is right. 

Au monthly chart, log scale

Using a log scale chart, which is better for illustrating trend lines, we see that gold is at critical lateral support zone.  But there are two more lateral support zones roughly in line with the two major bull market trend lines.

It is difficult to imagine gold declining very hard from current levels, given the superior sentiment backdrop (pervasively over bearish by the usual contrary indicators), but the chart is always the chart and it should be respected by right minded people.  Gold holds critical support at 1524 until it doesn’t, see?

HUI weekly chart, linear scale

Speaking of respect for charts, the sad journey of the HUI Gold Bugs index drives home the point.  There were no predictions made in Biiwii land.  There have only been probabilities based on status above support, below resistance, etc.  In fact, I must once again own the fact that in 2010 into 2011 I had a measured target of 888.  Nice one chart boy!

But the important thing is to keep respecting the charts no matter what they do, regardless of whether what they are doing is constructive to your favored plan or bias at any given time.  HUI, in making a series of warnings (1, 2 & 3 on the chart) by violating support levels, has come to a very bearish state.

With the constructive sentiment backdrop and extreme over sold status, the index has been a candidate to at least put in a tradeable counter-trend bounce.  But yesterday something happened that even put that prospect in jeopardy.

Since this area of the market is one that I remain engaged with fundamentally – the Cyprus hype only adds fuel to the bullish case for gold – my mindset will remain open to the bullish case at the drop of a hat.  But we will surely not become victims if worst case scenarios come about in the interim.

That weekly chart of HUI especially, has most recently been a negative view since the index lost former support at 460 after making a ‘W’ bottom last summer.  That means that Huey must now prove that it is not bearish (by recovering at least the lower of the 2 red dotted necklines) and not the other way around.

Some people dislike technical analysis because it can say some disturbing things that go against everything we think we know.  And that is exactly why we need it.  The current plan is to be ready for opportunity whenever it arrives on its own schedule.

HAPPY CHARTING FOLKS

Dr Marc Faber: Inflation, War, Gold

It's not just about money. There will, thinks Faber, be graver consequences.

The best bet for investors may be to buy a farm and escape from the cities, as a prolonged recession could lead to war, as the Great Depression did, said the Swiss national, who now lives in Thailand.

“Buy a farm and let your girlfriend work on the farm,” he said, to the applause of investors. “If the global economy doesn’t recover, usually people go to war.”

The publisher of the Gloom, Boom & Doom Report talked about how the biggest credit bubble in history was formed, how it imploded, and where we are going from here. While he places the blame on a lot of sources, he clearly holds a special loathing in his heart for the U.S. Federal Reserve. Faber said the Fed created a giant asset bubble by pumping liquidity into the system every time there was some kind of crisis in the economy, be it the tech collapse or 9/11. The result was that instead of having a bubble centred in housing prices or tech stocks, the Fed created a bubble in absolutely everything, he explained:

"We had a synchronized boom, and now we have a synchronized bust."

He expects the U.S. will keep printing money like crazy, and even joked that Fed Chairman Ben Bernanke appears to have Robert Mugabe as his mentor.It gets worse. Faber thinks that geopolitical tensions (mainly over energy) will lead to a "dirty war" between the U.S. and a China/Russia faction that targets people living in cities. He thinks many stocks will continue to crater and that the price of gold will eventually be higher than the Dow Jones Industrial Average.

But hey, at least he said commodity prices will do well once the economy recovers a bit. His advice >>>

"You want to own commodities in the ground, not derivatives at Citigroup."

Will Silver Outperform Gold in 2009?

Silver may have underperformed gold in 2008 because industrial uses remain its largest source of demand, but silver’s gold-like safe-haven quality is attracting a large number of investors these days.As a result, silver has evidently reverted to a stronger correlation with gold and a weaker link with copper (the other semi-precious metal that has an industrial application).
UBS recently reported that they expect silver will undo some of last year’s underperformance and average $14.75 per ounce in 2009. With the gold price to silver price ratio at approximately 69 times versus a three-year average of roughly 56 times, UBS anticipates that the ratio could move to more normalized levels this year and lead to an outperformance of silver versus gold.

As an example, if gold goes to $1,100 an ounce and the gold prict to silver price ratio moved to 60-to-1, silver's price would be around $18.33, versus its current price below $14 an ounce.

UBS reportedly said, "While also an industrial metal, silver is largely a play on investment and speculative demand, although with inferior supply and demand fundamentals compared with gold. If gold continues to attract strong safe-haven buying as we expect, then silver can continue to move higher in the first half of the 2009."

Analysts also initiated coverage of Pan American Silver Corp. (Nasdaq:PAAS)with a “buy” rating and $20 price target. The Vancouver-based company is one of the world’s largest primary silver producers, with roughly 18.7 million ounces of production. In 2008, Pan American also produced 25,000 ounces of gold, 40,000 tonnes of zinc, 6,000 tonnes of copper and 16,000 tonnes of lead.

They told clients:
With primary leverage to silver and secondary leverage to gold—coupled with a strong balance sheet—we believe Pan American is positioned well under UBS’s forecast strong silver and gold price environment.

Approximately 85% to 90% of his forecast revenue and net asset value (NAV) is derived from the miners’s silver and gold exposure, but when metal prices were higher, it derived roughly 35% to 40% of revenue from zinc, lead and copper. So if base metal prices recover meaningfully, there could be substantial value creation. The analyst highlighted the company’s seven operating mines and large resource base as providing significant leverage to the price of silver of both an earnings per share and NAV basis.

“Additionally, the company has notable leverage to the price of gold, which we also view as positive given that silver and gold prices tend to move together,” Mr.

Next Stop for Gold $2,000 Per Ounce!

Next Stop for Gold $2,000 Per Ounce!

Ever heard of tulip mania? Well how about gold mania? It’s estimated that all the gold that was ever mined on Earth would fit into just two Olympic sized swimming pools. The world's biggest deposits are being depleted quickly, and new discoveries are uncommon. The bottom line: the demand for gold exceeds supply. Gold can easily explode higher to new highs.

Gold is near the $950 level and I expect it to break above its record intraday high of $1,030.80 that it hit on March 17, 2008. Once it goes above this psychological barrier of $1,031, it will head much, much higher.

Now please keep in mind that investing in gold does have risk and gold tends to be quite volatile. We may see a speed bump here and there in the coming months. But, I do think you should invest in gold as an insurance policy, just in case the global economy gets worse.

How high can gold ultimately go? Mark my words... gold will hit $2,000 per ounce or even higher.

Recently gold has been on an absolute tear as investors are piling into the yellow metal as a safety hedge. People are still quite concerned about the current economic crisis and are unsure what will happen in the future. The financial downturn we’re experiencing has crushed conventional investments like stocks and real estate and gold has shined throughout this downturn.

Gold is certainly in full bull market mode right now. Recently it headed higher on worries of both inflation and deflation. Surprisingly, central bankers are in favor of higher gold prices because it suggests their attempts to head off deflation are starting to work.

Now, the average person is not worried about inflation or currency debasement. They are worried about the money in their bank account. That’s just one reason that gold prices are rising. People are turning to safe havens because they think their banking system is on the brink of failure and they see the stock market is in the toilet.

Monetary disorder in general is very bullish for gold. The U.S. government is printing up huge amounts of new money and other governments around the world will have to follow suit. Currencies are going to be devalued around the globe. Paper money will be worth less and real assets will be worth more - plain and simple. Hard assets like gold, silver, copper and even real estate will rise in value.We know that gold is a safe haven in times of financial and geopolitical instability. Gold has often been nicknamed the "crisis commodity" because it tends to outperform other investments during periods of market distress and world tensions.

World demand for gold continues to rise and production is declining. It is extremely difficult to open new mines swiftly to address the supply shortage. Gold demand is coming from central banks, but also from private institutions and individuals. The biggest, most enduring buying force of them all is billions of people in India and China that can now freely buy gold.

Again, my target price for gold is $2,000 per ounce or higher. What I’m saying is that gold prices will double giving you an opportunity for a 100% return. I think this could happen within a year or soon after. Gold has produced outstanding investment returns over the years.

So take advantage of this golden opportunity and invest in gold!

Commodities & Currencies

GOLD : A flight to safety, a ceiling, and the US Dollar

The gold and dollar have been moving together for most of January. The uptrend that the dollar has been enjoying has been accompanied by the gold market rallying to the resistance level created last September/October.

It’s a interesting global situation whereby the collective equities markets are suffering across the board, currencies are devaluing, yet the dollar — by comparison — looks good, but the global credit contagion has people running to safety and thus to gold.

You mix that all up and that gives you the chart of gold and the dollar moving higher together.

This could be changing though. Gold has reached a ceiling that could put an end to this. Prices have reached an area where there is likely to be a shift in power from buyers to sellers - that’s if the level stays intact.

Gold is the market of paranoia. Fear and gold rally.

Heck, greed and gold rally too! This market is the psychological pulse of investors and traders.