As we can see from the above chart the US Dollar has rebounded once again to challenge its resistance level of '80'. Congress could approve the revised bail out plan in the next day or so, which may be enough to push the USD higher. Should it break through this resistance level in a significant fashion then this resistance level will become a support level as it was in the past. Gold could then suffer a knock effect from a strengthening dollar. Also note that the 50dma is moving up adding support and the 200dma has levelled off, for now.
It goes without saying that the vote regarding the financial bail out is the most important single factor effecting gold at the moment. Another ‘NO’ vote will no doubt hit the equity markets and the dollar and gold could be perceived as the place to hide. However it appears inevitable that a rescue package in some form or other will get a ‘YES’ vote shortly. Will this move be the saviour for the financial system? We think not! It will have a short-term ‘feel good’ effect, but as we have said before it is akin to giving a drunk another drink. This injection of cash will be absorbed with rapidity and then we where are we? Still paddling up a waterfall of insolvency. The situation has not changed, as the same people still cannot finance their debts, a stay of execution is all that will be achieved.
How does this issue affect gold bugs? Well, for starters it will be volatile over the next week or so, but gradually more and more investors will recognise that this market sector is the place to be.
The return on cash when considering inflation is negative so that looks like a slow death to us. The mainstream stock markets are way over valued, in our humble opinion, that’s why we don’t have a bean invested in them. The DOW and mainstream markets will continue to drop significantly and when we feel this has passed, maybe then we will take an interest in other market sectors.
We are holding tight to what we have and are looking to deploy the remainder of our ‘opportunity’ cash on any dip that may present itself.
Have a good one.
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