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« Kinross Gold Corporation: Call Options Update | Main | Gold Call Options: Sold For 100% Profit in 44 Days! »
Thursday
Sep252008

The US Dollar Rally Peters Out!

US Dollar chart 25sep08


The US Dollar tried but failed to penetrate its resistance of '80' resulting in a fall back and a spike in gold prices. The technical indicators reflected just how over bought the USD was, however it came very close to forcing the breach and then it could have gone on a bit of a run.

It certainly is a bit of a roller coaster ride in gold at the moment, but in the present climate many other markets are in the same boat. Gold prices are experiencing a great deal of volatility, mirroring the volatility of the financial markets at present, but has gained over $150 in the past week or so, which indicates the true scale of the current financial crisis.

Gold rises in times of significant economic concern, such as during the 1970's inflation, and so gold is telling investors what the US government is not; this crisis is very serious and will not be going away anytime soon.

As for when this crisis in the markets will end, will think it will take a good year from now for the majority of troubles to be shaken out.

There is a possibility that we will see an all out "crash" in the stock market, similar in severity to that of 1929. If this is the case, which despite being gold bugs we hope it is not, then gold prices will shoot back up to $1000 and beyond very fast.

However we think a more likely scenario is that the mainstream market will continue to suffer, gradually falling apart. More bailouts by the Fed will increase the money supply, devaluing the US dollar even more and pushing gold to new all time highs by the end of this year.

Inflation is likely to continue to become a major issue, particularly as the Federal Reserve has pumped around a trillion dollars into the US markets, rapidly expanding the money supply. This expansion of the money supply will lead to high inflation, and this is where gold comes into play as a hedge against such dangers.

Gold has spiked up tremendously recently, so of course some cooling in the yellow metal is due. We expect it to consolidate around $850, bearing in mind it will be very volatile, before forming a base and challenging its all time high before the end of the year.

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Reader Comments (6)

Historically post-election years have been the worst for the U.S. markets. Could happen again.

September 25, 2008 | Unregistered CommenterSidj

Don't forget you sent out alerts to BUY, BUY, BUY!

call options on AUY, KGC, HL. at which time they are down 50% , up from down -86% since your recommendation..

September 25, 2008 | Unregistered CommenterMichael

I also picked up metals options (including AUY, KGC, HL). I sold the KGC & HL after the spike to take some $ off the table. My net for these 3 is slightly positive, even if AUY goes to 0).

A couple of ways to reduce the risk with options:
- Harvest some of the profit when things go up. Remember that nothing goes up or down forever.
- Consider a hedged options strategy such as a veridical spread. This will reduce the cost (risk) and yes it will also limit your gain.

September 25, 2008 | Unregistered CommenterBC

We'll need a clear direction from Congress on what the bail out plan will be. Until then the POG will wander about the 850 - 900 level. I hope something comes to pass soon as I am averaged into the AUY call at $1.91.

September 25, 2008 | Unregistered CommenterDavid

nice newsletter but a few comments, I am bullish like you, but not as tainted maybe. .

Gold rises in times of significant economic concern, such as during the 1970's inflation, and so gold is telling investors what the US government is not; this crisis is very serious and will not be going away anytime soon.

Its been economic concern for 3 months, gold has tanked until the past week...

As for when this crisis in the markets will end, will think it will take a good year from now for the majority of troubles to be shaken out.

There is a possibility that we will see an all out "crash" in the stock market, similar in severity to that of 1929. If this is the case, which despite being gold bugs we hope it is not, then gold prices will shoot back up to $1000 and beyond very fast.

How do you know that? Gold has to compete with cash. Cash will be more important, and people will sell anything.

However we think a more likely scenario is that the mainstream market will continue to suffer, gradually falling apart. More bailouts by the Fed will increase the money supply, devaluing the US dollar even more and pushing gold to new all time highs by the end of this year.

So did you predict the 15% correction a couple of months ago.? Then you are contsantly repeating the same thing..

Thoughs?

September 27, 2008 | Unregistered CommenterSean

Michael,

We did say BUY BUY BUY and we are still confident we made the right call there. Although are options on HL KGC and AUY are still down, they are improving. Also we have sold two of our option positions that we bought at that time for 100% profit in 44 and 37 days.

Actually gold has risen significantly since the beginning of this crisis, which has been in full swing since this time this last year. Gold has risen from $650 to over $1000 and now sits at around $880, poised to go higher yet again in our opinion.

People will indeed flock to cash, but when they realise that their cash is being devalued very quickly by severe inflation, they will move from cash to gold as the ultimate safe haven.
In the gold vs cash competition, gold has the key advantage, as it cannot be devalued by central banks recklessly increasing the money supply and ramping up inflation as they are now.

We did predict this correction, although we did not foresee that it would be so severe.
Please read the following for your information:
http://www.gold-prices.biz/gold-another-buying-opportunity-approaches/
http://www.gold-prices.biz/gold-and-gold-stocks-take-some-profits/

Thanks for your high quality comments guys, they are much appreciated. Anymore questions, please ask.

September 27, 2008 | Unregistered CommenterGold Prices

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