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« OptionTrader Closes 5 trades: Average Profit of 94% in 18 days | Main | Severstal to acquire more of High River Gold Mines Limited »

Nothing Like Uncertainty to Boost Gold Prices

Gold Silver HUI USD Chart 14 October 2010.JPG

A snap shot of the year as captured by the above chart, shows that we have in first place silver, followed by gold, which is closely followed by the gold producers and in fourth spot, heading the wrong way, the US Dollar. Despite the stated strong dollar policy, the reality is that the United States Dollar is in free fall.

As things stand we have the sequel to Quantitative Easing about to darken our doorway in early November when the Federal Reserve will announce their intentions, which they have already trailed, so all we need to know is just how much will be allocated for this purpose. Then we have the Obama administration losing its popularity and facing the mid term elections also in early November. The results of which may well throw up a few new faces who just might have something to say about how things are being run and the wisdom of printing more money. We wont know until the results come in and we get some indication of where the power lies and just how vocal and influential these people will be.

We also have the unfolding sub prime mess which throws into question home ownership and puts a question mark above property investment, placing both buyers and sellers into the doldrums as the situation stagnates while ownership issues are resolved. Housing is not only an important part of the economy it weighs heavily on the minds of home owners who are now wondering if they do actually have the correct paperwork in place and can clearly demonstrate that the roof over them is in fact theirs. The only certainty we can see here is that the lawyers will very busy. Enough said.

Looking at the external forces that come into play the biggest by far is the stance that foreign governments are taking by disparately trying to maintain parity will dollar in order not to lose their competitive edge. And so the race to bottom continues with the competitive advantage being won and lost on a momentary basis as the other countries try to fall into line by making similar devaluations.

Over on Wall Street the 'DD' phrase is being played down, however we do have the possibility that we could experience a Double Dip recession as the recovery, in the western world at least, remains fragile with robustness still a long way off.

So just where are the winners? The answer is to look no further than the precious metals sector where both silver and gold prices have been on a tear and look set to become turbo charged. Its also true that the other commodities have also sprung into life, but that's a discussion for another day.

Please read what we have to say with a pinch of salt as we are not in the 5% to 15% of our portfolio allocated to the gold and silver group, apart from a little cash, we are fully loaded with physical gold and silver, their associated stocks and tranches of Options Contracts. These opportunities do not come along everyday and we are hitting it as hard as we can, a strategy that is not for the majority of investors.

Below we have the chart for gold prices where we can see a stupendous rally which started a little over two months ago adding $200/oz, driven by strong fundamentals and a weakening US Dollar. Also note that the technical indicators are at the top of their ranges, in particular the RSI, which could remain there for some time to come, as in this instance we expect the fundamentals to overcome the technical analysis and drive gold prices ever higher.

Gold Chart 14 October 2010.JPG

Taking a quick look at silver and we can see that over recent times silver prices are outperforming gold prices which adds a little spice to the world of precious metals. Since the end of August silver prices have gained a staggering $6.00/oz, which should come as no surprise as the gold/silver ratio has been out of kilter for some time. However, there is now a yawning gap opening up between the price and the 200dma which is now about 33% above that of the 200dma, but it can go to 50% plus before we get a breather. Although the indicators suggest a breather is due, as with gold we expect them to remain on the side for some time yet. With the occasional shallow pull back we expect silver prices to climb all the way to the end of the year.

Silver Chart 14 October 2010.JPG

Finally we have the US Dollar, which as we write has just fallen through the '77' level on the US Dollar Index, next stop could be as low as '72' where it will need to find a few friends in order to stop the rot.

USD Chart 14 October 2010.JPG

Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us. Stops are now being raised in order to lock in profits on our open positions.

SK Chart 11 October 2010.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (2)

Hi Bob,

I read your articles whenever they come up and always find them interesting. I have a quick question that has been bothering me, if you have a moment, I'd appreciated it if you could shed some light on it. People always talk of QE and its relation to PM's, as the dollar devalues, PM's prices generally increase, I understand that. As you state, "once the FED tells us the amount", my question is-----how do we know what the FED is telling us is correct?

It is generally stated the "money supply" is roughly $2.054 trillion, of which much value on many things is calculated off of, so how do we know that the true money supply amount isn't $3 or $4 trillion, instead of 2.054T? It is also understood in the recent past that the FED, out of necessity, to avoid default, has already been doing more QE than they admit to-- again, how do we know the amount the FED is buying is accurate, unless they tell us, and when they do, how do we know what they are telling us is true? Could it be the money supply is already 50% higher than stated, which makes our "money" worth even less and our PM's worth more? Again, do the "experts" just assume the information the FED feeds us is accurate data and that's what everything else in the money universe is based on?

Thank you for your time on this matter.


October 14, 2010 | Unregistered CommenterRob

I cant remember the last time I believed a set of government figures, I think that I was nine years old at the time.

Its not just the US, we don't trust any of them, they are all caught up with massage and spin, we are still waiting for an audit of the gold reserves which hasn't been done since the 1950s.

October 14, 2010 | Unregistered CommenterGold Prices

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