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« Central Banks Push Up the Gold Price | Main | For the Last Time, Is Gold in a Bubble? »

Gold, Silver and Austerity versus Growth

Gold Chart 29 June 2010

We will kick off with a look at gold as she dances and teases her way around the previous record highs in a 'will she or will she not' frame of mind, as analysts wait patiently for a sign to hit the button. Is that a buy button or a sell button you ask? Austerity versus Growth is now the order of the day.

There are many pieces of data that go towards influencing these decisions and one of them to look for is the unemployment figures for the United States which will be published on Friday. If they are close to expectations then their effect on market perception will be of a minor nature, however, if they are out with those expectations analysts will parlay them into something far more dramatic, that is until the next piece of data hits their screens. If you are not trading the market minute by minute then this sort of information can be misleading and cause you to take your eye of the major trends and react with a buy or sell order that does not fit in with your overall strategy. If we step back a little then the advent of the G20 meeting comes into focus where the rhetoric appears to be behind a move to austerity and the balancing of the books. This has to be weighed against the possibility of such measures having a knock on effect on a fragile recovery. Whether the recovery has started or not is a debate for another day, what we see as the issue for today is whether or not the politicians have the courage or not to pursue the austerity solution with all the gusto that it requires.

Politicians and bureaucrats are short-term thinkers by nature with their main objective being to get re-elected, so our expectation is that they are not about to suddenly find a spine and do what is required. The exception to this opinion may well be the UK where the newly formed government appear to understand the problem and have announced measures that if implemented would go a long way to balancing the budget in around five years from now. Austerity is the medicine to provide a foundation for a sound economy, however, it will reduce the amount of disposable income that people will have to maintain consumer spending and in turn will reduce demand for goods and services resulting in a double dip recession.

However, when the general public reacts to theses measures, which are widely viewed as impositions not of their making, strike after strike will surely follow testing the resolve of any administration. So, what will they do then? They will do what they have done so far and print their little socks off, flooding the economy with more paper and inflating the money supply beyond belief.

Gold and silver have alerted us to this, with gold prices marching steadily forward for the last decade. So beware the words of the short term thinkers, the bubble heads, the precious metals bears, etc, and let the major trends be your guiding hand.

It appears to us that we are inundated with more and more articles by the 'if it does that then do this and if it does the other then do the other' brigade, which is understandable as we cannot see just what events lie in wait ready to throw our hard work, research and analysis off track. However, the trend still remains your friend so consider such deliberations as white noise and confine it to the background in order to avoid being forced into decisions that will surely cost you dearly in the long run.

Taking a quick look at the above chart of gold prices we can see that they are trending gently upwards in preparation for a challenge of the record highs. The moving averages are nicely placed in support of the next leg up and the technical indicators have vacated the overbought zone, its a nice chart for a gold bug.

The chart below depicts the progress of silver prices which are also positioned nicely just above the 50dma with one eye on an upward thrust to the $20.00/oz level. Again the moving averages are lining up in support. The technical indicators are moving sideways at the moment which is fine and dandy for now.

Silver Chart 29 June 2010.jpg

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.

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Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

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Reader Comments (5)

Well said. Government's will rein in spending in a meaningful and sustained way when pigs fly.

June 29, 2010 | Unregistered Commenterfallingman

It bodes well for gold but the social costs are truly shocking.

June 30, 2010 | Unregistered CommenterGold Prices


Your most recent piece on Kitco is appreciated by this reader.

Excellent, well thought out status report on the gold, silver moment. Especially appreciate the "keep the main focus" and not be tossed off the trend, disregard "white noise" etc.

Will look for upcoming guidance from you.

Many thanks.

June 30, 2010 | Unregistered CommenterL

Dear Mr Kirtley.

The British are a strange people,. They only get the bit between their teeth when things get really bad and the chips are down. If any nation can pull off the Austerity route it is the British and from what I know of their Character they have the will power and obstinacy to do it. I believe they will succeed simply because the population is behind the government. The population are longing for real leadership and this time I think that they are going to get it.

Regrettably, I cannot say the same for the Americans or the Europeans.


June 30, 2010 | Unregistered CommenterR

This next period of history for the Brits is going to be very tough indeed, not looking forward to it one bit.

July 2, 2010 | Unregistered CommenterGold Prices

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