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Sunday
Oct182009

Gold Prices: An Alternative View

Emirates Business.JPG

In an article entitled 'The fall of gold price could be as spectacular as its rise' by David Robertson of Emirates Business 24/7 an alternative view is presented regarding gold prices that may be of interest to you, as follows:


The price of gold hit another record last week of $1,070 an ounce and it would surprise nobody if yet another record was set this week.

What I can't work out is why. The fundamentals certainly do not support the price. Real demand, three quarters of which comes from jewellery, is non-existent as the high prices and general economic climate have put people off buying pretty baubles.

Even investment demand from exchange traded funds (ETFs), which drove up prices last year, has stalled. The other usual factors influencing gold investment demand – systemic risk and inflation fears – have also been rather subdued. The gold price usually tracks indices plotting risk and inflation forecasts, but in the past few months there has been a divergence with the threat of bank failure and rampant inflation falling while gold has continued to rise.

The most common explanation for gold's surge has been the weakening of the US dollar against the euro so investors are switching their assets from currency into something a little more solid. There is probably an element of truth in this, but enough to send gold to $1,070 an ounce?


Time will tell and this week could well set the tone for future progress in the precious metals arena. We expect gold to hold and go higher but then again we would wouldn't we!


Have a good one.

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Thursday
Oct152009

The Dollar in Your Wallet Is Only Worth 18¢

As much as that we ask, a take on the purchasing power of the dollar by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

“A dollar is worth only 70¢ now,” my Dad jabbered as we worked in the backyard. “And they say it’ll only be worth 50¢ in a few years.”

It was the mid-‘70s. I was helping my Dad build a dirt road to our barn and he wasn’t happy. Not about the hard work or humidity, but from what was happening to the dollar. Inflation was starting to kick into high gear, grabbing headlines that even a girl-chasing teenager could understand.

I remember being appalled by the thought of going to the store and having the clerk demand $1.30 for an item marked $1. Knowing what I know now, my thinking wasn’t that far off.

We lived in a small Pennsylvania town just a Sunday drive from where redneck jokes started. The local paper once ran a story of a blue-collar worker in the next county over who had stuffed a tidy wad of dollars into the back of his gun cabinet early in his working life. The money was discovered by the family after his death. While saving money is good, the duck-hunter equivalent of Family Mattress Bank & Trust won’t keep your money from depreciating; the stash of $10s and $20s had lost over half their purchasing power since he’d hidden them some 30 years earlier.

About the same time the gun locker was being lined with legal tender, both of my grandfathers – unbeknownst to me at the time – bought some gold and silver coins for me and likewise stored them away. I inherited one set a few years ago and got the others just last month. And the purchasing power of the coins is still the same as it was 30 years ago.

You can probably recall similar experiences about the dollar and what it was “worth” from your childhood. Even if you can’t, you intuitively know my conclusion is correct: the dollar ain’t worth what it used to be. And gold really does protect the purchasing power of saved wealth.
Happy Anniversary, Fiat Dollar

In August, the U.S. dollar celebrated its 38th anniversary as a fiat currency.
When Roosevelt issued his infamous 1933 presidential diktat, forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation, gold was $20.67/oz. In January 1934, the price was raised to $35/oz and the U.S. government pocketed the difference – and essentially devalued the dollar by 69%.

Yet the dollar remained convertible, and foreign central banks could redeem their dollar reserves for gold. This presented no problem when the U.S. was running trade surpluses and foreigners didn't have many dollars to exchange for gold. But in 1965, France’s President Charles de Gaulle started aggressively exchanging his country’s dollars for gold and loudly encouraged other countries to do likewise. That year U.S. gold holdings fell to a 26-year low.
Several schemes were tried to stop the drain on the U.S.’s hoard, including lifting the price to $42/oz early in 1971, but nothing worked. The run on the dollar did not abate. With the U.S. unable to eliminate its trade deficit, Nixon was faced with the stark reality of another dollar devaluation. He opted instead to close the gold window on August 15, 1971, ending dollar-for-gold convertibility. The dollar was suddenly off the gold standard, and half of U.S. gold holdings had disappeared. The greenback began to “float,” meaning it wasn’t tied to any standard and could be printed at will.
So how’s it done since then?

Fiat = Faulty
The following chart tracks what has happened to the purchasing power of the dollar and gold since the gold standard ended in 1971. After adjusting for inflation, you can plainly see the erosion of a dollar bill, now able to purchase only 18¢ of what it did in 1971, vs. an ounce of gold, which has not only stood up but increased in purchasing power.


Purchasing Power of Gold vs Dollar.JPG


Today, the amount of bubble gum you get for $1 could have been purchased for 18¢ in 1971.
In sharp contrast, you can buy about 3½ times more bubble gum today with the same gold coin you had in 1971.

There are two overriding conclusions from this chart:

The dollar has consistently lost value since coming off the gold standard.
While gold’s price has fluctuated, its purchasing power has endured. This fact will not change and is the reason you should own physical gold. It’s what I call the 4 P’s: your Personal Purchasing Power Protection.

The Dollar Is Going Lower

At Casey’s Gold & Resource Report, we firmly believe the dollar must go lower. But if you’re new to the topic, or unclear of our reasons, I’ll bet I can convince you in the next 60 seconds...
1. Money printing
The U.S. monetary base (coins, paper money, and central bank reserves) at the end of August 2008 was about $800 billion (minus dollars held abroad). In response to the economic crisis, the U.S. government has printed so much money that the monetary base has swelled to $1.7 trillion. This is the largest expansion in history and a staggering devaluation of the dollar. It means that for every dollar in America one year ago, the U.S. government has created 2.1 more of them.

Here’s the most recent picture of the monetary base:


Monetary Base.JPG


You can see the unprecedented money printing that began last fall. The ramifications of this continual carpet-bombing of liquidity are clear: when banks begin to lend again, or because of reason #2 below, the dollar bill in your wallet will lose significantly more value.
You can believe in deflation as much as you want today, as long as you believe in inflation as much as you can tomorrow.

2. Debt
Taking on debt is like getting a tattoo: it doesn't go away, and it’s pretty painful to get rid of.
In the U.S., our current debt picture looks like this:
National debt $11.6 trillion (but ’09 GDP is only $8.3 trillion)
Government spending YTD $2.4 trillion (but tax revenue is only $1.2 trillion)
Government bailouts $11.8 trillion (equals $38,815 per U.S. citizen)


But the granddaddy of them all are the unfunded liabilities (meaning, they are not covered by an asset of equal or greater value).
Medicare/Medicaid liability $39.6 trillion
Social Security liability $10.6 trillion
Prescription drug liability $8.5 trillion
Total unfunded liabilities $58.7 trillion


So where is the money to pay for all this going to come from? The government has only three choices to meet these liabilities:
1.Raise taxes
2.Cut spending
3.Allow inflation to rise from money printing, diluting the debt burden
You can debate the likelihood of the first two, but everyone at Casey Research is personally betting #3 will come to pass.

Meanwhile, what is the liability of gold? ZERO. When you hold a gold coin in your hand, no one else’s problems, deficiencies, liabilities, or ability to pay come into play.

Although there are many uncertainties in the world, the future purchasing power of gold is not one of them. Buy gold until the monetary chart and debt figures above honestly don’t worry you. Let gold serve its purpose for you by protecting the purchasing power of the dollars in your possession.

Gold can indeed give you solid returns, especially in times of crisis like these, when people start flocking to it as an uncertainty hedge. But select gold (and silver) stocks can gain even more with gold’s run-up – so far we’ve seen up to 6:1 leverage from large-cap gold producers. One company in particular has provided steady gains even as the Dow and S&P tanked last year; that’s why we call it “48 Karat Gold.” Click here to learn more.




Have a good one.

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.

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Thursday
Oct152009

Desperate Dollar Heading to the Basement

usd chart 15 oct 09.JPG

The above chart shows a snap shot of the US Dollar sliding lower and lower on a daily basis, the next stop is at the '72' level from where its rallied the last time it traded so low.

This is a key support level that needs to hold if the dollar is to retain any credibility. If that fails then the dollar could go into free fall sending gold prices dramatically higher. As we have said before the action in the gold sector is all about the dollar, but only for now. So keep an eye on it as golds inverse relationship with the dollar remains intact and will continue to rise as this correlation remains in place.

Our necks are on the block as we are sticking to our prediction that gold prices will be trading around the $1250/oz mark by New Years Eve, so its either bubbly or table wine in a brown bag to be consumed in the car park behind the Chez Nous for us.

Hang on to your core position but do whatever minor surgery that you think may be required. We are entering a period of explosive moves for precious metals when gold will move $50/oz in one session and silver could well put on $2.00/oz in a similar move.

If '72' fails the cat will hit the fan, you have been warned!

Have a good one.

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.

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Wednesday
Oct142009

Golds Inverse Head and Shoulders Formation

gold chart 15 oct 09.JPG


A number of writers have referred to this formation on the web so we assumed that it was well and truly covered and understood, however, we have a had a number of questions regarding heads, shoulders, neck lines and reversals etc, from our readership so we will give it our 'take' on it for what its worth.

In a nutshell this chart formation consists of a peak which is the head and a left and right shoulder which are lower and usually similar in shape and size. Imagine that you are looking at silhouette of another person and you have got it. These patterns are rarely perfect so a little imagination is required when you are looking for any of these patterns.

When a normal head and shoulders formation presents itself you might want to draw an imaginary line across the chart representing the neck line. Now when the stock price breaks down below this neck line it is usually viewed as negative for the stock and therefore we would expect the stock to head south.

The same rational can be applied when the chart is reversed and this pattern is usually known as an inverse head and shoulders formation as the chart above of gold shows.

Now if we take a close look at the chart we can see that the neck line has been broken and gold has indeed set off in a northerly direction, so we could say that the theory is being demonstrated by golds movement.

Another thing to notice is that once through the $1000/oz level which has been a resistance level for some time, gold returned to test this level and was supported. So what was once the resistance is now the support level, but we digress.

A good source of data regarding charting is StockChart.com so if you have a few minutes to pass, then its well worth familiarizing yourself with this site, just click the link.

Hope this helps if you are new to charting and if you are experienced in this area then please feel free to add your two cents worth.



Have a good one.



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.

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Monday
Oct122009

Russia and China to Sign Mega Deals

China and Russia.JPG

Following on from our recent post regarding the US Dollar when we wrote this:
Another nail in the dollars coffin came in the form of a report by Robert Fisk of the UK newspaper The Independent, entitled; The demise of the dollar, which includes this rather devastating snippet:

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.

Further support for this notion arrived today when we received this missive from Jim Sinclair this morning referring to an article on the BBC:

Now here is an absolute indication that China and Russia will NOT be using dollars in energy settlements between countries.

This is the real beginning of the rumored trend in hard FACT. It will definitely spread now.

Russia is hoping to sign deals worth $5.5bn (£3.5bn) with China as Prime Minister Vladimir Putin visits Beijing.

The deals may lead to Russia selling more oil and gas to China - the world's second-biggest energy user.

About 30 contracts in infrastructure, energy, mining, transportation and telecoms have been lined up.

Russia is keen to bolster its economy, which President Dmitry Medvedev has said will decline by 7.5% in 2009 - far worse than earlier predicted.

Currency ambition

Trade between Russia and China has risen from less than $10bn to more than $50bn annually over the past six years.

The heart of the relationship is Beijing's thirst for Russian energy - oil and gas make up more than half of Russian exports to China.

To read the article in full please click this link.



Have a good one.

Got a comment – then fire it in.

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.

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Monday
Oct122009

Silverado Gold Mines: Time to Move On

Silverado Chart 13 Oct 09.JPG

With gold prices at record levels its especially disappointing that Silverado Gold Mines (SLGLF) has performed extremely badly for us. Our patience has come to an end and so we are now reducing our holding to no more than a token investment. The Management team have not delivered for various reasons and the stock price languishes in the basement.

With every investment we have to ask the question; could the cash be better deployed elsewhere and in this case the answer is a definite yes. Most of the gold producing sector is moving higher so whatever we get for the stock will be re-deployed elsewhere.


Although we have made money on this stock in the past Silverado has fallen from grace as above chart shows, so we have to face the music and move on.

Have a good one.

Got a comment – then fire it in.

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.

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Friday
Oct092009

The Week of the Record Gold Price

Gold Chart 10 Oct 09.JPG

As investors in the gold market we have waited patiently for gold prices to break through the old record gold price of $1033.00/oz and set a new record gold price which it did when it briefly touched on $1060.00/oz this week. This record has been along time coming after the previous failed attempts this year to establish a new record gold price.

For the most part the gold producing stocks also took part in this rally as evidenced by the Gold Bugs Index, the HUI, which is currently sitting at 446. The HUI is important to us because it largely represents those precious metals producers that have not hedged their production and therefore offer an investor real exposure to gold prices.

As the inflation/deflation debate continues with much gusto we still lean strongly towards the inflationary scenario based on each and almost every governments action to run the printing presses relentlessly. In our humble opinion gold is a leading indicator for inflation and is telling us that inflation is now in the pipeline and it wont be too long before it raises its ugly head. Why else would Paul Volker have been added to Obama's team of advisors, wasn't he the very man who in the late seventies and early eighties was brought in to slay the inflation dragon which he did with a base rate of around 19% if my memory serves me well.

Another action worthy of note is that The Reserve Bank of Australia have actually raised interest rates this week, the first of the G20 to do so. This is one country that has an eye on inflation, acting early in an attempt to prevent it getting a grip of their economy. This move will influence others thinking and those with the stronger economies may well follow suit shortly. The countries with weaker economies will no doubt remain as is not daring to risk a fragile recovery at this stage by raising rates. For home owners now might be the time to lock in mortgage rates before they also head to higher ground, worth a discussion with your financial advisor.

Taking a quick look at the chart we can see that gold prices really took off to set a new record gold price with the MACD experiencing a golden crossover, a rising STO and the RSI breaking into the '70' range. A move this far and this fast usually signals that its time for a breather and a bit of a pull back for gold.

The flip side to that rationale is that the dollar, along with many other currencies, is struggling to retain its value. We can only see paper money losing more and more of its value as debasement continues at a hectic pace, hence the next two months will be explosive for gold as it sets one record gold price after another record gold price.

Finally, a reminder that when we throw in the effects of inflation, gold should be trading at around $2300/oz to equal its historic high of the 1980s, so there is still a lot of ground to make up.


Have a good one.

Got a comment – then fire it in.

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.

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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Thursday
Oct082009

Randgold Resources Limited: A Few Call Options

Randgold Chart 09 Oct 09.JPG


Today we took the plunge and purchased a few Call Options on Randgold Resources Limited (GOLD) they are the December 2009 series with a strike price of $80.00 (GUDLP) and we paid an average of $4.70 per contract for them. Todays trading range was between $4.30 and $5.00 per contract.

Our rational is based on gold itself having broke through its old high of $1033/oz putting it into unchartered waters where it really could go anywhere, as we write it is trading at around $1056.00/oz. The driver behind gold is of course the plight of the dollar which is struggling to hold its own at the moment.

We chose Randgold as the vehicle for this play as it is fairly sensitive to any movement in gold prices. Taking a quick peak at the chart we can see that Randgold is trading at $74.00 and is close to its previous high of $76.08, if it can get above its previous high then it too is in unchartered waters and could move higher quickly. The other point of note is that the MACD is very close to making a golden crossover, where the black line crosses the red line in an upward motion, which is usually very positive for the stock.

On the downside we would prefer the technical indicators to be starting from a lower point on the chart to feel more comfortable with this trade, but it is difficult to find the perfect set up. We also need to be weary of the gap that has opened up between the stock price and the 200dma, again we would prefer this gap to be lot smaller.

If you follow us into this sort of trade then make sure that you can live to fight another day should things turn to custard, as always go gently as this is a highly speculative and dangerous play.

Any thoughts or comments on how we could do better are always welcome so please let us know.

Have a sparkling day.

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.

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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Tuesday
Oct062009

Gold at All Time High

Gold Chart 07 Oct 09


As we can see from Kitco's chart of gold prices, gold has blown right through its previous high of $1033/oz and is currently trading at $1041.50 as we write. This is great news for holders of gold and its associated mining stocks as gold has flirted with the $1000/oz level for some time now and many investors were becoming frustrated at golds inability to hit new highs.

The twenty dollar rise in todays session has certainly thrust gold prices back under the media spotlight and has also brought some relief to precious metals bugs across the globe.

As we have repeatedly told our subscribers gold prices are primarily an inverse reaction to the movements of the US Dollar at this point in time. The chart of the dollar below depicts its demise over the last few days.

USD Chart 07 Oct 09.JPG


Another nail in the dollars coffin came in the form of a report by Robert Fisk of the UK newspaper The Independent, entitled; The demise of the dollar, which includes this rather devastating snippet:

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.

The dollars status as the worlds reserve currency is now shaky at best with the ramifications of quantitative easing, bailouts and the booming money supply slowly being understood by the investment community. Holding dollars is not the safe haven it once was, hence the flight to real money, gold, has just begun.

We expect gold prices to consolidate above the $1033/oz over the next few days and by New Years Eve we expect gold to be trading at around $1250/oz so there is no time to waste. Buy a few of your favourite quality producers and hang on as the short term will be an explosive white knuckle ride.


Have a sparkling day.

Your thoughts are of course most welcome.


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.














Tuesday
Oct062009

Gold: Third Time Lucky!

Gold: Third Time Lucky!

The recent rise in gold prices above the $1000 mark has sparked interest in the yellow metal once again, but this is in fact the third time in less that two years that gold prices have reached four figures, with the previous two occasions preceding large drops in the gold price.

So is it a case of third time lucky this time for gold?

We certainly think so, particularly as we watch gold tick up in Hong Kong to flirt with $1020. However $1033 is the critical level that we are watching intently, as we believe a break above this level will confirm that gold is indeed in a major rally and not just another failed attempt at maintaining a four figure price.

Emphasis must be placed on the importance of gold breaking the $1000 level, and maintaining it, this time around. If it fails again this will jeopardize future attempts, firstly as bulls will become nervous as soon as it ever comes close again, and secondly traders will jump on gold as a textbook short. This could put gold's bull run back a year or two.

Thankfully however, we do not see this happening. We see gold breaking $1033 very soon, and then running to $1200 over the coming months.

Hold tight, its going to be wild ride on the way though.



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.

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