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During
18 of the last 22 years, gold has rallied between US Labor Day and
Christmas. Will the pattern this
year follow the historical pattern?
We will analyze the fundamentals, look at some charts and try to draw
a conclusion. The charts in this
report are courtesy Stockcharts.com unless indicated.
· First a quote by President Andrew
Jackson: “Gentlemen, I have
had men watching you for a long time, and I am convinced that you have used
the funds of the bank to speculate in breadstuffs of the country. When you won, you divided the profits
among yourselves, and when you lost, you charged it to the bank. You tell me that if I take the
deposits from the bank and annul its charter, I shall ruin ten thousand
families. That may be true, but
that is your sin! Should I let you
go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and
thieves. I intend to rout you out
and by the Eternal God, I will rout you out.” (Spoken to a delegation
of bankers requesting the extension of the 1832 Bank Renewal Act).
Several
news items during the past ten days were very bullish for gold. The first was an announcement by the
Swiss National Bank that they were planning to buy Euros with Swiss Francs. This action effectively removes the
Swiss Franc as a convenient alternative to gold, and it moves the SNB into
the camp of the money printers.
The
second item concerns an announcement by five major central banks (FED, ECB,
SNB, BOJ and BOE), to provide dollar liquidity for a number of European banks
that suffer from exposure to Greek banks.
This
dollar liquidity operation will last until the end of the year and will
enable dollar funding for European banks, which were struggling. It shows that the Federal Reserve, the
ECB and also British, Swiss and Japanese banks have the will and the ability
to cooperate at sensitive times, whenever they feel the system needs a
‘nudge’.
Another
factor that is very bullish for gold is the current ‘negative real
interest rate’ environment.
Regardless of whether we believe the ‘official’ CPI
numbers, or the more realistic numbers provided by Shadowstats.com, anyone
with money in the bank, or holding short-term Treasury notes, is losing money
to price inflation.
10-year
Treasuries are paying a miserly two percent. With inflation at 4.8%, these
‘so-called investments’ are losing 2.8% of their value
over 12 months.
According
to J. M. Keynes, and many other economists, whenever ‘real interest
rates’ turn negative, gold will rise. Keynes called this
“Gibson’s Paradox”, and stated that there are no
exceptions.
Finally,
the most bullish facilitator of rising gold and silver prices is the supply
of money (see chart below).
 
This
chart courtesy Mises.org shows the True Money Supply continues to rise exponentially. A rising money supply is bullish for
gold and silver, as it increases the amount of money available for the
purchase of precious metals. As
long as the Central Banks keep the banking system supplied with money, the
banking system will survive. This
principle is far more important to the Central Banks than the integrity of
the currency.
Historically,
‘monetary inflation’ always causes ‘price
inflation’. The U.S. consumer-price index (CPI)
increased 0.4% in August. That’s an annual inflation rate of 4.8%!
The
TMS chart also shows that, according to the people as Mises.org, the
recession is ongoing (grey area).
During recessions, there is less money coming in to government, while
expenses such as unemployment benefits, food stamps, welfare payments etc.
increase. This in turn causes
deficits to rise, and deficits provide energy for gold prices to rise.
Featured
is the daily gold chart. Price is
carving out a bullish pennant.
The supporting indicators are at levels where they have found support
many times in the past. The fact
that the 50DMA is in positive alignment to the 200DMA (green oval), while
both are rising, is bullish. A
breakout at the blue arrow will mark the beginning of the next rally.
According
to the weekly Kitco survey of gold analysts, a
minority 32.1% of the analysts are bullish for this week, 53.6% are bearish
and 14.3% neutral. From a
contrarian point of view that is bullish for gold!
This
chart courtesy Cotpricecharts.com shows commercial traders reduced their
‘net short’ position to 215,000 from 228,000 last week. The ‘up-to-date number’
will likely be even lower since the gold price dropped for two days since
data for the report was compiled.
At 215,000 the commercial traders are at the lowest level since July 8th. On that date gold traded at $1544 and
over the next few months price rose up to $1924.
Featured
is the GDX gold producers ETF.
Price broke out from beneath the 64 resistance level last week (blue
arrow), and since then a test of the breakout is the result as the bears
press their case. Price appears
ready to try again and a close above the green arrow will confirm the breakout
and thereby turn the trend bullish. The SIs are
positive. The fact that GDX
outperformed GLD on Friday is bullish.
Featured
is the weekly silver chart. Price
is carving out a bullish pennant.
The supporting indicators (green lines) are positive with a lot of
room on the upside. A breakout at
the blue arrow sets up a target at the green arrow. The 50WMA is in positive alignment to
the 200WMA (green oval) while both are rising.
Peter Degraaf
Pdegaaf.com
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