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The world is in commotion but the precious metals
markets are in forward motion like never before. Both the Eurocrat’s
totalitarian dream and Euro are evaporating while
the Damocles sword of credit default swaps hang
over the countries’ heads.
The next round of The Great Credit
Contraction has started in Europe with Greece in the target sight. While
the world scrambles for liquidity capital is burrowing into and oscillating
between FRN$ and gold. This consolidation in the gold price and silver price
is laying the foundation for the next major up leg.
 
200 DAY MOVING AVERAGES ARE RISING
The 200 DMA acts like gravity on
the price of assets allowing for the relative comparison over time which
helps to filter out the daily trading noise. The recent melt-up in the gold
price since July has added nearly FRN$300 or €300 that needs to be digested into the 200 day
moving average. Keep in mind that 200 days ago was
the beginning of March and the gold price was a mere $1,420 per ounce. The
200 day moving average for gold is now at FRN$1,511.69 and increasing at
approximately FRN$1.85 per day.
The silver price is also consolidating its recent gains. With a
current silver price around FRN$40 and a 200 day moving average around
FRN$35.76 and adding about four cents per day. So, two more months of
consolidation and then the next move up.
Gold is currently consolidating its price 10% faster than silver
and is confirmed with the relative price at 1.1133 for silver as compared to
gold’s relative price of 1.1771. Of all the precious metals gold
appears to be the most expensive. The real value seems to be in palladium
which is trading at an extreme discount of 0.9224x its 200 day moving
average.
Gold has likely seen a great increase in monetary demand from
Europeans who do not want exposure to counter-party risk from bankrupt and
insolvent. The banking crisis is far from over and for holders of capital
that is at risk it must be extremely scary. Sitting in allocated gold or
other precious metals held in segregated, audited, secure and insured
storage, like with GoldMoney,
would be a much more comforting position than in Societe
Generala, UBS, Unicredit,
etc. As Bloomberg reported on 19 Sep 2011,
“A gauge of banks’ reluctance to lend to each other in Europe
rose for the first time in a week amid renewed concern Greece is headed for a
default.”
This is likely one of the reasons platinum and palladium are priced so
cheaply. Monetary demand has flowed into gold and somewhat into silver.
Forecasted industrial demand is anemic. Less cars
and other goods will be demanded and produced. So the price of inputs, like
platinum and palladium, fall. Or so the argument goes.
The specter of
price inflation should begin an increasingly aggressive haunting of savers
and holders of capital.
PLATINUM AND PALLADIUM ARE CHEAP
Platinum and palladium are a great deal right now. Like gold and
silver they can never become worthless and, if held correctly, are not
subject to counter-party risk. The supply is much smaller and if there is a
significant increase in demand, perhaps from investors looking to preserve
capital, then their price can increase significantly. Additionally, although
platinum is significantly more rare than gold it is, unusually, cheaper in
FRN$ terms and palladium is currently an even better deal!
The platinum to gold 200 day moving is currently 1.19 compared to the
current price of 1.00. The price of platinum in terms of gold has not been
this cheap since shortly after the first round of the credit crisis when
Lehman Brothers collapsed.
Palladium is a little more difficult to discern through the golden
lens. Like platinum it has not been cheaper since the Lehman collapse.
Currently its 200 day moving average is 0.51 compared to the current
palladium price in gold of 0.40. This makes palladium slightly cheaper than
platinum with the current price in gold about 78% its 200 day moving average
compared to platinum’s 84%. Palladium also has a significantly cheaper
relative price in FRN$.
THE SPECTRE OF PRICE INFLATION
Central banks the world over have followed the Federal Reserve and
created tremendous amounts of liquidity in an attempt to stave off the first
round of The Great Credit Contraction. Round
two is beginning to materialize and they are continuing.
In an 18 Sep 2011 NYT editorial Paul Volcker sent a warning shot to
Ben Bernanke about inflation and how once inflation becomes anticipated and
ingrained its stimulating effects are lost. Consider that over the past three months the Federal Reserve has increased M1
by 36.7% and M2 by 23.3%. The specter of price inflation should begin an
increasingly aggressive haunting of savers and holders of capital. One place
they can seek refuge is gold and silver. Another place to go is platinum,
palladium or oil.
CONCLUSION
The Great Credit Contraction is
destroying wealth, both real and illusory, at a tremendous rate. The balance
sheets of banks have derivative singularities sucking in any equity that
passes near the event horizon. This should be the real driver for precious
metal demand like gold, silver, platinum and palladium; the lack of counter-party risk.
To make matters worse the stewards of fiat currencies have infected
the printing presses with their incontinence. When it comes to safeguarding
price stability of fiat currencies those like Ben Bernanke who have succeeded
bulldogs like Paul Volcker are lesser men of greater sires.
DISCLOSURES: Long physical gold, silver and platinum with no
interest in DOW, S&P 500, the problematic SLV ETF, gold ETF or the platinum ETFs.
Trace
Mayer
RuntoGold.com
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