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As the following chart (courtesy Federal
Reserve Bank of St. Louis) reveals, Central Bank easing continues ‘to
the sky.’
 
“Inflation is as violent as a
mugger, as frightening as an armed robber and as deadly as a hit man. “ President
Ronald Reagan.
Featured is the 5 year gold chart
courtesy Stockcharts.com. The blue channel has defined the uptrend since
2008. Except for the credit crunch in 2008, the 300DMA (used here) has not
been violated. The chances of a 2008 type of correction are slim, due to the
amount of liquidity that has been added to the system. A bounce off the $1600
level and a breakout at line ‘B’ will lead to the expectation
that price is likely to repeat a performance last seen when line
‘A’ was overcome.
According to FinanceAsia.com/news in an
article by Lillian Liu, the gold supply shortfall in China has widened ten
times since 2007.
China digs up thousands of tonnes of rock and ore each year, but it still cannot
produce enough gold to keep up with the country’s soaring demand.
Despite being the world’s biggest gold producer since 2007,
China’s supply shortfall has deepened by nearly 10 times during the
past four years.
Chinese investors remain attracted to all that glitters, even as the price
of gold has soared. “The shortage in supply has been deepening very
fast; from 48 tonnes in 2007 to 400 tonnes in 2011,” said Song Xin,
chief executive of China Gold International, the listing unit of China
National Gold, one of the country’s biggest gold producers.
According to the China Gold Association,
China’s gold mines produced a combined 361 tonnes
of the yellow metal last year, which was 5.8% more than the year before, but
not nearly enough to meet the 33% growth in the country’s consumption
of bullion, which totalled 761 tonnes.
The increased demand is highest for
bullion and coins. “Our customers are high-net-worth individuals as
well as common householders,” said Song. “They seem to have lost
faith in the stock markets, so they turn to buy physical gold as an
investment or as gifts for family members.”
Featured is the daily bar chart for PHYS
the Sprott gold trust. Price is working on the
right shoulder in an inverted ‘head and shoulders’ formation.
Volume has been dropping during the current pullback (green arrow),
indicating that selling is drying up. The supporting indicators are positive
(green lines). A breakout at the blue arrow will confirm the H&S pattern.
The premium over bullion is a bullish 2.26%.
Featured is the Gold Miners Bullish
Percent Index. The gold price is added at the top of the chart for
comparison. Historically, whenever this Index bottoms below 30, it has
resulted in a buying opportunity for gold bulls.
A few words about silver. The next
chart, courtesy 24hgold.com shows a rapid drawdown of silver eligible for
delivery at the COMEX warehouses.
On Dec 1.2011 the number of eligible
ounces totaled 35.01 million. As of today that number is down to 28.74
million, a drop of almost 20%. When the eligible ounces at the COMEX drop to
zero, (actually some time before that), the COMEX will be out of the silver
trading business. This will allow silver to seek its true supply/demand value
without ‘paper silver’ or ‘digital silver’
interfering with the price.
“The great Khan (Chinese ruler),
causes the bark of trees, made into something like paper, to pass for money
all over his country.” Marco Polo, (1254 – 1324
Traveling explorer from Venice).
Featured is PSLV the Sprott
Silver Trust. Price is carving out a bullish inverted ‘head and
shoulders’ formation. The supporting indicators are positive. A
breakout at the blue arrow will confirm the pattern. The premium over bullion
is bullish at 4.87%.
Summary: Historically, since the
beginning of the current bull market in gold and silver, prices generally
rise during April and May. The Gold and Silver Producers ETF (GDX) has
reached the Fibonacci 38.2% support level and it is overdue for a rise. Some
of you will say: ‘What about the bullion banks that are short millions
of ounces of gold and silver, what is to stop them from keeping prices from
rising by selling even more contracts?’ They are slowly but surely
being stopped by people and companies buying physical metal. The demand for
physical gold and silver puts a floor under the metals that manipulators
cannot penetrate. This floor has been rising at about 20% per year on
average. The central banks do not like this rise but they can live with it.
They cannot live with prices doubling in a year, for that would expose the
fact that their currencies are crumbling.
Happy trading!
Peter Degraaf
Pdegaaf.com
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