|
Gold jumped
up on the eve of the U.S. election. It seemed to be looking beyond... and
indeed it was. Gold continued rising as the attention then turned to the
fiscal cliff and escalating tensions in the Middle East.
The markets
have been focusing on the next major problem. The fiscal cliff will surely
help keep the markets volatile. But the ongoing uncertainty and the
historical money pumping will continue to be dominant factors affecting the
markets.
Gold sees
inflation coming. With the Fed's ongoing record stimulus, for example, it
sees uncertainty as the only real certainty. It sees a debasing of the
currencies while the soaring monetary base in the U.S. and around the world
mounts.
Chart 1 shows why currencies become worth
less. And we've already seen monetary stimulus grow as far as the eye
can see.
HSBC says
central banks created $9 trillion during the crisis, which is the equivalent
to the value of all the gold that has ever been mined.
The Federal
Reserve has become the biggest buyer of U.S. government debt. It owns one
dollar in six of the national debt, which is the largest percent of GDP in
history. And it's not just the Fed... the major central banks are also busy
creating money.
Clearly
history is in the making and we don't know how it's all going to end. It's
bigger than any presidential election, and all we can do is protect ourselves
against the wild printing of money.
Gold moves
opposite to the reserve currency, the U.S. dollar. Gold is the ultimate currency
and that's why it's been rising for the last decade against the major global
currencies (see Chart 2).
A Solid Bull Market
The gold
price in U.S. dollars is on its way to close the year on another up note, for
the 12th consecutive year. And considering the uncertainty from now until
year end, we don't think gold will end the year down... on the contrary.
Chart 3A shows gold's 12 year bull-run with its key 23-month
moving average. This moving average gives gold strong support at the $1620
level, which is above the 2011 year end price.
Most
interesting is the leading indicator because it's been rising, flashing a buy
signal over the past several months for the first time since the 2008 low
area. Impressive!
Gold has been
under pressure for over a year now, since reaching its peak in September
2011.
Demand Keeping Gold Firm
The lows in
gold have been contained in large part thanks to strong demand from central
banks, especially the developing world's central banks. They bought a record
158 tons of gold in the second quarter, according to the World Gold Council.
Plus, China
has been buying gold constantly. It's imported 512 tons so far this year,
while keeping about 350 tons it produces yearly. India was the biggest gold
buyer last year, and now they're stepping up their buying once again.
Meanwhile,
the gold price has formed a one year sideways band (see Chart 4). Gold
had a good run-up from the May lows (the lower side of band at $1536), to the
October highs, near $1800. But it again resisted and came down from the $1800
level for the third time in a year.
An
intermediate "B" decline is now technically underway. Gold briefly
dipped below its 65-week moving average but it quickly rebounded. This almost
7% B decline has been mild. But even if gold declines further to say its
23-month moving average, it would be giving back 10%, which would still be
reasonably moderate. That is, gold would remain in a strong solid bull
market.
Most
important, this B decline is giving us another chance to buy at a good price
before the next C rise develops. A clear gold rise above $1800 would see it
heating up.
As many of
you know, a C rise in a bull market is the strongest intermediate rise, when
gold reaches a new record high. This means buying gold now is a great time to
be adding to your position. If you already have all your positions purchased,
then just sit tight.
|
