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Historically the month of
March is not very gold-friendly.April and May are more conducive to providing a rally.
The first chart is
courtesy Seasonalcharts.com.
 
The March pullback came
on schedule and appears ready to turn into a rally, - see gold chart in this
essay.
This next chart is
courtesy Mark J. Lundeenmlundeen2@comcast.net
The chart shows the
number of US dollars that are currently circulating.The
number is over 1 trillion dollars (including many $100 notes), and rising exponentially.This is in addition to the trillions of
dollars in digital form, which make up the money supply.
The next chart is
courtesy Federal Reserve Bank of St. Louis.
This chart shows the US
Monetary Base, which continues to rise exponentially.The
two tiny blips�� in yr
2000 and 2001 represent the large amounts (at the time) of money shoveled
into the system by Mr. Greenspan to keep the system afloat during Y2K and 911.The
amount of money that is added at this time is mind boggling. During the last
30 day period the base increased by 80 billion dollars.No
tapering�� here.While
not all of this money will find its way into gold and silver, some of it
will, and as the rally that began on December 31st picks up steam,
more and more of this liquidity is expected to move into the precious metals
sector.
"Gold, unlike all
other commodities, is a currency...and the major thrust in the demand for
gold is not for jewelry. Its not for anything
other than an escape from what is perceived to be a fiat money system, paper
money, which seems to be deteriorating."
- Alan Greenspan, former-US Federal Reserve Chairman, August 23, 2011
This next chart is
courtesy Macrotrends.net (a site with excellent charts).
This chart compares gold
to the US monetary base.The interpretation is that
gold is cheaper than at any time during the past 100 years!The
current reading is 0.4!When it climbs back to the 4.0 zone, (10 times todays gold price), it will be time to sell gold and
look for something else.
This next chart is
courtesy Mark J. Lundeen
This chart confirms the
fact that gold is very cheap at this moment.Mr. Lundeen compares the current gold price to the purchasing
power of a dollar in 1920.He calculates that gold needs to rise to $8750 in todays dollars to return to what it was worth in
1920.This sets the stage for a continuation of the current gold bull market.Mr. Lundeen has created
a similar chart for silver (not shown) which shows silver would need to rise
to $435/ounce to equal its worth in 1920.This price dovetails with the price
arrived at by Mr. John Williams at Shadowstats.com.
"Gold still
represents the ultimate form of payment in the world. Fiat money in extremis
is accepted by nobody. Gold is always accepted."
-- Alan Greenspan, May 20, 1999
This next chart is
courtesy one of the internets most astute
chartists, Mr. James Turk.The chart was last shown
at Kingworldnews.com
The chart shows the
energy that is being provided by the US FED (by way of money printing),
benefiting both the S&P (red line), and gold (black line).The gold price
was pushed out of this relationship when huge numbers of contracts for paper
gold were executed at the COMEX in mid-April 2013.On Friday April 12th
2013 at the opening of trading at the COMEX, 3.4 million ounces of gold
contracts were dumped in the June contract.On
Monday April 15th, another 10 million ounces hit the tape.The amount of gold (in the form of contracts) that
was dumped over the two-day period represented 15% of total world gold production.Meanwhile, to fill demand from China, hundreds
of tonnes of physical gold were released by the
Bank of England, while a large amount of gold was pried away from GLD the
gold ETF, in response to rising demand from Asian countries.Chinese
and Indian people love bargains! That gold is now gone!It cannot be sold again!This
has created a situation where, like a rubber band, the gold price is expected
to snap back into the previous alignment, (unless you expect the FED to stop
printing money).
The following charts are
courtesy Stockcharts.com unless indicated.
Featured is the daily
gold chart.Price broke out at the 200DMA (red line)
in February and since meeting with resistance at $1400, a test of the
breakout has been underway.The supporting
indicators (green lines), are providing hints that support is available here.A breakout at the black arrow will tell us that a
bottom may well have been carved out.The green
arrow points to a golden cross��,
with the 50DMA moving into positive alignment with the 200DMA.
An almost hysterical
antagonism toward the gold standard is one issue which unites statists of all
persuasions. They seem to sense - perhaps more clearly and subtly than many
consistent defenders of laissez-faire - that gold and economic freedom are
inseparable, that the gold standard is an instrument of laissez-faire and
that each implies and requires the other."
-- Alan Greenspan, "Gold and Economic Freedom", 1966
Featured is the index
that compares gold to the S&P 500 index.In late
2011 this index became temporarily tilted in favor of gold.The
reversal of direction that came about as gold dropped in price while the
S&P 500 rose to new highs, appears to be ready to change direction again.Confirmation will come about when price breaks out
at the blue arrow.The three supporting indicators
(green lines) are ready to turn up.
"In the absence
of the gold standard, there is no way to protect savings from confiscation
through inflation. There is no safe store of value. If there were, the
government would have to make its holding illegal, as was done in the case of
gold. If everyone decided, for example, to convert all his bank deposits to
silver or copper or any other good, and thereafter declined to accept checks
as payment for goods, bank deposits would lose their purchasing power and
government-created bank credit would be worthless as a claim on goods. The
financial policy of the welfare state requires that there be no way for the
owners of wealth to protect themselves.
This is the shabby
secret of the welfare statists' tirades against gold. Deficit spending is
simply a scheme for the confiscation of wealth. Gold stands in the way of
this insidious process. It stands as a protector of property rights."
-- Alan Greenspan,
"Gold and Economic Freedom" in Ayn Rand,
ed., Capitalism: The Unknown Ideal (New York: Penguin Group, 1967),
101-108
This chart compares the
price of gold to the US long bond.The blue line is
the 400 week moving average.Up until 2003 it made
sense to own bonds and not gold.The green arrow
points to the moment when gold took charge.Since
then gold has outperformed bonds.In 2011 gold had
moved up a bit too far too fast��
and a pullback in the relationship caused this index to return to the 400WMA,
where it is finding support.A breakout at the blue
arrow will cause many people to become interested in gold, and bond money is
expected to flow into the gold sector, as the eleven year old trend picks up
steam.
Peter Degraaf is an online stock trader with over 50 years of
investing experience.He publishes a daily market letter.For a sample copy please visit www.pdegraaf.com
Note:Thanks to an excellent website:Nowandfutures.com
for the Greenspan quotes used in this article.
DISCLAIMER:Please do your own due diligence.Peter
Degraaf is not responsible for your investment
decisions.
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