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With all of the money printing that is going on
worldwide, it beats me why a number of analysts are predicting that the price
of gold and silver is going to fall, after gold has just corrected by 19% and
silver by 40%.
Here is a chart that they have obviously overlooked:
Featured is the ‘Bullish Percentage
Index’ from the GDM gold producers, with the price of gold bullion
added for comparison at the top. The index is turning up at the most oversold
point since the credit crisis of 2008. The gold price then rose from $760 to
$1010 over the next 3 – 4 months. Since the credit crunch, every time
this index has dropped below 30%, it has turned out to be a buying
opportunity. Why would anyone expect the price of gold this time to produce a
different outcome?
Every minute of the day the central banks of the
world put out 2 million dollars in new currency. At the same time the
world’s mines produce 90 ounces of gold. The ratio is 22,000 to 1. As
long as this process continues - gold will rise.
“Gold is an expression of the world's
justifiable distrust of the way our central bankers conduct their
affairs”. ….Jim Grant.
Featured is the daily gold price chart. Price became
temporarily overbought in September and the correction, instead of finding
support at the 50DMA, fell off a cliff (was pushed over the cliff?), and
needed support at the 200DMA. There it became oversold and the bounce off the
200DMA sets up a target at the green arrow. The supporting indicators
are turning positive (green lines) with lots of room to rise. The 50D is in
positive alignment to the 200D (green oval), and both are rising
(bullish). Any short-term pullbacks along the way should be viewed as
buying opportunities.
Central banks have an estimated 1.5 trillion dollars worth of gold on their books. The amount of
privately held gold has been pegged at 1.5 trillion dollars also. The total
of world financial assets is approximately 200 trillion dollars. A shift of
this 1% out of these 200 trillion dollars into precious metals will send gold
and silver through the roof.
 
This chart courtesy Cotpricecharts.com shows the
‘net short’ position by commercial traders remains very low.
There are 169,000 net short positions reported this past week, compared to
165,000 the week before. This chart continues to be the most bullish of the
past 12 months. It shows that commercial traders are hesitant to take
on short positions.
“Determine what is best for the government
and know that is what the powers are working to make happen. Inflation
is what is ‘best’ for a government with enormous debt.”
Ayn Rand.
“The five basic reasons for the decline
and fall of the Roman Empire:
- The
undermining of the sanctity and dignity of the home, which is the basis
of human society.
- Rising
taxes, the spending of public money for bread and circuses for the
masses.
- The
mad craze for pleasure becoming each year more exciting, more brutal,
more immoral.
- The
building of great armaments when the real enemy was within, the decay of
individual responsibility.
- The
decline of religion, fading into mere form, losing touch with life,
losing power to guide the people.”
Edward Gibbon (The Rise and Fall of the Roman
Empire).
Featured is the weekly silver chart. Price
closed at the highest level in four weeks and the supporting indicators are
turning up from the most oversold readings since the 2008 credit
crunch. The first target is at the green arrow. Once silver breaks
out above the green arrow, the next target is at 40.00. According to the
USGS a total of 46 billion ounces of silver have been mined so far. The
estimated total for gold is 5 billion ounces. The ratio is 9 to 1. Keep in
mind that gold is recycled will silver is primarily ‘used up’. A
9 to 1 ratio puts silver at $185. The conclusion is that silver is currently
severely underpriced.
The lower gold and silver prices are forced down via
manipulation, the higher they will rise in the
future. When the price of any commodity rises, it increases incentive to
produce and decreases incentive to consume. The longer a price is
artificially depressed, the more pressure builds on the price, due to a lack
of increased production, and due to a lack of constraint on consumption.
This chart courtesy 24Hgold.com shows the number of
registered ounces of silver at the COMEX continues to decline. When this
number (currently at 30.97 million) reaches zero, the COMEX will be out of
silver to deliver against futures contracts.
This chart courtesy Cotpricecharts.com shows the
number of ‘net short’ positions on the part of commercial silver
traders increased from 19,000 the previous week to 21,000 this past week,
leaving the chart pattern once again very bullish, as it indicates that
commercial traders are still hesitant about going short. The last time the
‘net short’ reading was this low was October 2008 while the price
was 9.35; silver rose over the next few months
to 15.00, an increase of 60%.
Here are the three reasons why some analysts go out
on the limb and predict lower gold and silver prices.
#1. They do not understand the gold market.
#2. They have not bothered to look at the
fundamentals.
#3. By predicting lower prices they will
either be right or wrong. If they are right, they can brag. If they are wrong
they know you’ll forgive them because you will be in a good mood when
you portfolio is rising.
My advice is simple: Keep a written record of the
predictions you read. It will help you to eliminate the analysts who do
nothing but flip a coin in order to come up with a prediction.
In 1980 the US national debt stood at 930 billion
dollars. Gold was briefly priced at $850. Today the national debt (without
counting off-budget commitments) is over 13 trillion dollars, or 14 times the
1980 deficit. Gold is priced at $1680 – barely double the 1980 high!
By comparison – gold is cheap!
Summary: During 18 of the past 22
years gold has produced a Christmas Rally. The rise usually begins in
September and this year should be no exception.
Happy trading!
Peter Degraaf
Pdegaaf.com
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