Gold and The Terminally Ill Dollar
We’re at some key technical points on gold and the U.S. Dollar.
Gold is very close to giving an MACD buy signal. A close above the 50-Day M.A. just above $1,210 would also likely lead to some serious short-covering. The news out of China and elsewhere that gold demand is very strong comes as no surprise especially since “Tokyo Rose” has claimed the opposite forever.
The 80 area on the U.S. Dollar Index is critical support and is being tested as we speak despite an already very oversold condition. Closes below 80 could bring on a wave of dollar selling.
No matter what the “Don’t Worry, Be Happy” propaganda tries to tell you about the U.S. Dollar, the reality of Uncle Sam is this:
“The moment many gold bulls have been waiting for….
Financial blog Zero Hedge made this statement after learning that the Chinese Central Bank has released a directive informing everyone it is commencing the development of a healthy gold market.
In the release, the People’s Bank of China (PBoC) stressed the need to develop the market to serve the overall situation of China’s gold industry, based on improving the competitiveness of China’s financial markets, effectively strengthening
innovation, and promoting the formation of a multi-level market system. Reportedly, the PBoC has asked the Shanghai Gold Exchange, Shanghai Futures Exchange and commercial banks to become actively engaged in developing a national gold market. Zero Hedge highlighted, “With China owning a mere 1,064 tonnes of gold (sixth in the world and well behind both France and the GLD ETF in terms of holdings), which represent just 1.6% of its reserve holdings, there is only one way to interpret this borderline revolutionary press release. China has now officially entered the gold market.” The PBoC said it will support overseas investment plans by large-scale bullion companies by backing them financially. Bloomberg highlighted thatChina is calling on its banks to extend credit lines to gold producers and offer loans for overseas acquisitions. This is the first time the Chinese government has singled out bullion producers for financial support in overseas purchases. Chinese bullion producers have completed fewer than five overseas acquisitions of rivals in the past 10 years, according to data compiled by Bloomberg.”
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It’s been my opinion that gold has been in the “mother” of all secular bull markets and before it’s all said and done, it can have a 2 handle in its price ($2,000+).
While we have had in the past (and can expect more in the future) some short buy sharp corrections, I continue to remain firmly in the bullish camp for three key factors:
The biggest single holders of gold, Central Banks, have gone from major net sellers to either net neutral or net buyers.
Gold producers, who IMHO once cut off their noses to spite their faces by selling forward large quantities of future production, have come to realize hedging is a “four letter word” among their shareholders and potential investors.
Gold has rightfully taken its place as the only real currency by rising and setting records in most major currencies (this feat was not to be if one had listened to one of the most notorious gold perma-bears).
There are numerous other bullish factors including growing geopolitical concerns worldwide, but in my opinion, the above three are the driving forces. Until such time one or more of these factors change, I don’t see any major top possible.
Silver, the poor man’s gold, should mainly play second fiddle to gold, but nevertheless should more than just tag along for the ride. I have for quite some time suggested being seriously over weighted in precious metals over base metals, but metals overall continue to be the primary place I suggest one look for long-term capital gains.
Yes, the easy money has been made but the fat lady hasn’t even gotten in the limo yet, let alone arrived in the building and is ready to sing.
Peter Grandich is the founder of Grandich.com and Grandich Publications, LLC, and is editor of The Grandich Letter which was first published in 1984. On his internationally followed blog he comments daily about the world’s economies and financial markets and posts his views on social and political topics. The result is an insightful and intuitive look at business, finances and the world, set in a vernacular that just about anyone can understand.
He is a member of the National Association of Christian Financial Consultants, and a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.
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