Inflation, deflation, gold and currencies

[richard5za]

Gold is in an interesting position at present. After a definite buy signal I can't make up my mind where it is going. It doesn't help that there are deliberate / blatant bear 'smack downs' nearly every day, two in New York yesterday (Tuesday). And it doesn't help that volumes are very thin. And it seems that fundamentals such as 'inflation hedge', 'safe haven' and 'Asian buying' have been forgotten for the present. And the volatility is amazing: Monday gold nearly gets to $ 1700 and Tuesday it bottoms to $ 1627 on the bear smack down before recovering to $ 1660. There are no sell signals on my charts so for the present, despite all its machinations, I am going to assume that gold will hold in its current range, even head upwards. But if it closes a couple of times at $ 1620 or so, then that could be quite different.
Any other views will be gratefully read.

[vincecate]

I contend that the USA had problems with too much money as part of the generational crisis in the revolutionary war, civil war, and depression. In the first two cases they had hyperinflation and in the third they made owning gold illegal and so saved the paper money. I note with some trepidation that it is about time for paper money trouble again.

I had not realized that the hyperinflation of France's John Law and the hyperinflation after the French Revolution were generational distance apart. The book below, "Fiat Money Inflation in France" does a real good job of explaining the situation after the French Revolution. The claims back then that extra money will help the economy sounds so much like what people are saying today. I recommend it.

http://mises.org/books/inflationinfrance.pdf

[richard5za]

"Fiat Money Inflation in France" does a real good job of explaining the situation after the French Revolution.

Thanks Vince. Your sharing is most appreciated. I have ordered a copy on the Internet.

and in the third they made owning gold illegal and so saved the paper money

At present it is clear that the American/Anglo/European banking interests are doing their very best to smack down gold with blatant "bear dumping raids". In the modern world to make private holding of gold illegal would be a political bomb shell. E.g. the USA ethos is so 'freedom focused' that there would be big trouble if this were proposed. I am convinced that the Chinese have read through the Western strategy - which is one reason why they are opening their own gold exchange and planning on marketing gold to over 300 million Chinese individuals plus presumably people from other countries.

As a personal hunch: The Euro crisis solution will probably be very inflationery. The Central banks are smacking gold down now in anticipation of a gold take off once the solution is announced.

[richard5za]

Here is the latest Clive Roffey chart on the Dow (from his website) In my own analysis, both technicals and fundamentals I am seeing a considerable market correction over time, and I have a downcount for the Dow to a bottom below 5000. I'm still wondering about gold short term: A New York closure below $1640 today (Friday) will probably issue a sell signal only 10 after a buy signal! We live in interesting times!

Dow daily 19 Oct data.jpg (72.83 KiB) Viewed 4015 times

[vincecate]

I am expecting that sometime soon the US will start printing $500 or $1000 paper notes. It seems first we will see the $1 coin and the end of the $1 note.

http://www.usatoday.com/news/washington ... 50898164/1

[richard5za]

Chinese buying of gold
Has anyone any factual data on Chinese, and Asian, buying of gold? And silver?
If Internet traders reports are correct China is buying gold in massive quantities and it is being shipped to China. There are an increasing number of reports that China wants out of dollars and gold is one way.

[richard5za]

Is gold in a bubble?

Its a good question. Lets look at the trend of the last 10 years, taken from Kitco:

10 year gold trend.jpg (38.97 KiB) Viewed 3962 times

Its still a saucer shape whereas a typical bubble has a very steep rise towards the end of the up cycle. This is illustrated by gold prices for the 12 year period ended December 1982

Source: Figures from World Gold Council graph created in Excel

GOLD PRICE 1971 TO 1982.jpg (35.75 KiB) Viewed 3962 times

Gold is an inflation hedge and from time to time a safe haven. There's no typical bubble yet. Its clear from this that the market expects the US dollar to devalue over time, and the rumours of massive Chinese buying are probably true. Right now the long term trend remain intact. If however the market's inflationery view changed, I could well imagine a gold price crash.

[richard5za]

South African gold miner, Harmony, came out with sparkling quarterly results this morning. Quarter on quarter operating profit up by 45%, head line earnings up 217%!!
Other gold miners will be reporting in the next 10 days; lets see if they do likewise.

[richard5za]

Bear raid

The bear raid on the Asian gold market of 30 / 31 October starting just before 10 pm New York time on Sunday night is clearly yet another attempt by certain financial interests to dampen the enthusiasm for gold. Its so obvious. Can't they be a little bit subtle?
The price of gold was knocked down $ 30 in a couple of hours. If the seller was genuinely selling gold then why not wait for the London and New York gold markets to open and get $ 30 more per ounce? No. Because the objective is to smack down the price.
I see that gold is slowly rebuilding its position. Lets see what happens in New York later. Will it get smacked again?
I suspect that this is Western financial interests smacking down the price beacuse another world currency really doesn't suit the longer term 'beggar my neighbour' / 'devalue our currency' plans.
But perhaps this is Chinese interests keeping the gold price down whilst they become a massive holding of gold as a hedge against their dollar holdings?

[richard5za]

The early October buy signal for gold has born fruit, although there were times that I was quite doubtful about the voracity of my technical analysis. (And that of others like Clive Roffey)
Gold has now broken up through the $ 1780 resistance level, and if a level above $ 1780 holds for a while that then that becomes a support level.
More important holding above $ 1780 will strongly suggest that the 10 year bull market for gold remains in place. (Of course at some stage this will reverse so take care)
We live in very dangerous times and whilst I was a buyer of gold and miners when gold was $ 1650 in early October, even if I had unallocated funds, I don't think I would be a buyer now. I can liquidate my investments on computerised stop losses and still make a profit, but I am too cautious for new investments at this stage. I am now up 18% on miners.