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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

All Eyes are on the HUI Gold Bugs Index

Commodities / Gold & Silver Stocks May 12, 2009 - 05:39 PM GMT

By: Peter_Degraaf

Commodities

 Best Financial Markets Analysis ArticleThe HUI index is poised to break out above 350.  The importance of this breakout is evident in the following chart.


Featured is the daily HUI index of gold and silver stocks.
     In the event of a breakout at the green arrow (which now appears to be underway), the result will be a very strong ‘up-move’ as all that pent-up demand below 350 becomes unstuck.

The pattern is an inverted ‘head and shoulders’ formation with the neckline at 350.

 The RSI and MACD are positive (green lines). 
    Assuming the breakout succeeds - the target is 550!

On the fundamental side, we have a US government deficit that is clearly out of control.
In the words of William Black, associate professor of Economics at the University of Missouri:  “We have ‘failed bankers’ giving advice to ’failed regulators’ on how to deal with ‘failed assets’”. 

   The US Budget Office estimates the 2009 budget deficit at 1.8 trillion dollars or four times the 2008 record deficit.  We’re talking ‘monetary inflation in spades’!  While it can be said that it takes time for monetary inflation to turn into price inflation, you can be sure that more and more investors are going to anticipate whopping price inflation.
Such price inflation will result in increased demand for gold and silver, and the stock of companies that produce gold and silver.

Even at 1.8 trillion dollars, the US Budget Office is making certain assumptions regarding tax receipts. 
It is the ‘nature of the beast’ that during a recession, not only do tax receipts decline, but the demands on government on the part of unemployed persons increase dramatically.
Think of the letter “Y”, with the tops of the Y rising steadily.  One side is less revenue and the other side is increased demands.  ‘Never the twain shall meet.’

In my last article I lamented the fact that Mr. Obama made it a priority to sign legislation that exports abortion to foreign countries at American taxpayer expense.
I pointed this out to show that the President is not a compassionate individual.  After all he chose death over life!  He has voted for abortions right up to the 9th month after conception.  Abortion is the scourge of a society.  It eliminates the very people who will be needed to support the aging population.  Honestly now do you really wish that your mother had decided to abort you? 

   Historically, when the birthrate falls below 2.5 children per couple, that society is slowly doomed to extinction, except for immigration!
The current US rate is about 2.1 children per couple, with some sources claiming a rate even lower than that.  The reason 2.1 children per couple is not sufficient is because a certain number of children die before marriage, and others never marry.  Therefore the number soon drops below the magic ‘2’.
   As an aside, the Muslim clergymen understand this principle and they encourage a high birth rate, while forbidding abortions. 

I received a lot of E-mails as a result of my observation.  Most of them agreed with my position, but a few did not.  Among the people who disagreed, were some who are worried that we are becoming overpopulated.
It is for these people that I present the following facts:
All of the human beings alive today can stand up in the city of Detroit!
All of the human beings alive today, grouped into fours can have a townhouse in Texas!
All of the human beings alive today, grouped by four can have a home with an acre of land in Australia!

Some of you are worried we will run out of resources.
In the mid 19th century, people were worried that the world was running out of whale oil.  Then in 1858 someone in Oil Springs Ontario Canada, dug the first commercial oil well, to be followed a year later by the oil discovery at Titusville, PA.
The world is not likely to ever run out of resources.  Even crude oil, which is today being used up 5 times faster than new discoveries are made, is actually a constantly renewing resource.  No doubt we will have to switch from one resource to another, but that is what makes life exciting, and it creates opportunities for entrepreneurs.

Happy trading!

By Peter Degraaf

Peter Degraaf is an on-line stock trader with over 50 years of investing experience. He issues a weekend report on the markets for his many subscribers. For a sample issue send him an E-mail at itiswell@cogeco.net , or visit his website at www.pdegraaf.com where you will find many long-term charts, as well as an interesting collection of Worthwhile Quotes that make for fascinating reading.

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

Peter Degraaf Archive

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