Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Will the Gold Price Fall, When Consumer Confidence Really Rises?

Commodities / Gold & Silver 2009 Jun 13, 2009 - 04:42 AM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleHere we are with the gold price pulling back towards $900 after threatening $1,000. It hit $985 then pulled back into the $930's. Traders did not want to be in the lead in taking it over $1,000. Now it needs time to re-group and build up the strength and the reason why it should go through $1,000. Long-term investors have been on the sidelines since gold ran through the $900 level and COMEX speculators have jumped in 'boots an' all' taking it up on a Technical basis to just below $1,000.


They have now joined the fray buying nearly 225 tonnes in the last four weeks. Where now? Many Analysts see the gold price backing off to $850 or less then running up to $1,200. This, if correct, would give a healthy trading range of over 50%. This is a range that even long-term investors should contemplate taking if it is going to happen?

You can see our view in the charts below [in the newsletter] as provided by Peter. We are precise and careful in our view, giving support and resistance levels so you can make up your own mind.

But what of the fundamental picture? After all, it has been the long-term investor that has driven the gold price over the last year and he focuses on the fundamentals using the Technical picture to pinpoint his entry and exit points only. Where is he looking for, what is his perspective on such possible moves?

Fundamental picture

To determine if such a large trading move will take place based on fundamentals we have to look at the levels of uncertainty long-term investors see ahead. The signs of an economic recovery are being seen like tiny fires in a dry forest [see our € and $ sections below], some are even growing fast amid the cold wintry recession. In fact the U.S. economy shrank slightly less in the first quarter than initially estimated, while corporate profits rebounded so it seems that the recession is moderating. Everybody wants an economic recovery. Everybody needs it! The mood is certainly one responding to hopeful signs.

Deflation and Inflation & Growth

Central Banks have fuelled the money supplies with floods of newly printed money which are still filling in the holes left by deflation and general illiquidity in the banking system. But consumer confidence rose to its highest level in eight months in May and a report showing business activity in New York City expanded in May for the first time since January 2008 offering another hint that the recession was abating. Yes, lending remains difficult and long-term Treasuries are seeing a steep rise in yields against very low levels of short-term Treasuries in the U.S.A. still. It's all very well looking at the U.S. start to a recovery, but gold reflects a global economy so we have to include global interest rates, global lending restraints and the condition of the global consumer too, to get the right background for gold.

China, the second most critical factor in a global recovery is pumping up its economy and trying to switch to local growth from primarily export growth and succeeding. Manufacturing in China is climbing. As liquidity feeds the U.S. economy the first beneficiary is China as U.S. citizens seek out low price Chinese imports in shops like Wal-Mart.

The oil price certainly a common denominator of the global economy has climbed over $70. We have to temper this by highlighting that speculators are already piling into oil while looking to the longer-term oil shortage that will occur once the real recovery takes place. Takes out that speculation and what price is oil. We maintain it will reflect the state of the global recovery to a large extent.

Overall now, the global economy is showing convincing signs of growth starting up. Nevertheless, the reliance on the U.S. consumer's disposable income remains the key to global growth. This has to gain traction. But the deflationary holes are large and it seems that some of the new money out there is re-kindling inflation not simply turning deflation around. There are no instruments to accurately measure deflation and its path while measuring the detailed impact of the effect the new money is having. Much of that money is going where it shouldn't and not going where it should! So we are in a wait and see mode, where inflation is not showing but deflation is still shouting, but not as loudly as before. When the mixture all comes together, we do expect to see deflation overwhelmed, as much by rising confidence, as by new money. But inflation has to take off for the same reasons.

But is this enough to change the climate for gold? Will this stall the gold price? No, we think not, because the gold price did not rise simply because of dropping consumer confidence, but because of the fears and uncertainties coming out of systemic failures. Has the flood of new money resolved the systemic failures or instigated more?

Doubts about the $ and $ Bonds

A look at the current path of the $ hints at the answer. The fears publicly expressed about the $ by the largest holder, China, add to that answer. Timothy Geithner may be moving to a revered position in the States but when visiting China and hoping to allay concerns that Washington's bulging budget deficit and ultra-loose monetary policy will fan inflation he got a does of the realities those outside the States have to face. "Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University. The ever so inscrutable Chinese students laughed loudly. So does the rest of his global audience, with far more at stake than U.S. citizens realize. The Beijing-based Global Times greeted Geithner by publishing a survey of Chinese economists who called big holdings of U.S. debt "risky." There is little doubt in foreigners minds that the present monetary policy of the U.S. is undermining both the $ and U.S. bonds. As China is the biggest foreign owner of U.S. Treasury bonds, holding $768 billion in Treasuries as of March [it could be as much as twice that level] that laughter tells us what will happen to gold and why it faces such a glowing future.

The $ remains the global reserve currency and cannot be sold freely by China or other major holders. Promises of a future strong $ have been heard for several years now, but the U.S. will benefit heavily from a weak $. Would it be prudent or wise to rely on the same policies that have been touted for several years now? No, prudence demands that a measure of portfolio diversification be adopted for the long-term. If the Politicians fail again, the cost to all $ holders could be heavy.

Systemic flaws.

What has become clear is that the global economy cannot be governed by the U.S. Solutions within the U.S. are not the solutions for the globe. We foresee U.S. solutions precipitating more systemic failure in the rest of the world to greater and smaller extents over time.

The prospect of floods of money being created to stem deflation then withdrawn to stem inflation does not take into account the ripples that will flow through the world even if [which we doubt] they will work inside the U.S. This seems to be the Treasury Department's plan, one which will clash headlong with confidence levels over time. The only way that normality [as in pre-July 2007] can be achieved is through the constant nurturing of consumer confidence uninterruptedly. Confidence has a delicate nature and is increasingly difficult to restore if damaged even once. It's more difficult if damaged twice and nigh on impossible to restore if damaged three times. As it is the stance of China is the stance of smaller economies - try to reduce reliance on U.S. Trade and on the U.S. $. Such a position favors gold tremendously. U.S. citizens though loyal to the State are fully aware of the risks to their wealth and have shown their views by buying gold even as signs of an economic recovery flicker into life.

It becomes crystal clear that an economic recovery and consumer confidence are not repairing the global monetary system. They are not restoring confidence in the $. There is little evidence that a recovery accompanied by potentially explosive inflation will encourage investors to turn from gold to $ investments. Quite the contrary, the potential for more devastating systemic failures is growing on the back of an economic recovery as trade and money flows resume in a world where half of it are up and coming and taking their portion of the globe's available resources. The present climb of world oil prices reflects that well. We have moved into a economic and monetary climate where risks have never been so high and are rising. Uncertainty and fear of the future, are at peaks never before seen since the World Wars.

So where to for Gold and Silver?

The last two years have taught so many the virtues of gold and the gold price has reinforced these. Prudence and perspicacity demand that competent investors hold at least a good portion of their wealth in gold and silver. In a worst case environment gold and silver have proved many times that they rise considerably with a real appreciation. Fundamentally, it is now time for gold and silver to take an important place in the world of real value as paper values are sincerely questioned.

We are of the belief that gold will continue on its upward path until there is substantial and convincing evidence that we have a monetary system that can withstand the potential systemic failures on the horizon now.

In the light of the above, should we be selling gold and shorting it, or waiting to get back in lower down? Will long-term Investors get in before a fall through $900? The conclusion we have come to is clear. Details of when and how are covered each week in the newsletter "Gold Forecaster - Global Watch" each week for Subscribers-only

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2009 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules