Precious Metals Regaining Monetary Status
The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, January 26th, 2009.
Loose in the head. As opposed to Hank Paulson, that's what traders now think of Geithner since he angered China before even getting in the door. They think he's loose in the head. So, delayed as the reaction was since he uttered the words Thursday, the trade bought gold, sold bonds, and who knows, maybe even reversed the dollar ($) despite the fact stocks look set to plunge. In this respect, Geithner's fumble, which is the only way to read that considering China is the US's biggest creditor, is the kind of thing that can cause trend changes, where we will find out soon if this is the case with respect to gold and the $.
For me, now that traders appear poised to press the point in markets, whether Geithner is appointed Treasury Secretary of not, gold should still be able to extend further gains if it can get through $900. If he is appointed however, initially gold might take a hit because it will be assumed a mountain of paper sell orders is about to placed in the Treasury accounts, whether true or not. After this however, assuming China remains angered with Geithner, they will likely continue to buy gold, sell Treasuries, and the $ given he will have effectively severed the close economic ties forged under Paulson, which undoubtedly accounted for a great deal of the friendly candor between the two countries.
So you see, what the markets have been saying is they do not have any confidence in Obama and his 'dream team', despite the impressive credentials of some of its members. This is because like Wall Street, the bureaucracy has used up any 'good will' it had with the world, and in placing a known fraudster like Geithner in the key role of Treasury Secretary, Obama is saying to the world 'I don't know what I am doing'; and, 'I'm a part of the global socialist machine'. And more, he is telling everybody he thinks the US bureaucracy is so power it's above the law, and that you can expect increasingly blatant and profound fraud in dealings with them moving forward. This is of course just the opposite of what the collective consciousness wants to see now.
In knowing this, you will understand when I say the gold market was not beginning a process of discounting all the monetary largesse throughout the years with its big jump Friday, although it's all the currency printing that will determine where gold ultimately peaks. No, gold will rise because people are scared now. They are scared Obama and his 'dream team' will land flat footed heading into the 'mother of all Great Depressions', Paul Volcker or not. And we're not talking about just any people here, but 'big people', people who are members of the Wall Street elite and bureaucracy that presently have no exposure to gold who will be forced to buy. Rumor has it some big people intend to take deliver of a great deal of COMEX gold in February (the March contract), which could end up being a 'tipping point' in terms of price, pushing it past last year's highs and well into four-figure territory.
And then there's the $, where we are taking what is happening to the British Pound and Icelandic Krona as signals something smells rotten in Denmark, meaning its days as an alternative currency are numbered. The big message here is socialism is dying, which is the proper view in my opinion, as outlined by Martin Armstrong recently. Global socialism is dying from within because not only are the ruling elites corrupt, but also the 'mob', that being all who attempt to confiscate wealth from the rapidly depleting productive core of the economy. Of course the process will not be over until they completely debase all the currencies, with the $ taking it on the chin up until now within the deleveraging process and credit contraction.
This may be set to change however, and the surge in gold on Friday may have been the signal this change is now upon us, where instead of weakened fiat currencies simply depreciating against the $, they all begin to devalue, including the $, against gold, silver, and to a lesser extent, commodities. I am putting gold and silver in a category of there own here, as 'primary alternate currencies' in such conditions, transcending 'modern day' views associated with the commoditization of precious metals. As you may know, bankers and bureaucrats have been attempting to commoditize precious metals increasingly for years in promoting their fiat currency regimes.
Of course this still might be wishful thinking for precious metals bulls at this point, but it's coming, as when the economy is flat on its back, officialdom will be forced to remonetize gold and silver to rekindle commerce once again. And the pace at which things are changing these days, one would be wise to bet on sooner than later in my opinion. Some would say the big moves in gold and silver on Friday were accompanied by good gains in the larger commodity complex as well, which is result of an expected turn lower in the $ against it's fiat currency counter-parts, this being the result of China's reaction to Geithner's slight on Thursday. These people would also say it's a bit early to anticipate the beginnings of a wholesale abandonment of fiat currencies, and that the gains in gold and silver on Friday will be given back when deleveraging resumes in earnest. And it looks like this could happen at any time, which holds people back from making bigger commitments to precious metals.
I will say however when we do see a panic out of the $ develop at some point, the combination of this, and the two forces discussed above, would likely drive demand for gold and silver well beyond the boundaries more recent intermarket relationships and 'normal sentiment' measures because in people's minds currency risk will begin to be viewed as structural, or 'systemic' if you will, where the most fundamental instinct of all, survival, will kick in. In this respect there's no other explanation for gold and silver's decoupling from the $ on Friday, where in spite of overnight strength in the greenback, precious metals opened stronger in New York and had the power to not only turn the $ around, but also crude (outside weekly reversal) and the other commodities, and then close at important resistance.
The price action does not get any better than this, and sheds a new light on the technicals as a result. So let's take a minute out right now to review the technicals on gold's weekly and monthly plots found in the Chart Room to see what they reveal in this light. As you know we have been bullish on bullion all along because potential here goes beyond 'normal technicals' due to banker / bureaucracy efforts to suppress pricing all these years. My thoughts in this regard are well documented throughout the years, with the most recent detailed example found in Gold Is A Beach Ball Being Held Under Water. A great number of people enjoyed this commentary because it puts things in the proper context in an understandable fashion. (See Figure 1)
Why am I showing you the weekly chart? Although you can't see it due to presentation constraints, the weekly is showing gold is right on a time-line turn that has had a very good history of predicting bottoms in the past. And not just any bottoms, but significant ones. Moreover, the second feature of this chart I wish to discuss is the bullish action in RSI, where the 50 level was tested once again last week and repelled to the upside. Further to this, and what would be far more bullish, in looking at the monthly below you will notice RSI is still below 50, but with further strength here, is poised to vault above the pivotal measure, which would trigger a significant 'buy signal' in gold. (See Figure 2)
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Good investing all.