Gold Market Update

By: Clive Maund | Mon, Jul 10, 2006
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Although the last Gold Market update was bullish, gold has actually exceeded our expectations, by rising smartly from the base area that formed following the plunge, and now many market players are understandably preoccupied with trying to answer the question "What next?" - will it just carry on up, or is it likely to react first, and if so by how much - and some may be wondering if this rise is just a rally in a nascent bear market in the yellow metal. This update attempts to answer these questions. The fact that golds rally appears to have lost momentum at the underside of a zone of strong resistance very close to its 50-day moving average is the reason for posting this update now, for the time to address these questions is now.

In the last update gold was described as being oversold and in a buying area although it was expected to fluctuate for some weeks between $540 and $590 before an advance got underway. Instead it has just taken off, but has now, as already mentioned, run into a zone of rather strong resistance, which has in recent days slowed the advance.

On we have already examined the reasons for the recent severe shakeout in the Precious Metals and precious metals, which, in a nutshell, was due to fear of a liquidity crunch and soaring interest rates. We will never know if the "Masters of the System", who have their hands on the levers of power, deliberately manufactured this scare in order to profit from it, which they are clearly well placed to do, but from a practical standpoint, whether they did or not is irrelevant. What is relevant is that it remains a background threat. As Richard Russell has stated innumerable times, it's a case of inflate or die, but this assumes that the objectives of the Master of the System coincide with those of the masses. There are some who believe that their ultimate objective is to ensnare the majority of the population in an ocean of debt, and then, at a moment of their choosing, collapse the system and mop up most private assets at knockdown prices, and then effectively enslave the population, who would be permitted to remain in the homes they could no longer pay for as tenants. Certainly the extraordinarily low interest rates in the face of across the board exponentially expanding debts, deficits and derivatives provide a strong argument for those who hold this view. But even if this were true, it is still probably some years away as the apparatus for completely controlling the population is not yet fully in place - for example, in the United States it will first be necessary to induce or coerce the population to relinquish their guns. Thus, in the meantime, the policy of endless money expansion can be expected to continue, which means inflation, which means that the prices of assets that represent refuges from the ravages of inflation, such as the Precious Metals, are set to continue to rise. Only in the situation where the Masters of the System have created a monster that they can no longer control, and that runs away from them, resulting in an abrupt liquidity crisis and interest rate spike, which would result in a broad and devastating implosion, would the Precious Metals be at risk from a general meltdown. As already observed in the recent past on the site, we do have a potential Head-and-Shoulders top in the gold stock indices, which would only be expected to complete in the event that the worst case scenario becomes reality.

Gold is therefore expected to continue to rise, and the sharp advance of the past week or so is believed to mark the start of the next intermediate uptrend that should take the price comfortably to a new high. The June base area is believed to have been left behind and gold is not now expected to return to test the June low, or drop back anywhere near it. However, it is considered to have risen rather too far too fast, and is thus vulnerable to a short-term reaction, which would "put the frighteners" on a lot of people but is not expected to carry very far - probably not below $600 at most, where there is support from the recent base area. Experienced and nimble traders may want to sidestep or partially sidestep this potential reaction, and, should it occur, it will be viewed as a buying opportunity.



Clive Maund

Author: Clive Maund

Clive Maund,

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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