Oil And Gold: Connected!

January 11, 2012 Global Oil, Predictions No Comments

Oil and gold are connected and the relationship is becoming more evident every day. One is an expression of power and expansion and the other is a store of wealth. Both bring wealth to the nations that hold them as is demonstrated by the growing wealth of China as they acquire more and more physical gold, and by the wealth that Saudi Arabia has generated through its past domination of the oil market.

As our world spins ever closer to the fiat currency abyss that is beckoning in Europe and America, for that matter, gold and oil will take on more dramatic roles in the future as paper becomes worth less, if not worthless.

We have not seen the massive new plan to stop the contagion in Europe that was promised only a few short months ago and it is becoming clear that the contagion will spread with failing banks being nationalized as the Euro disintegrates. If this scenario plays out, it will lead to a deflationary recession and possibly a depression throughout the Euro-Zone, before it spreads to the U.S.

Nothing good will come from this lack of action. In its own way it is very similar to the the stalemate that has dominated the U.S. Congress since control of the House went to the Republicans in 2010. One side wants to tax and spend and the other side wants to cut spending and shrink government. I will leave it up to you to figure out which side is which in the Congress. I really don’t think that it should be that difficult to figure out, but then, who knows in this political climate?

Now back to the Euro Zone crisis. Once again, The Fed Chairman Ben Bernanke has decided to play kingmaker by lowering interest rates for dollar swap lines to the ECB (European Central Bank) along with the cooperation from the central banks of Canada, England, Japan, and Switzerland. Bernanke is quietly attaching the Euro debt crisis exposure to the solvent banking systems of the above mentioned countries while he is lending more money to the non productive socialist countries of the European Union that should have declared bankruptcy last year. If you believe that Canada, Japan, Switzerland, and England are going to risk their economies by backing the disaster that is the EU, the IMF, and the ECB , you got another thing coming.

This fall back position by Bernanke is basically a highly orchestrated maneuver that injects liquidity into the system, but will only delay the inevitable. The more they play kick the can down the road, the bigger the gains in oil and gold will be, once the markets get a grip on what is really going on. Hard assets will be the beneficiary of this fiat folly.

When you finally cut to the chase, this is just another batch of squirting garden hoses on the flash fire that is rapidly consuming the anti capitalistic, Socialist welfare states that comprise the majority of the European Union. The contagion will continue to spread until they get their heads out of their “you know where” and realize that their utopian dream is just that, a dream with no viability in reality.

Oil and gold will dominate the market as things continue to deteriorate around the globe. Expect silver to launch, once gold has topped its all time high. It may take a while because the last shakeout in gold removed a lot of the weak hands and I do not expect them to come back into the market until they see a new high confirmed, and then, like usual, they will jump in with both feet just before the next correction.

I love looking at charts and seeing the patterns of behavior that the markets expose. Most people jump on board just as the upward move is running out of gas and they never buy near the bottom because they always think that it is going to continue to go down. People always tend to believe charismatic figures, even when their lies are so obvious, and they never want to believe people that speak the truth, because the truth requires responsibility.

Take “The Community Organizer In Chief” for example, he steps in, subverts the free market system and takes over GM (aka Government Motors ) and pays of his cronies with infusions of taxpayer’s money. Now that he finally has a real job, running an automaker, he comes up with a green car to satisfy his environmentalist/Marxist supporters and wastes billions on a car that goes 30 miles to a charge, tends to ignite while charging and can burn you to death in a minor collision. He calls it the Volt. Does this seem similar to another dictatorial leader that thought he was the people’s savior? Maybe he should have named it the “Voltswagen”. Human nature is very interesting, the more it changes, the more it stays the same!

It’s Prediction Time!

My apologies for not doing this during the holiday lull, but I have many things going on right now that require my attention. It never ceases to amaze me at how fast time goes when you are busy doing other things.

I am looking for $2,200 per ounce for gold before the end of 2012. If it comes early in the year, I would take profits when gold breeches $2,100. per ounce. Silver should trade near $45 per ounce in 2012. Take profits in silver stocks when silver hits $40 to $41 per ounce.

When gold hits $2,100 per ounce be prepared for a 38% correction before it goes parabolic. I will take profits along the way, but I will also hold 1/4 of my positions in case world events cause the price to jump dramatically.

I am accumulating oil stocks and as of now, I will not be selling any time soon. If this changes I will let you know here.

Legal B.S.—- I am not a broker, adviser, nor a financial expert. I am like you, an average trader, with the sole exception that I have been trading gold for 30 years. Do your own due diligence because ,as is always the case, buyer beware.

Till next time, good luck and good trading!