Record Gold Prices!

Record gold prices arrived this week and the dollar is under pressure.  Despite Fed Chairman Bernanke’s talking up the dollar, gold gave back only a small portion of it’s weekly gains.  Gold stocks were on the move and remained only slightly off on Friday which makes me think that record gold prices are here to stay.

Gold broke through $1040 an ounce on the sixth of October.   This should be just the start of the move that takes gold through $1150 -$1200.  As the week ended, gold had hit an all time high of $1060 and then settled back down to close Friday at $1048.90.

As I have mentioned on many different occasions that are documented here in the archives of BuyGoldCo.com, the next leg up will not be straight up, but rather it will stair step up as gold re- asserts its value relative to the depreciating dollar. Profit taking is normal during this process and we saw a little of that on Friday.  What is interesting to note is the small percentage that the individual stocks gave up on Friday.

Record Gold Prices!

This is bullish going forward because it implies that the gold shares are being held by stronger hands that were not panicked into selling after Bernanke talked up the dollar.

Wall Street dips as Bernanke injects note of caution

The Economic Times,  9 Oct 2009

NEW YORK: Stocks swung lower Friday on Wall Street as comments from Federal Reserve chairman Ben Bernanke hinting at a potential rate hike in rates prompted traders to lock in gains of the past few sessions.

The Dow Jones Industrial Average slipped 20.48 points (0.21 percent) to 9,766.39 as the market pulled back from a series of gains this week.

The Nasdaq composite shed 5.87 points (0.28 percent) to 2,118.06 and the broad-market Standard & Poor’s 500 index retreated 2.19 points (0.21 percent) to 1,063.29.

The market was digesting comments from Bernanke late Thursday that rates may be lifted from the level of near zero when the US economic outlook has “improved significantly”.

This is pure rhetoric from Bernanke in a vain attempt to bolster the dollar.  He cannot raise interest rates until there are signs of a turn around in the economy and the housing market.  There are no signs of a turn around out there, and if anything the signs are pointing to a second wave down in this recession/depression!

“There is nothing monumental about the chairman’s statement,” said Patrick O’Hare at Briefing.com, who added that the market paused to reflect on the impact of higher rates on the US dollar and commodities.

Because a weak dollar and rising commodities has been pushing stocks up, the latest comments prompted caution.

“Mr. Bernanke threw the dollar a bone with the remark and the uptick in the greenback is expected to weigh a bit on commodity-sensitive areas,” O’Hare said.

The central banks have a vested interest in trying to control gold in order to avoid a rout of the dollar.  Fed Chairman Bernanke is using the only tool available to him at this time to slow the fall of the dollar, namely words.  He knows if they raise rates now to halt the slide of the dollar, it will likely throw the U.S. into at least a deeper recession if not an actual depression.

It is important to note that the general sentiment is beginning to change regarding gold.  Investors are starting to realize realizing that the dollar is in trouble and that holding physical gold will protect them from the devaluation of the dollar.  Currently these investors are the serious gold bugs.  As the situation for the dollar worsens, the general public will want to get on board.  When that happens in larger and large volume, it will be time to start unloading larger percentages into the increasing demand.

Once the average investor begins loading up  his portfolio at outrageously high prices, we will know that  we are approaching a top.  That is still a long way off, anywhere from 6 to 8 years, so we will be able to trade the new ranges as gold moves up the step ladder to higher and higher prices.

For another take on the situation let’s look at how Reuters sees the current rise in the price of gold.

Gold eases from record high

Jan Harvey,  Reuters

LONDON — Gold eased in Europe on Friday, consolidating after hitting record highs for three straight sessions, as an indication from the U.S. Federal Reserve chief that monetary policy may be tightened lifted the U.S. dollar.

Spot gold was bid at $1,046.10 an ounce at 0938 GMT against $1,054.00 late in New York on Thursday and opening up a gap on its record this week of above $1,060 an ounce.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $8.80 to $1,047.50.

Fed chairman Ben Bernanke said at a conference on Thursday he was thinking of an exit strategy from quantitative easing and low interest rates as the U.S. economy improves.

The statement lifted the U.S. dollar index, which measures the U.S. unit’s performance against a basket of six other major currencies, from 14-month lows.

The high inflation concerns upon which gold has been soaring until now may start to fade as the Fed (favours) a stronger dollar, said Pradeep Unni, senior analyst at Richcomm Global Services.

Keep in mind that this is only talk.  The Fed is hamstrung by the recession and actually intends to devalue the dollar in order to make the deficit manageable.  There would have to be a 180 in the Obama administrations policies in order for Bernanke to shift towards rate hikes.

The U.S. dollar’s decline had pushed gold to a series of record highs, peaking at $1,061.20 an ounce on Thursday, as investors bought the metal as an alternative to paper currencies. A weak dollar also makes gold cheaper for non-U.S. investors.

Despite the dollar’s bounce, persistent fears over currency market instability are seen pushing gold to further records this year as funds buy the metal as an alternative asset.

It seems people are beginning to realise the real effect of quantitative easing not only the threat to inflation, but the threat to fiat (official) currencies, said Nick Bullman, managing partner of hedge fund Bullman Investment Management.

If you carry on just printing money, eventually people will start to look for another store of value.

“Sound and fury, signifying nothing.” Nothing will change until there is a change of policy within the government, or until there is a panic or loss of confidence in the dollar.  The media in the U.S. will not allow that to happen in the near term.  The U.S. public has been so  “dumded down” that the “sheeple” will already be sheared before they even realize that they are being led to the shearing house.

The media is capable of doing the job if they choose to. This CNBC report comes from their Europe branch.  It is apparently ok for the Europeans to know what is going on with gold, but not so with their U.S. audience because this video is no where to be found on the U.S. feed.

My apologies for the video quality, but I was lucky to get it at all.  What Mr. Turk is saying is what’s important, so close your eyes and pretend it’s radio!

This is a major shift in what is driving the  price of gold.  If you read Jon Nadler you have been brow beaten with the idea that jewelry demand is what sustains the gold price.  Nothing could be further from the truth in this move in gold.  The dynamic is shifting away from paper gold and into taking possession of gold by governments, institutions and by individual investors.  This is a watershed trend change that will drive this bull market in gold to new heights!

Here is some additional evidence that the economy is not improving.

U.S. Job Losses May Be Even Larger, Model Breaks Down

By Carlos Torres

Oct. 2 (Bloomberg) — The U.S. economic slump earlier this year was so severe it short-circuited the government’s model for calculating payrolls, raising the risk that today’s jobs report may be too optimistic.

Yet another fine example of how inefficient big government is a doing anything right!

About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991.

The bulk of the miss occurred in the calculations for the first quarter of this year, the Labor Department said. The economy shrank at a 6.4 percent annual pace in the first three months of 2009, the worst performance since 1982.

The figures raise the possibility that the government’s calculations continue to miss the mark.

Raise the possibility that the government’s calculations continue to miss the mark is a huge misstatement.  Since when have you ever heard of a government estimation coming in at what they predicted?

We are probably still underestimating job losses, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.  There could be another 30,000 to 40,000 that the data isn’t picking up, he said.

That would mean the loss of jobs for September could turn out to be as high as 300,000, rather than the 263,000 reported today by the Labor Department. Today’s report also showed the jobless rate climbed to 9.8 percent last month, a 26-year high.

The potential revision for the year through last March would mean that the economy lost 5.6 million jobs for the period instead of the 4.8 million now on the books.

This next section is a real beauty because it sort of explains what hat they are pulling their numbers out of.

Companies Surveyed

The payroll estimates are based on a government survey of about 160,000 businesses and government agencies covering around 400,000 worksites.

Once a year, the Labor Department revises its payroll figures after combing through tax records from the unemployment insurance program that covers practically all businesses. Those records are only available after a lag, explaining why it takes more than a year to make the tabulations.

The department uses a formula, known as the birth/death model, to determine the influence on payrolls from the formation and demise of businesses.

Because the government doesn’t know if a company fails to respond because it has gone out of business or is just late, it estimates the number of companies that may have folded. By the same token, it plugs in an estimate for the formation of new businesses to account for their hiring.

So when you boil it all down, the government is pulling these numbers out of their nether regions with no more rational than a guess.  Is it any wonder that the numbers they come up with are usually revised upward at a later date when very few are paying attention.

From April 2008 through December, the tax records showed the Labor Department’s figures overestimated payrolls by about 150,000, said Chris Manning, the national benchmark branch chief at the Bureau of Labor Statistics. That implies the estimates missed the mark by about 675,000 in the first quarter of this year, which currently shows a 2.1 million drop in payrolls.

I love this next part where your ever benevolent government is willing to admit that posibly the system is not working well.

Not Working Well

In this period of steep job losses, the birth/death model didn’t work as well as it usually does,  Manning said in an interview.  To the extent that there was an overstatement in the birth/death model, that is likely to still be there.

The model added about 184,000 jobs to the payroll total last quarter compared with a 135,000 increase in the same period in 2008, before the financial crisis deepened with the collapse of Lehman Brothers Inc.

This is just one more reason why you want the government running your health care system.  They are so efficient and always looking out for your interests, just ask Nancy Pelosi, who by the way doesn’t want anyone to read the health bill before they pass it.  Enough! Just some things to consider before you fall hook line and sinker for the governments numbers.

Record Gold, Record Absurdity!

On another totally unrelated note we have reached a new height in absurdity as well.  Gold breaks a record and so did the Nobel Peace Prize committee by awarding the Peace Prize to President Barrack Obama.  He now takes his place amongst such intellectual, peace loving notables as Jimmy Carter, Yasser Arafat and Al Gore!

Watch this video for comic relief!

We have now reached the height of absurdity, where accomplishments mean absolutely nothing and intentions rule the day.  I think I am going to retch!

I hope you booked profits if you  met your price points!

As we enter this new phase of record gold prices, I hope that you have been disciplined and taken some profits on these run ups.  Wednesday and Thursday were the days to have sold portions of your positions into strength if you  met your price goals and wanted to book profit.

It is always wise to book some profits on big up days so that you have cash available for consolidation phases.  There will be many more opportunities in this bull market in gold, but I hate to give up any chance to book profits if the stocks have met my purchase goals.

Next week should be really interesting as we find out if we are going to consolidate here for a while or push right on through $1100.  The fun is just beginning as we enter this next phase of record gold prices.

Till next time, good luck and good trading!

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