World Events and Gold

December 30, 2008 Gold Stocks, Inflation, Politics No Comments

Good morning on this last full day of trading before the shortened New Years Eve session. I, for one, can’t waiting for this low volume, meaningless trading week to end. The picture should become clearer starting with trading on Monday, January 5th. Low volume allows the market to be manipulated by smaller than average trades. They mean nothing in the overall picture of the market, because by and large, the real market players are already long gone on vacation for the holidays.

At this time, the DOW is up 126 at 8,610, the NAS is up 28 at 1,532 and gold Is trading down $11.40 at $8,69.20. Let’s take a look at how the experts view today’s trading with Claudia Carpenter’s report for Bloomberg this morning.

Gold dropped in London as a global economic slowdown and lower oil prices threaten to reduce demand for the metal in jewelry and as a hedge against inflation.

Gold fell as crude was poised for its first annual decline in seven years amid recessions in the U.S., Germany and Japan. Purchases from jewelers have slid in the first quarter every year since at least 2001, according to London-based research company GFMS Ltd. In India, the biggest buyer, demand usually peaks in the second half for occasions such as the wedding season.

Clearly if the negative economic news gets worse and worse, then commodity prices would come under more pressure. said Gerry Ceyala, chief strategist at RedTower Inc. in Aberdeen, Scotland. India is at the tail end of the wedding season and in terms of China and the U.S., you’d have to think demand would be less given what’s going on in economies.

Gold for immediate delivery fell $10.15, or 1.2 percent, to $870.15 an ounce as of 12:18 p.m. in London. The metal may decline to $660 an ounce by this time next year, Celaya said.

Prices are still up 4.3 percent this year as the MSCI World Index of equities dropped 43 percent. Investment in the SPDR Gold Trust, the largest exchange-traded fund of gold, rose to a record 780.23 tons yesterday from 775.33 tons on Dec. 26. The fund has more gold than Japan’s central bank.

It appears that Israel’s statement that it’s air raids were but the first phase of it’s operations against Hamas are not in the least bit alarming to the markets. That pesky little Middle East conflict can be discounted after 24 hours of market concern. This military action is just getting under way and has the potential to spread rather quickly to the point where oil production may be affected depending on who chooses to participate. This sentiment totally disregards any threat from India and Pakistan mounting troops on their borders. That hot spot is but a fatwah away from exploding.

But I digress, let’s get back to the important issues of the global credit meltdown and how poorly the US consumer performed during the holiday shopping season. It never ceases to amaze me how quickly the press jumps on the government band wagon to distract the the masses from things that they don’t want on the table. P. T. Barnum was right, although I am sure even he did not know how right he was!

The US economy is in a recession that, with government intervention will get worse and last longer than it ever should have. At this point in time there is nothing on the horizon that will change that. The government will do what it knows best, stimulate, regulate, tax and by so doing they will expand this recession beyond it’s current depths. But if they are really vigilant they will turn it into a depression. At the risk of being repetitive, the government should cut taxes across the board and drastically reduce it’s own scope and size and let the free market wring out the excesses that the government has introduced. “Free” the free market!

Look at this chart of the monetary base.

monetary base123008 World Events and Gold

Monetary Explosion!

This is what the Fed and the US Government has brought to your neighborhood. That is about as straight up as you can go on a chart! Save this chart, because when hyper-inflation kicks in you will look back on this chart and see exactly where it started. You cannot do this to a fiat currency and expect it to retain any value.

News comes and events happen, but gold will out last them all and when gold’s big moves comes it’s chart will be identical to this monetary base chart.

Buy physical gold and gold stocks on every opportunity that is offered to you. Be aware that every attempt possible will be made to knock gold down in order to keep the dollar from falling off a cliff. Use those opportunities wisely because soon they will no longer be available.

On that uplifting note, I would like to wish all a Happy New Year and hope that some common sense returns to this world in 2009.

Good luck and good trading!