« Internet shopping is growing quickly, Wed., Nov. 30, 2005, 8:23 AM | Main | The need to understand reflation, Wed., Nov. 30, 2005, 11:25 AM »

November 30, 2005

No need to panic over gold price weakness today, Wed., Nov. 30, 2005, 9:52 AM

So the precious meals complex (gold, silver, platinum and palladium) is off almost one per cent today. There is no need to panic. Once a trend has been set, it persists for a long time. Within that trend there will be a series of harmonic changes in the price series from over-bought to under-bought, and back.

Gold is in a rising trend. That means the price track will be two steps forward for one back. Today happens to be one back.

Whenever there is a move in a market that is important to me, I try to determine why that might have happened. Today, apparently, the news is that U.S. GDP is growing at a rate of +4.3 pct Y/Y. Without debating the accuracy or reasonableness of that number; the indications are that real wealth is being created faster than inflation (at least in the U.S.).

If you have been following my explanation as to why I think precious metals are in a strong upward price trend, you will know that I believe that global inflation is growing faster than global wealth. Today, the U.S. Administration is disputing that.

As a trader, who am I to stand in front of a freight train called the U.S. Administration?

But out of Europe today came a different story (from Bloomberg), and one that I choose to believe. The ECB has reported that the European Community GDP is likely to grow at +1.9 pct and +2.0 pct for 2006 and 2007, but that inflation is likely to grow at +2.1 pct. Hence, the central bank there is likely to start raising interest rates tomorrow for the first time.

By publishing data that is arguably incorrect and probably incorrectly interpreted, the U.S. Administration is losing face with serious-minded people around the world. It appears to me that this U.S. Administration, more than any other in memory, has no conscience when it comes to telling Americans the problems they face, or in recognizing the need for transparency.

This is not good for democracy.

Last evening, Yao wanted to know (i) why the Canadian dollar was so strong, and (ii) how did I assess a fair price for gold. Here is my reply last evening, which I think in part, applies to today's pullback in the gold price:

---

Yao, The Canadian govt current account has hit a new record this week, so the Cdn $ is very strong.

About assessing gold price, that is almost impossible. It has limited supply, like real estate in Manhattan NYC or downtown Tokyo. When enough traders want to hold it, the demand is greater than supply. The only meaningful analysis is mathematical analysis (RSI/Stochastics).

In the 2Q05, I saw that demand was significant so I warned readers. Then I saw a new phase of buying, and I warned them again.

The $500 level is psychological. There may be a test to see if the buyers satisfy their demand at this level. I think (longer-term) they will want more because generally they see too many problems with current account deficit/public and private debt/inflation/and politics in the U.S. to have a USD priced so high. The Europeans have given the U.S. a break because of a bad economy there, but as soon as Europe's economy picks up, the ECB will tighten (raise rates) and that will strengthen Euro's against Dollars. Then gold will go even higher.

So my assessment is from watching traders react to the price as well as watching forex and current accounts etc. I think the U.S. is in big trouble right now because of debts and must reflate to get out of the problem. I think gold could go much higher than the latest forecast ($600) I made. It could easily go over $1,000 in the next couple years.

Thank you for reading. Please spread the word. In order for me to have a voice that politicians and "private equity" scoundrels hear, I need to have many more readers."

---

Gold will go up as long as the Little People in the world fear the Big People, and that happens when the underpinnings of democracy become weak through the actions of so-called democratic government.

After the Canadian government fell due the first vote of non-confidence in Parliament in 26 years, for reasons of financial scandal, I had an opportunity to discuss politics with a cab driver. In the discussion the point that I made was that democracy is a word drummed into our consciousness but not practiced by those who have been elected to serve he public interest.

The points I made regarding the Canadian situation:

In my riding, the Liberal Party from Ottawa decided to replace the candidate who has held office since 1992-3, Jean Augustine, with a Harvard professor who has not lived in this country for 35 years. During this campaign he will be serving the needs of his own constituency, the students of Harvard University in Boston. The local riding Liberal Party president was locked out of the headquarters by staff loyal to Ottawa, and prevented from filing nomination papers. Ottawa deemed that in my riding their choice of candidate was acclaimed". This, folks, is the joke of democracy.

I know Jean Augustine. I have been to her office where she assisted me on two different matters. I knew her prior to her political career where she was school principal to my children. She is a black woman who emigrated from the Caribbean and worked first as a domestic, raising herself up through education and working with people in the local community who grew to respect her. After her constituents (including me) voted her to her rightful place in parliament in Ottawa, she served us well as assistant to the former Prime Minister and as a member of Cabinet. What a wonderful legacy for a wonderful person. But, on Friday she was replaced by PM Paul Martin who installed his American friend, academic Michael Ignatieff, and I am pissed.

Recently Paul Martin decided to bestow another exalted position on a person who at the time did not hold Canadian citizenship. He acclaimed" that his friend, a citizen of Haiti, would be our Governor-General in Ottawa. Should I be shocked?

The reason why the Canadian government fell on Monday was because of government corruption between Ottawa and Liberal friends in Montreal. Paul Martin was Finance Minister, and he is from Montreal. He worked daily with all these culprits, and was the senior financial man in government, the Number 2 where the Royal Commission found the Number 1 (Prime Minister Chretien) at fault. Yet, Paul Martin claims ignorance of their deeds. His story is laughable.

I voted for his federal Liberals because of Jean Augustine, and I know now that it is time for these people to go.

In the previous Ontario election I voted Conservative. But I grew disenchanted when a Cabinet minister and sitting member of the Legislature, earning a salary and a pension, was in fact a full-time rancher in Arizona, two thousand miles away. So when the Liberal candidate came knocking, I switched my vote when the promises were made that Party would in fact put democracy back into the hands of the Little People.

The lies these politicians tell to your face. They have no conscience; just a thirst for power, so that in the end they can pay off their friends, and in return get paid off.

I say all this because the breakdown of democracy, civil unrest, diminished work standards, etc, are all partially to blame for the owners of capital to remove their chips from the economy, and put them increasingly (i) into the underground economy, or offshore, and (ii) into gold.

As the problems worsen, the price of gold will rise.

Posted by Posted by Bill Cara on November 30, 2005 09:52:10 AM | Category: Gold

Discourse