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June 7, 2006
Two reasons why the sell-off in gold will stop, Wed., June 7, 2006, 7:59AM
There are two major reasons why I believe that falling gold markets will turn and head higher this summer.
India and China represent one reason. More precisely, the speculators in India and China will return to buying gold when they see that buying and holding the shares of companies is no way to prosper. They will, however, put their trust in gold.
Do I know that? Is the Pope German?
Of course I don't know. I don't know how speculators in India and China are going to react any more than say those in Germany or America. But I have studied human nature, which is the key to successful trading.
There are tens of millions of speculators in both India and China. Gold trading is an obsession there, and has been from before the time the word "outsourcing" was even invented. But these people have no real depth of experience at equity trading. To them it's like a fad.
And you know what happens to fads when they start costing a lot of money? The fad stops.
But culture is enduring. Gold is part of the culture in both India and China, unlike America.
Reason number two is that America can do anything it wants to manipulate markets and Europeans could basically care less. Anything that is except drop the value of the USD to 20 wooden nickels.
If the new plan of the Administration and the Fed is to drop the value of the USD so that Americans can export factory made goods rather than outsourcing jobs, then the nation is headed for a wooden dollar " and that will not be permitted in Belgium.
The European Union will soon take action to combat a falling USD because otherwise the factory jobs of Europe will be lost. All the new airplane orders, for example, will be Boeing and not Airbus. That will happen if essentially Boeing is allowed by virtue of a crashing USD to give their commercial jets away.
And that's just the start of it.
So, no the EU will soon have a sit-down with the mobsters in Washington and simply say something like "You will be spared your lives; unfortunately the same will not be true of your friends and families". That's how mob rule works.
In case you haven't looked closely at the data, the EU is a bigger and more powerful economy than America. These people just happen to be let's say a little more sophisticated in the way they bring about change, which is to say they would never hire a Dino Kos.
So friends, the price of gold is in decline but the good news is that it is not going to zero. Half the world " India, China and Europe " will not permit it.
And last time I looked, they had more friends than America.
Posted by Posted by Bill Cara on June 7, 2006 07:59:34 AM | Category: Cara Today in the Market
Discourse
Bill,
Yesterday you posted "Fed bond market action plugs the leak, Tues., June 6, 2006, 5:59 PM".
You said that the fed was buying bonds from the banks and the banks were using the cash to support the stock market.
In my mind, these types of actions are what are going to drive the price of gold much higher than you are willing to state here, in your blog.
If you are correct and the bear market action is going to get worse, then the Bernanke Helicopter will be dropping more cargo than ever before and these massive liquidity injections will drive the price of gold.
IMHO, the current gold price action is simply a struggle that is forming a base. The seasonal weakness in gold is ending soon and this base will drive the price much higher.
Posted by: g034 ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
June 7, 2006 8:36 AM [link]
Bill-
"The European Union will soon take action to combat a falling USD because otherwise the factory jobs of Europe will be lost. All the new airplane orders, for example, will be Boeing and not Airbus. That will happen if essentially Boeing is allowed by virtue of a crashing USD to give their commercial jets away."
So if the decline of $USD is arrested as you say, wouldn't that tend to DECREASE the value of gold or is there some "nuance" I'm missing?
BTW, I tend to agree with this statement, as well as to pressure down the road from China and Japan to not let the dollar go into freefall. All these commentators who think this goes in a straight line down are kidding themselves. Deals will be struck and prices will be paid. But we are not going to be allowed to wipe out the value of all those reserves. We may end up making concessions that cause far longer term damage as an alternative though.
Posted by: MarkM at
June 7, 2006 9:44 AM [link]
Wouldn't Boeings cost more to build? Maybe not, if all parts and labor that went into them had “Made in USA� (not USA Japan;) stamped on them and not comprised of materials from foreign sources.
Posted by: C.Note at
June 7, 2006 10:19 AM [link]
With all things equal, if all fiat currencies are inflated by money supply growth at the same rate, the relationships would stay roughly the same (I am simplifying this) towards each other. But, gold would rise in all currencies.
Posted by: g034 at
June 7, 2006 10:21 AM [link]
g034-
Agree, but that's a separate point and argument.
Posted by: MarkM at
June 7, 2006 10:37 AM [link]
Did someone just put an extra twist on my miner's tourniquet?
The bleeding has slowed down .. only a tad mind you ;)
Posted by: C.Note at
June 7, 2006 10:51 AM [link]
ECB meets tomorrow. Based on strong data in Europe, a rate hike of 25 basis points (bpts)is probable. There are some rumors of 50 bpts.
Should add support to the Euro. It will be interesting to see effect (if any) on markets and PM here the next few days.
Posted by: Seamus at
June 7, 2006 11:21 AM [link]
Isn't SILVER the precious metal to get into? Doesn't this avoid central bank & Wall St. market manipulation? Hasn't silver also been prized in China & India for centuries? And, didn't silver (and its producers) run up faster than gold in the past few years? - Jock
PS: there's said to have been a deficit in silver for years. the new SLV EFT will require purchase of lots. Although photography usage is down, one reads of new industrial applications. What am I missing? Silver seems the better choice among precious metals. - Jock
C. Note-
I like the feel and look of this bounce. Very firm off the double hit at 614 spot. This one may run a bit.
Posted by: MarkM at
June 7, 2006 12:11 PM [link]
C.Note-
errata: 617 spot (appx 614 for GLD). Sorry. And it was a triple tap.
Posted by: MarkM at
June 7, 2006 12:22 PM [link]
Bill-
I tried to send you an email with an attachment and another email w/o an attachment. Both were returned with this message:
BCara@BillCara.com
SMTP error from remote mailer after end of data:
host mail.billcara.com [63.247.87.170]: 550 Administrative prohibition
Posted by: davidtr4![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
June 7, 2006 8:08 AM [link]