Dear Friends,
I actually wrote this article in the Comments Reply, but it would seem more applicable to publish it as a main article here.
Fundamentally speaking, Gold should be bearish in the longer term, as I believe that the "Flight to Safety" Marketing Story is a fallacy, and will run out of bullish steam eventually.
In a severe recession where there is significant Asset Deflation, commodities prices will suffer, and I don't believe that Gold is the exception. Gold did not perform well in the Great Depression and neither was it able to maintain this current level, during the 1970s.
I did a study on the 1970s Stagflation Situation a few months back and Oil and Gold prices tanked after it had caused a severe recession. So, I believe that my Asset Deflation Hypothesis will be the Market Truth in the longer term.
There is one situation though where the "Flight to Safety" Scenario must be taken seriously. If we see the US$ under severe attack and devaluing rapidly, then Gold will once again, put on a shine, at least until the attack is over.
No one in the world understands the implications of the US Government printing so much money to put into all kinds of rescue operations. Conventional Theory has it that printing money will bring about Hyper Inflation, and this has been the case with a number of the Least Developed Countries (LDC) like Zimbabwe. This is also what Jim Rogers is talking about when he criticizes the US Government, and continues to propose that commodities (possibly Oil - my guess as he did not specify) is the hedge.
I am taking this idea one level deeper. The problem is that the rest of the world is also printing money, i.e. namely the EU. If the whole world prints money, the implication may be different from a case of one country printing money.
Why? Because exchange rate is relative. I must admit that I don't have the answer to this scenario as at today. I am still brainstorming the various implications.
I continue to maintain my current Outlook for the Short Term, i.e. of the next few days to 3 weeks. I am not convinced that the bullish sentiment will just fizzle out with one large intra-day fall on last Friday.
Thus, I am more inclined to think that the US$840 to US$900 trading range with occasional unsustainable breaches stated in the Outlook for 081013, is the most likely scenario in the short term.
One thing to watch out for. As the stock market has been rising rapidly, rightfully or wrongfully, confidence is being restored. Thus, Gold has been performing in the US$830 to US$865 range yesterday and today. This is on the lower half of my expected trading range.
The important question is, "What will happen to the Gold price should the stock market start to weaken tomorrow? My belief is that Gold will start to move upwards into the upper half of the expected trading range then.
And I think that tonight might be the last night that the Dow will experience a large upward movement. In fact, I expect some profit taking correction to set in either by the later part of tonight, or by tomorrow.
So, if you are looking for intra-day bullishness in Gold, it will probably start from tomorrow, albeit a calmer, less volatile short term uptrend of a few days, into the upper half of the expected trading range band. In my opinion, this is the most likely scenario of the Inter-Market situation between Gold and Dow.
Best wishes
Ooi
© Copyright of Praesciens.blogspot.com, 2008
I actually wrote this article in the Comments Reply, but it would seem more applicable to publish it as a main article here.
Fundamentally speaking, Gold should be bearish in the longer term, as I believe that the "Flight to Safety" Marketing Story is a fallacy, and will run out of bullish steam eventually.
In a severe recession where there is significant Asset Deflation, commodities prices will suffer, and I don't believe that Gold is the exception. Gold did not perform well in the Great Depression and neither was it able to maintain this current level, during the 1970s.
I did a study on the 1970s Stagflation Situation a few months back and Oil and Gold prices tanked after it had caused a severe recession. So, I believe that my Asset Deflation Hypothesis will be the Market Truth in the longer term.
There is one situation though where the "Flight to Safety" Scenario must be taken seriously. If we see the US$ under severe attack and devaluing rapidly, then Gold will once again, put on a shine, at least until the attack is over.
No one in the world understands the implications of the US Government printing so much money to put into all kinds of rescue operations. Conventional Theory has it that printing money will bring about Hyper Inflation, and this has been the case with a number of the Least Developed Countries (LDC) like Zimbabwe. This is also what Jim Rogers is talking about when he criticizes the US Government, and continues to propose that commodities (possibly Oil - my guess as he did not specify) is the hedge.
I am taking this idea one level deeper. The problem is that the rest of the world is also printing money, i.e. namely the EU. If the whole world prints money, the implication may be different from a case of one country printing money.
Why? Because exchange rate is relative. I must admit that I don't have the answer to this scenario as at today. I am still brainstorming the various implications.
I continue to maintain my current Outlook for the Short Term, i.e. of the next few days to 3 weeks. I am not convinced that the bullish sentiment will just fizzle out with one large intra-day fall on last Friday.
Thus, I am more inclined to think that the US$840 to US$900 trading range with occasional unsustainable breaches stated in the Outlook for 081013, is the most likely scenario in the short term.
One thing to watch out for. As the stock market has been rising rapidly, rightfully or wrongfully, confidence is being restored. Thus, Gold has been performing in the US$830 to US$865 range yesterday and today. This is on the lower half of my expected trading range.
The important question is, "What will happen to the Gold price should the stock market start to weaken tomorrow? My belief is that Gold will start to move upwards into the upper half of the expected trading range then.
And I think that tonight might be the last night that the Dow will experience a large upward movement. In fact, I expect some profit taking correction to set in either by the later part of tonight, or by tomorrow.
So, if you are looking for intra-day bullishness in Gold, it will probably start from tomorrow, albeit a calmer, less volatile short term uptrend of a few days, into the upper half of the expected trading range band. In my opinion, this is the most likely scenario of the Inter-Market situation between Gold and Dow.
Best wishes
Ooi
© Copyright of Praesciens.blogspot.com, 2008
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