Money is being created worldwide, but not through work and investment. I’m referring to money printing. Assets are being held at above market value with accounting techniques, to protect bank balance sheets. This new “state of the union” requires ongoing money creation to maintain itself.
When the US government speaks of a strong currency, what they really mean is a competitive currency. The European crisis is causing a rally in the dollar and negatively affecting gold.
That very rally is making the United States even less competitive than it already is, and nothing significant has changed in regards to the US debt crisis.
Use the dollar rally as an opportunity to build your position in the ultimate currency, which is gold.
Do you believe that a crisis in Europe just solved America’s enormous debt problems? The US remains the greatest debtor nation in the history of the world, and the debt problem is worsening. The dollar’s fundamentals are unchanged, and it remains in a long term bear market.
Take a good look at the above chart of the US dollar, and the Fibonacci resistance points. The dollar is at the 50% Fibonacci retracement line now. Traders are making a serious error betting large capital on a terrible fundamental situation like the dollar, and the technical situation is not very good either.
I mentioned the black candle warning, and suggested that was opening the door for price appreciation in the metals and that is exactly what we got. I see the dollar headed much lower over the long term.
Be careful about thinking you can outsmart the gold bull. Prices decline in every market, at times. This gold market has been hit with selling and fear, but it is a necessary cleansing process that puts gold into stronger hands.
No gold investor enjoys this process, but gold should make new highs, many more times before this bull market ends. Gold is the ultimate long term winner in any debt crisis, and selling out because Europe’s debt woes are growing simply makes no sense at all.
Looking at the above chart, you can see that in 2008, the gold price shot up about 33%, after the initial commercial buying. From there the low was violated by about $57. That technical failure was greeted with even more commercial buying. From there, the price soared almost 50% in just four months, hitting an all-time high.
$1540 is a very important price point for gold. It is a major area of support. There is potential for a double bottom in play, and it is accompanied by heavy commercial buying. Historically, such buying has had great impact on the gold price, carrying it substantially higher.
Further, the upwards trending 290 day moving average is near $1540 now. The key Fibonacci 61.8% retracement line also sits near $1540. If this market does go down to test $1540, I see a strong chance it passes that test with flying colors.
All signals look good to see gold $2330 in 2012 and likely by mid-year. I was becoming concerned that my superhighway price channel was too narrow, but this correction has made the channel I envision more realistic.
Quite a number of gold investors are now shorting gold, and that is becoming a bit of a wild card. A short-covering rally is very possible as the tax-loss selling dries up and buyers begin to dominate sellers.