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News has come in that "Germany
and France are spearheading a
multi-trillion dollar “shock and awe” programme expected
to be agreed next weekend and presented the following week at the G20 summit in Cannes.
The international community may
provide further support after the G20 agreed that the IMF should “consider new ways to provide on a case by case basis short-term
liquidity to countries facing
systemic shocks”.
The IMF will report back on what
measures it would offer at
the summit in Cannes." This should be music to the ears of gold and silver bulls
and is of course exactly
the sort of "solution" we have been expecting - and since we have aligned ourselves with the Commercials, exactly the sort
of solution they have evidently
been expecting. The solution involves
a massive blast of QE which
will be highly inflationary and thus will drive gold and silver and other commodities higher. European leaders appear to have
at last learnt this universal solution to all problems large and small from the US, and although it doesn't really
solve the problems at all and in fact makes them ultimately
worse, at least "it kicks the can down the
road" and keeps leaders in power for a while longer.
Over the past week gold
has advanced slowly towards a clear resistance level in the $1680 -
$1710 zone. This is a very
important resistance zone as it
marks the lower boundary
of the earlier top area, so
it will be a big deal if gold can climb back above this level.
You will recall that in last weekend's update we had classed
the current holding pattern as a potential bear Pennant, but now, even though gold may back off short-term, the
action of recent weeks is viewed as a basing pattern that should lead to renewed advance before much longer. Because of the strength of this resistance level and the fact that gold has got back up to it quite quickly we should not be surprised to see gold turn tail and drop short-term, perhaps back to the support in the $1600 area, which is also
suggested by the weak
volume on the rally this past week which
indicates that gold is not yet ready
to take out the resistance.
We should not be upset by this
and instead use it as an opportunity to build positions further, as it is now thought
unlikely that gold will drop below $1600 after which it
is likely to turn higher and drive through the aforementioned resistance. It is now thought highly
unlikely that gold will drop to the "aggressive
accumulation zone" shown on our chart. In addition to the powerfully bullish fundamental factors set out above, the gold COT charts remain strongly bullish, and are little changed from last week.
The latest copper COT charts also provide
circumstantial evidence
of an impending big rally in commodities, with the habitually wrong Large and Small Specs going short copper while the Commercials are now quite heavily
long. The Large Specs got
slaughtered after their July euphoria when copper challenged
its highs.
The dollar has reacted back sharply
over the past 2 weeks, probably due to the prospect of resolution
of the acute crisis in Europe. It is now oversold
short-term and on support near
its rising 50-day moving average, and is therefore entitled to a bounce. However, if we see some real progress in Europe and easing
of the crisis there in coming weeks, then all of the gains made during
the recent rally could be given
back – and the rest, as the dollar has only benefitted in the recent past by default –
due to its status as
“King of Hell”.
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