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No politician wants
to end up with his head adorning the railings of some public
building, and thus - possibly
spurred into action by
the video of the grisly
end of Colonel Gaddafi - European
leaders started to display qualities
normally totally alien to them last week, in particular unity and resolve and a rare sense of urgency, in dealing with the acute crisis facing Europe. It did not go as far as statesmanship,
however, because that would involve
actually dealing with the root causes of the crisis, although with the best will in the world
it's too late for that, so instead, predictably,
they decided to fall in line with the tried and tested US solution to
all economic problems, which is to print
money and sell more debt
- if they can find anyone dumb
enough to buy it, that is,
and a nice touch later in the week was the sight of a European representative going cap in
hand to meet people with
real hard cash in their pockets,
the Chinese. In short, they
decided to "kick the can
down the road" like everybody
else. If they hadn't done this
and had instead insisted on continuing with their Dickensian
approach of forcing austerity
measures on the hapless
populace in order to get them to pick up the tab for the
bank's mistakes and excesses, the riots in Greece would have spread across Europe and they would have been faced with the end of their Empire. It will all end
in a hyperinflationary depression
anyway, but who cares
about something that far
off?
Needless to say, the news that Europe is set to wholeheartedly embrace the economic principles of the likes of Alan
Greenspan and Ben Bernanke and refill
the punch bowl with a
gusto set the markets ablaze.
Markets love inflation, hate
deflation - they love unlimited liquidity and an expanding money supply - so what if money loses its value? - that's only a problem for the little guy shopping for food and gas. The prospect of a massive new money factory opening in Europe to
rival that of the biggest
US operations is music to
the ears of investors in
inflation hedges like
gold and silver and explains
why practically everything (with the notable
exception of the dollar) broke out upside last week, when it become
clear that Europe is set to use the "helicopter
Ben" approach to its
debt problems. While there are many muttering that "the devil is in the details", there is only
one point that needs to be understood which dwarfs every other consideration,
and that is that they are going to flood the markets with manufactured money, and any rules or regulations that get in the way will in due course be swept aside.
On its 4-month chart we can see
that gold broke out upside from what
is now clearly an intermediate base
pattern that formed above its rising
200-day moving average, with the advance last week looking like the earliest stage of a
major uptrend that should take it
comfortably to new highs.
After 5 days of gains
gold arrived at its first serious obstacle on
Friday, the resistance at
the underside of the earlier
intermediate top area, so
we should not be surprised to see consolidation or a minor reaction early next week, which
is called for by the rather extreme reading of its MACD histogram. It could react back to the $1680 - $1705 area and will be viewed
as a buy if it drops to
about $1705. The MACD indicator itself
shows that gold still has
plenty of upside from here, so
after some possible
consolidation/reaction to digest last week's gains it look set to
continue higher.
Gold's COT chart continues to look strongly
bullish, with a relatively low Commercial short
position. This short position rose somewhat this past week,
which is to be expected given
that this chart is up to date as of last Tuesday's close, and thus includes gold's big up day last Tuesday.
As we had suspected
would happen last
weekend, the dollar crashed important support on
Friday and plunged, despite
looking like it was in position for another upleg. The dollar had been "dining out"
on the euro's misfortunes
and it now looks like the big September rally was its Swan Song - its final upward flurry before a brutal downtrend sets in that takes it to new lows. The dollar's fundamentals are truly awful, which is good news for gold and silver,
at least.
The Commercials have been heavily
long the euro for weeks, which
means that they were betting on an easing of the crisis in Europe.
As usual they have been proved right, and the Large Specs
who are short look set to get
buried.
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