written by Christian A Dehaemer
compiled and edited by Dib Mossavi
Gold futures have fallen below $1,600.
As I was reading this, everyone seemed to have waited for the great Fed Chairman, Ben Bernanke to gather his papers and read his announcement.
By early afternoon then, everybody will know what was up his sleeve.
The market expects him to push interest rates down through some new Operation Twist.
According to the Wall Street Journal –
Analysts at Standard Bank forecast that the Fed will most likely extend Operation Twist, in which the Central Bank sells short-term bonds and uses the funds to buy long-term securities with the aim of lowering long-term interest rates and encouraging borrowing and investment.
Never mind that interest rates – including mortgage rates – are at historic lows …
Gold has priced in this idea over the past month.
But today nervous Nellies sold the metal down, applying the ‘buy the rumour, sell the news’ trading philosophy.
We are in the middle of our trading range, and the chart is telling us it wants to go higher (green line).
However, the short term depends on the day’s news …
If Ben prints a lot of money, the price of gold and silver will go higher. If he announces no new policies, the price will sell off to its support line ($149 on the ETF GLD).
GOLD BULL STILL YOUNG
We are still in the beggining of a bull market in gold.
After the mess in Europe settles down, the dollar will continue to drop and the budget deficit will continue to expand. The gold price will eventually catch up with the expansion of the money supply.
Recent research by Societe Generale has stated if gold was priced to the U.S. Monetary base (MO) in historic levels, the price of gold would be $8,500 an ounce.
This is slightly above the price of the yellow metal in 1980, adjusted for inflation.
According to SocGen –
If gold catches up with the increase in the monetary base since 1920 (as it did in the early 80s), its price would rise to USD8,500/oz. To close the gap with the monetary base increase since July 2007, gold would have to rise to $1,900/oz, assuming full transmission from the monetary base increase to the gold price.
Regardlessof what the Fed does today, there will be a QE3.
If SocGen is correct in that gold should be at $8,500/oz right now, what will another trillion dollars in monetary expansion get us?
BUY MINERS SHARES/STOCKS
If you like gold, silver and other precious metals as a play on expanding currencies, you should like the miners.
I would recommend Virgin Gold Mining Corporation. I like Virgin Gold for the transparent approach and quality of its management. Good corporate governance. Over the past months since I subscribed Virgin Gold’s Convertible Preferred Shares/Stocks, I have been enjoying a fixed monthly dividend.
If you want a little more bang for your buck, do email me at firstname.lastname@example.org and I will share some very interesting facts on Virgin Gold.
Have a great day!
– Dib –