Is the correction in gold price over?

Gold price peaked in June then began to correct. The tops of the trading channel was connected with a green line. Following the double top formation in June, gold corrected about 110 dollars. The last few days, gold broke out on the upside of the trading channel and is trading at $1188/oz

as I am writing this post. The dollar is sharply down, while oil is past $81/barrel. All of this is confirmatory to a new increase in gold prices.

The "new" school prayer.

GURUS: what about the $ and Au?

The guru I follow predicted gold to move between 1182 and 1215 for about a week and then go up again. No sooner did I read this prediction then the dollar dropped to 1182. How about the dollar? The prediction there is a further drop, then a recovery then a serious drop.

The Euro has stopped dropping as sovereign debts have been papered over temporarily. The US, however, continues on the destructive path initiated by the FED and Obama and deficits are growing at a very rapid rate. China's rating agency has already downgraded the creditworthiness of the US. Strangely, China is still propping up the Obama regime by further purchases of Treasuries.

The Stock Market continues to be volatile and gives every indication of a drop coming. Guru #1 predicts a restart of the Bull Market, because all equities will be repriced in the cheaper dollar.

Economic and market update.

Ronald Reagan used to say that the economy of the US was like a huge ocean liner; it would take a considerable time to turn it around. And so it is now, when the Obama regime is putting its prescriptions into effect. So, here are the economic factors and their consequences as they appear today:

1. Fiat currency creation.
Businesses are scrambling to move every penny of income into this year, before taxes go up. Even so, tax revenue continues low. The last two months saw the highest monthly deficits in history. How is this being financed? By Quantitative Easing? Such a nice name for printing money. Or, are there more Treasury bills being sold to gullible buyers?

2. Treasury yields are dropping and gold itself dropped. Ominous signs of stagnation.
If there were a real recovery, Treasury yields would be rising as the FED acts to stop inflation from getting hold. What we see are signs of stagnation as the regime continues to promote deflation. The deflation keeps price inflation down.

3. Gold prices and the dollar.
Gold prices were predicted to fall in the short term (not my prediction) and maybe rebound at 1182. Support levels at higher level were breached. The dollar is rallying once again as gold dropped. Gold prices traditionally drop some in the Summer and the next serious rally may not show till September. Deflation rules for now until Quantitative Easing pushes inflation. The prediction of 1350 for gold is still in place.

4. The Stock Market is rallying once again. A move to 12,000 may occur as fiat currency will flood the system.

Basic investment rec's have not changed.

Turning points ahead.

Deutschbank puts out an indicator, that is the sum of a number of financial indicators, including VIX. The indicator has fallen to levels seen around the fall of Lehman Brothers. The indicator has a positive .98 correlation with what happens, so it is practically infallible.

What does this mean? It means that America's financial system is still in the dumps and that conditions are getting worse once again. Obama's prescriptions made the patient sicker. No surprise here. Just as Roosevelt's prescriptions did not fix the economy, neither did Obamanomics work. It is not supposed to work. A Community Organizer likes misery and wants more of it so there is a communist revolution.

The Stock Market is shaky and is ready to drop close to 9000. Gold is getting ready to march higher, but the dollar is not ready to topple yet. Maybe in the Fall.

Where is gold going?

I begin this blog post with the graphic I used in the last post. It is the gold price as seen on June 14, which showed a wedge formation pointing sharply up. In fact, highs in gold prices had become steady, while lows were getting higher. This meant a breakout from that pattern by early July.

The next graph shows the actual breakout on June 18. Gold set a new high in US dollars and then sold off a few dollars.

There are four questions that are of interest: 1. what is driving the gold price? 2. how high will it go this year? 3. what happens to gold miners as gold prices rise? and what is the estimated high in gold?

The immediate answer to the first question is shown in graphic three from the top. Physical gold purchase (non-ETF) as well as by Exchange Traded Funds have risen sharply through 2009 and are continuing to rise this year as well. Last year, the total world production of gold was 2,524 metric tons and 3,386 metric tons were sold to known purchasers. Part of China's purchases are not recorded. Recent purchases by Exchange Traded Funds (ETFs) are continuing to rise: Swiss Gold Shares ($500M) are rising fastest; Central Gold Trust of Canada purchased 6,485 ozes, Scott Physical Gold Trust purchased 230,000 ozes SPDR Gold Trust (GLD) intends to purchase 22.7 million ozes. While purchases are increasing, world production of gold is dropping.

Another reason for the rise in gold price is the financial turmoil in Europe and the US. The Obama regime is intent on destroying Capitalism by destroying the banks and the US economy.

How high will gold go this year? Experts I consult forecast a high of $1,350, a modest sum considering the ultimate high in this bull market, which is pegged in excess of $5,000/oz at the end of the mania stage.

The next graph compares GLD (green), HUI (the gold miner basket stocks, blue) and the S&P 500 (red). We note that during May, gold miners took it on the chin while recently, they followed the S&P 500. Sometime in the future, gold mining stocks will take off and increase in price faster than GLD. When? Not known now.

Finally, a number of the world's powers are trying to produce a reserve currency to replace the dollar. I show the coin produced by Russia and the nick is my doing introduced by a mistake in copying. The Obama regime is printing money by the trillions and keeps inflation down by collapsing the economy via deflation. This may become the reason that ultimately pushes the dollar into a free fall and sets gold on a course that will push it to $6,000/oz. Jimmy Carter days are back.

Gold to break out soon.

Gold shows a trading pattern that we have seen a couple of times: a series of rising lows. The signal is for gold to break out to new highs between now and the first week of July. The breakout can occur at any time and is likely come soon. The dollar has stopped rising and is falling today, its bear market rally may be over.

Europe's eyes will now be riveted on the world cup and the coming financial crisis in Spain. Will Spain be able to roll over its debts? Will Italy, an aging team, be able to hold off Holland for one more tme?

The coming rise in gold prices signals a further series of troubles in European finances. This time, the dollar may not rise as much as when the Greek crisis broke, but gold should do a big bump.