Market Wrap

Week Ending 10/17/08

Gold

The following snippet is from the full market wrap that can be accessed at Honest Money Gold & Silver Report.

The weekly chart shows gold breaking below the important $850 level and closing at $787.70, for an 8% loss for the week, putting gold into negative territory for the year.

The $730 level looms below. As of now, the earlier Sept. low has not been breached and it may offer support for a higher low to hold.

Gold must regain the $850 level as it represents a twenty year high that was recently broken above turning long term resistance into support.

Price has now broken below $850 turning it back into overhead resistance. If the gold bull market is to stay alive the $850 level must be regained.

Asset deflation continues to spread from one sector to the next. The unraveling of the financial system has seen the Fed and the Treasury react by throwing more money at the problem.

This is just adding more fuel to the fire. Inflation is being baked into the cake and will rise in due time. If such policies continue unabated, hyperinflation could result.

Gold and the U.S. dollar tend to move in the opposite direction from one another: gold up = dollar down; dollar up = gold down. Recently, the dollar has been rising and gold has been falling.

The daily chart of the dollar below shows a negative RSI divergence with a series of lower highs - suggesting that a change in direction may be coming.

Sitting in cash and gold is the safest position for now. The return of capital is more important than the return on capital during times of financial instability.

About the only thing that appears certain is that Bernanke and company stand ready to supply whatever amount of liquidity (credit/money/debt) the system requires to keep it going. The cure may end up being worse than the disease, however.

The problem is the proliferation of debt that is drowning the world. To create more debt is not the answer. Such debt creation guarantees the purchasing power of the dollar will decrease. The devaluation of the dollar is gold positive.

Good luck. Good trading. Good health, and that's a wrap.

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