Market Wrap
Week Ending 11/07/08
Economy
The following is an excerpt from the complete market wrap report that can be viewed at the Honest Money Gold & Silver Report website, including charts of three major gold stocks that had weekly gains of almost 20% and over a dozen charts covering various markets.
Central banks around the world are following the FED's lead to lower interest rates last week to 1%. A dangerous game of currency debasement is taking place, as one bank after another cuts rates in pursuit of a zero interest rate policy.
The ECB cut its rate by half a percentage point to 3.25% and the BOE lowered its rate 1.5% points to 3%. The Bank of Japan dropped its rate to 0.3%. This may seem good on the surface - it is not.
Central banks are trying to use negative real interest rates (nominal rates minus inflation rate) to convince consumers to spend their money instead of saving it. This is not good monetary policy. Savings is the only way to wealth accumulation. The road the bankers would have us take is the road to poverty via debt-servitude. This is wealth transference from the many to the few.
Libor fell 12 basis points to 2.39%, the lowest level in four years. This suggests that the money markets are beginning to "flow" once again. However, although improving, Libor rates are still 139 basis points above the FED's overnight rate. The five year average is 22 basis points.
The Fed's balance sheet has expanded by $1.2 trillion from last year and has reached the $2 trillion dollar level. There has been much talk in the press about deflation. Asset deflation is occurring, as carry trades are unwound in a global deleveraging of the mal-investments put on during the credit boom turned bust.
The Fed's $1.2 trillion balance sheet expansion, however, is monetary inflation, which has yet to filter through the economy. Remember, fractional reserve lending allows for credit expansion 9 times the reserves held on deposit.
Now we hear talk of a new Bretton Woods II agreement - a financial new world order according to Jose Barroso of the European Commission. This is the most important subject the modern world has ever dealt with. Do not take your eyes off the ball - the entire game is at stake.
Gold
Gold was up $16.00 (continuous contract) on the week for a +2.23% gain. It was gold's first weekly gain in a month. The yellow metal has been in a trading range between $780 and $720. Whichever way it breaks will determine the next significant move. It is possible that a double low is forming.
A positive MACD cross over occurred this week and the histograms have turned up ever so slightly into positive territory. The move is minimal and needs to be confirmed by further positive price action.
Precious Metal Stocks
The precious metals sector as represented by the GDX gained 3.82% for the week; however, playing the GDX may be a mugs game. Although MACD has made a positive cross over, the chart below also shows a negative RSI divergence. CMF has significant distribution still in control. Yet a number of individual gold stocks had strong performances. Individual stock picking is outperforming the index.
To view the charts of three major gold stocks that had weekly gains of close to 20% visit the Honest Money Gold & Silver Report website. The complete market wrap with over a dozen charts is available to all.
Summary
During late summer and early fall asset deflation spread like wildfire from country to country - none escaped untouched. Decades of excess credit creation had inflated asset prices around the world. Carry trades involving the yen, dollar, and Swiss franc fueled speculative leverage never before seen.
The only way to stop deflation or hyperinflation is to stop the inflation that comes before. The present deleveraging is proof positive of the excess credit creation and crack up boom that has now gone bust.
The central banks of the world are trying to contain the damage wrought by decades of mal-investments - created by their own misguided monetary policies. One thing that is assured is that more debt will be issued. Inflate or die is the ruling mantra. The world is caught in a deathtrap of debt - damned if we do and damned if we don't.
In paper fiat land money is debt and debt is money. The increased debt levels will be monetized. This will cause further currency debasement and loss of purchasing power.
Long term this is bullish for gold, as investors and every day people come to recognize gold as the ultimate medium of exchange (money) and store of value (wealth).
One of the reasons why the money markets froze up is because no one trusted the credit worthiness of others. Even the banks didn't trust one another. They didn't (and still don't) want to accept the credit risk that other's can or will honor their obligations. Gold is no one's liability. It has no counter party or credit risk. If and when all else fails - gold will be left standing.
Good luck. Good trading. Good health, and that's a wrap.
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