Friday, December 16, 2011

Gold rebounds back over $1600 after liquidity selloff slows down in Europe

For all the analysts, pundits, and overall incapable talking heads who perceived the large pullback in gold prices as an end of the bull market, fundamentals have a way of proving how incorrect they always are.

The recent drop in gold was primarily due to a need for liquidity and for dollars in Europe.  Nothing else.  And for those who saw the drop as a buying opportunity, then Christmas came early in the form of $1500 level prices.

Less than 24 hours later, gold has just passed $1600 yet again. And as the following note from Sandeep Jaitly of First International Group (whose interview with Max Keiser exposing economics for fraud back in June was quite the hit) observes, by analyzing the continued funding unwind pressure, the recent liquidation move in gold is one that has to be taken advantage of. To wit: "The movements in the bases confirm that the recent downward move in gold against Dollars was as a result of Dollar funding pressures. Gold was lent on the swap against United States Dollars. This swap must be unwound and where a bid for gold was sought to raise Dollar liquidity, an offer of gold will be sought to unwind the swaps. - Zerohedge

Owning gold is based on two simple rules today.  Wealth protection in opposition to the purchasing power of a currency (dollar), and as long as the central banks (Fed) have to monetize, print money, or do any form of intervention and easing, gold will move inevitably up.
Gold is not in a 'bull market', or ANY market for that matter.  It is moving because it is the one true barometer of the global economy, and right now, we are in that temporary deflation period that always preceeds the disasterous hyperinflation one.

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