Gold train leaving the station!

23/11/2008 by Philinje.

Gold has stayed stubbornly above $700 and on Friday had a powerful move up to $800, the first time in the past few weeks that its upward momentum was not abruptly ended by concerted selling.

Chances are, the gold train is leaving the station. We now also have some divergence between gold stocks and general equities, with gold stocks gaining some 27% on Friday. By the way, gold powered higher early in the day whereas equities were mucking around near the unchanged mark and rallied at the end of the day.

The US dollar is teetering under a double top at 88 on the USD Index. If it falls further this week, it may descend to 80 or so. That would help an end-of-year rally in everything, general equities included. But there is a strong chance the dollar will bounce back up to possibly new highs around 93, maybe in response to a new low in the markets. That could happen now, or soon, or early next year.

The markets hit the 2002 low this week, so maybe there will be some relief for a little while. Whenever that new low in the markets and the new high in the dollar happens, the stage is set for huge weakness in the dollar. The money now parked in short-term Treasuries could flee in a big way, as it is already earning a nagtive rate of return.

Gold in the meantime is seeming to confirm a bottom at end of October and will start pushing upward on its own momentum. Yes, it will suffer some setbacks if the dollar goes up, but the demand for gold is pent up and there is some chance it will break through the all-time high 0f $1020 back in March, early next year.

Folks, hyper-inflation is practically baked in the cake, and the only safe haven in that scenario is gold. The dollar itself might have one last gasp as noted above, but then it could die a horrible death, or at minimum suffer a heart attack or two. There are moves afoot by foreign countries to reduce dependence on the dollar, as it is starting to smell bad. Maybe a better analogy is, “We told you to take a shower a while ago, now you need to take a bath, and if you don’t take a bath, we’re leaving.”

Let’s not forget that our US financiers have already soiled every other country in the name of greed, let alone their fellow citizens. And mortgage derivatives are just the tip of the iceberg. You know, there is that survival instinct that appears when a drowning person will drown you too. You save yourself.

In terms of doing just that, at this point it’s getting difficult. Gold coins are difficult to find, and so are silver coins. Buying bullion bars is beyond the reach of most people but can be done. The easiest thing is to take delivery on the Comex.

There is a chance gold could be confiscated like in the past. I do recommend BullionVault.com and their vaults outside the US. The Gold ETF has been a solid performer but you just never know. Holding any equities in a US account could be a risk, simply because of the question of solvency of various financial institutions.

Even foreign currencies are a question. It’s a tough call at present. The CAD is suffering like the rest of them. But once the dollar tops again, moving into any other currency is a good idea. Many will drop alongside the dollar, just not as badly. Even in a purely deflationary scenario, which is how thing look now (temporarily), gold will de-value less than everything else.

Thanksgiving week will be interesting. Let’s see if gold holds up. If it holds up through early December, the gold train is definitely leaving the station.

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