Gold Update
The Pressure From Above
Enrico Orlandini
Lasco Report
18 May, 2005
There are an awful lot of disappointed gold bugs at this point in time. In fact, confused would probably be a better way to describe it. How can the dollar be rallying and gold prices declining if we have inflation on the doorstep? After all, Alan Greenspan is raising rates in an effort to keep inflation in check. These gradual adjustments will be necessary in order to maintain a well-balanced economy. Greenspan said so! Unfortunately, I suspect that he may be mistaken. I have contended for some time that Greenspan's real fear is deflation and he's just trying to reload the Fed interest rate gun with as many silver bullets as he can in case his worst nightmare comes to pass. The evidence available now indicates that he won't have long to wait.
I see a number of possible scenarios here but the three most obvious seem to be the following:.
The higher low made back in February of 414.00 holds as we compress into a tighter and tighter trading range. Given the fact that we are in a Bull Market for gold, the result of this compression should be an explosion to the upside..
The $414.00 higher low is violated and we continue down to test $400.00 and maybe $375.00 as deflationary pressure become more and more evident..
Gold becomes range bound in the $414.00 to $440.00 area for some weeks or even months to come. .....
Which way will it go? I really don't know but I do know that gold is oversold here and it would be difficult to drive the price much lower. The fact that the Commercial traders have added on to their long positions for the second consecutive week also seems to indicate that the rally may come sooner rather than later. Personally, my bet is that we trade in a range for some weeks, but that's just a guess.
In any event, the long term outlook for gold is quite bullish for a number of reasons. First and foremost involves the fact that the world's Central Banks led by the Federal Reserve, are currently flooding the planet with liquidity. If deflation really takes hold, the flood will become similar to the storm that lasted forty days and forty nights. Other reasons for a continued bull market in gold shouldn't be overlooked either. They include an out of control fiscal deficit, declining gold production, increased problems in the Middle East, and a non-productive U.S. economy based on debt and consumption. Couple this with the lack of any real political will to deal with the hard choices and you begin to see a real problem in the not too distant horizon.
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