Gold Forecaster
- Global Watch
Did the G-7 group of nations
act to "calm irrational market moves" last week?
Julian D.W.
Phillips
Gold Forecaster snippet
Mar 28, 2008
The 0.75% drop in the Fed Funds
rate did not impress the market last week, expecting a full 1%.
The impression given was that they might not be effective in
calming the credit markets and returning the economy to growth.
The insinuation that the fight against inflation had not stopped
also encouraged the thoughts that the U.S. cannot avoid slipping
into a recession and a self-feeding one at that. But after
the announcement, another set of actions took place that were
not normal market moves. Indeed they gave the distinct
impression that they were intervention of very large proportions.
First the gold and silver prices began to tumble, followed
by the recovery in the $, all of which happened in an almost
straight line. Markets don't do that to that extent!
Then we remembered the warning
given by the G-7 Group of rich nations, that they would act jointly
to "calm irrational market moves", saying they
would not say when and how they would do it so they would not
lose its effect. It is extremely difficult not to conclude
that this happened last week. The short-term future of the
markets has to take this into account so we must look at what
we can expect to happen, both if this did not happen and if it
did.
If no G-7 concerted
action took place last week
An analysis of the
market action of last week, shows that the tumble of the gold
and silver prices took place just ahead of the recovery of the
$, but with that in mind we have to acknowledge that the gold
price was very sensitive to any move in the $ at that point in
time, so would react as it started to move. Both gold and silver
dropped in a vertical line with no hiccups at all a most unusual
move when it went 10% down in gold and 20% in silver. This
alone is an argument but a difficult one to use as convincing.
But then we look at the other factors involved. Wise Investors
place protective stops in position at levels they need to protect
against losses and to retain profits, so when a precipitous fall
takes place they are taken out of the picture automatically.
This can and will increase the downward pressure on the prices.
Initially all the action was on COMEX. On gold we saw a sell
off in the gold ETFs of 25 tonnes in two days.
We believe the initial selling
came from COMEX. This was huge and triggered the run. If no
interference in the gold price took place, we would expect any
fall in the $ that occurs from now on will be accompanied by
a build-up in long positions in both these markets. As with
any consolidation weak holders are shaken out and buyers come
in to pick up bargains. This will happen in gold and silver.
Indeed, over the long-term we forecast that the exchange rate
of the $: will not be the main influence on the gold and silver
prices but inflation, which is rising steadily and should accelerate
as more attempts are made to prevent the global economy from
entering recession. We do not believe that the up-trend in
gold and silver, based on fundamentals has been altered last
week, one iota it has simply been delayed until this phase of
consolidation is over. Hence the sharp drop should be followed
by a hefty bounce and more consolidation. With the up-trend
unchanged, on that basis it is only a matter of time before the
rise resumes in gold and silver and the fall in the $ continues.
If G-7 concerted action
did take place last week
If the G-7 rich nations
decided that the fall in the $ had to be 'calmed' they would
have moved in quickly and forcefully to achieve this calming,
so that investors and other market players would stand back and
react accordingly. This is what did happen. The rise of the
$ was quick and intense and held there as the week before the
long weekend and next week's month end happened. Good timing
for a "calming" strike? Both gold and silver plummeted
as a result of action on COMEX, but the picture is clearer when
we look at silver. There are solid reports of silver shortages
building up across North America, from dealers to the Mints.
It appears far more serious than a simple delivery problem.
Investment demand has not blinked and eyelid during the last
week when this action took place, increasing by over 130 tonnes.
So why did the silver price plummet on COMEX? In sympathy
with the U.S. $ rise and the fall of gold? If it was a "calming"
raid only on the $ only the fall in the gold and silver price
was 'collateral' damage only and will bounce back from whence
it came the moment the $ falls again.
If it was a calming raid we
would expect over time to see the following: -
1. Large surplus holders of
the $ would see an opportunity to start selling large quantities
of them knowing that at last the G-7 were prepared [for a while
at least] to buy them, so holding up the price as very, very,
large quantities of the $ were unloaded on the world's exchanges.
2. Speculators in the style
of George Soros would join the party and add tremendous pressure
on the $ exchange rate knowing that at some stage, as history
shows as inevitable, the G-7 will stop holding rates up allowing
a very profitable tumble for these speculators.
3. The time it takes to "calm"
the markets, each time the rate becomes "irrational",
simply postpones the day when the $ reflects its true international
value.
We therefore believe that any
such G-7 moves postpone and heighten the decay in the global
money system and precede more intense intervention such as Exchange
and Capital Controls. The regulations that come with such controls
may well certainly include those governing ownership of gold
and silver, so as we have said in the past you should be acting
now to ensure that any gold or silver you hold overseas cannot
be reached through your ownership by the authorities. [Subscribers
to our newsletter, please contact us for more information on
how to protect yourselves from their impact]
Perhaps the most important
feature of such "calming" is that that it precedes
further decay in the global economy and exchanges and will do
nothing to correct matters.
Please visit www.GoldForecaster.com
for the entire report.
Mar 24, 2008
Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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