Gold, The Most Important Chart You Will See!

By: Peter_Degraaf

Commodities
Best Financial Markets Analysis ArticleA chart is like a photograph. It locks in ‘the activity’ right up to the last moment. A chart is a reflection of the actions of multiple humans interacting in the marketplace. Since humans tend to act in ‘herd-like’ manner, reacting to the news they hear, read and see, a chart has a certain amount of predictive energy while it reflects the past. “A trend in motion remains in motion until it is stopped.”

Although technical analysis based on charts should not be used in isolation, but always in conjunction with fundamentals, a chart is nevertheless a valuable tool as it conveys recent history, and since history repeats, it can provide clues for the future.In the words of wise king Solomon: “That which has been is what will be, that which is done is what will be done, and there is nothing new under the sun.” Ecl. 1:9

Here are some fundamental reasons why this target is realistic:
1. Once the $1,000.00 level for gold in US dollars is history, there are no more barriers to the price.
2. The massive currency degradation occurring on a worldwide scale is unprecedented in history.
3. Central banks that formerly ‘capped’ the gold price by dumping gold have stopped selling, and some have turned to buying: The Russian Central Bank is reported to have purchased 300,000 ounces in August. The Chinese Central Bank has expressed an interest in buying the entire 403 tonnes of IMF gold that is up for sale. The Chinese bankers have indicated that they will buy gold ‘during any dips in price.’ Much of the gold on the books of some Central Banks has been leased out. It no longer exists except on the books at those banks. The gold at Fort Knox has not been audited since 1953! The threat of IMF gold coming on-stream caused barely a ripple in the gold price last week!
4. The Chinese government is encouraging its citizens to buy gold. This is a total reversal of the policy that formerly forbade its citizens to own gold. This policy is extremely bullish for gold, as an increasing number of Chinese banks and coin stores will be stocking up in order to have inventory. This inventory takes supply away from the market since it is replaced as soon as it is sold to retail customers.
5. The Chinese government is expressing its dissatisfaction with the US administration for causing the US dollar to drop due to the loose US monetary policy, and for imposing a 25% tariff on Chinese tires. This anger on the part of Chinese officials will translate into increased dumping of US Treasury bills and bonds and converting the proceeds into ‘real stuff’, such as gold and commodities.
6. The huge ‘net short’ position accumulated by the commercial traders and the 2 or 3 US bullion banks will have to be covered. The vast majority of these contracts are now showing a loss and margin calls are mounting.
7. Once the gold price is firmly established above the 1000 level, the hedge funds that own most of the ‘net long’ positions on the Comex will likely add to their positions, using some of the margin money they have accumulated on the way up. This will put further pressure on the 2 – 3 bullion banks to ‘cut bait.’ At the moment the hedge funds have these banks over a barrel.
8. More and more investors are becoming aware of the fact that the GLD and SLV gold and silver ETFs probably do not have as much gold and silver backing them as they should have. There are no regular independent audits conducted on these two ETFs. The next chart in this essay supports this observation. This will cause investors to abandon those ETFs and opt for physical gold.
9. Monetary inflation continues worldwide at double digit levels. Meanwhile the gold supply is limited to an annual increase of about 1.5%. ‘More money chasing fewer goods’ invariably causes those goods to rise in price.
10. Gold mines are a ‘depleting assets’. Each mine has a predictable mine life. Unless new deposits are found, every gold mine eventually faces extinction. According to mining experts, new deposits are not keeping up with the current rates of mine depletion. Production in South Africa has been steadily declining. Environmental concerns in many countries make the production of a gold mine expensive and very time consuming.