For the moment there is silence. The tremendous rally seen recently in gold has been waning. Choppy price action is evident as gold forms a base just above 1700. It will complete this corrective minor 4th wave and then break out to the upside to retest $1800. We in fact might have seen the bottom when gold tested 1706 last night. I do not believe that gold’s Super Bull cycle is over, not by a long shot. You will hear it again – the thunderous noise of the gold bulls running – for the annual running of the bulls is in session. It began at the end of December and gained energy throughout January. Traders who are fundamentally bullish should now be confident that the corrective stage has concluded. The Super Bull cycle in gold has reentered the “run”. This Super Bull cycle in gold has history. As sovereign nations abolished the gold standard and adopted a fiat monetary policy they altered their core principles. Nations developed fiscal policies limited only by their printing presses. Many national fiscal policies are now absolutely disconnected from any real worth, any reality. Without the gold standard there is no standard. Tick-tock, tick-tock Time is running out. Greece needs to make the deal of deals, and needs to make it quickly. Yesterday, reports surfaced that Greek party leaders and their private financiers have reached a tentative accord. In essence, this deal on the urgently needed austerity measures required a financing package valued at €130 billion. With this cash infusion Greece will be able to make its bond payment of €14.5 billion on March 20. The future of Greece is now predicated on their ability to borrow. The future of the E.U. is now based upon its ability to hold member nations accountable. The stability of the E.U. depends on the outcome of this crisis. This is by far the greatest challenge the European Union, in its expanded incarnation, has faced. If they are unable to resolve the economic conditions facing Greece we could see major fractures emerge. We could see the beginning of a domino effect, as other E.U. nations, such as Portugal and Spain, are held accountable. Borrowing from Peter to pay Paul will end, for both will demand repayment. This new era will be defined by accountability. The current austerity package demands fiscal and monetary responsibility. Necessary and painful spending cuts, which will realign deficits in Greece, will be demanded as a prerequisite for future credit. Without compliance Greece will default, most probably resulting in their expulsion from the EU. The incredible moves seen in gold prices over the last six years highlight the decline in value of national currencies. As a benchmark, gold has remained stable and fixed. Gold has never changed in value, only the currencies have. Paired against any currency, over time, gold will increase in value. As J.P. Morgan succinctly put it: “Gold and silver are money. Everything else is credit” No free lunch The days of austerity packages that amount to monetary mulligans (do-overs) will not continue forever. There is no free lunch. At some point the bill must be paid. This is the current situation that Greece faces. They are not alone; they are merely the first to be held accountable. The days of blank checks will end and sovereign nations will be held accountable and forced to maintain a realistically GDP-related budget. The outcome of this crisis will re-define the global economic community as we know it, and gold will continue to trade higher until then. Gary Wagner-Kitco News-February 10, 2012 |
