Saturday, 16 July 2011

Gold breaks out to new highs! 2011-07-16

Gold breaks out to new highs! This has been something of a surprise to many of us, all except James Turk who has been saying we were going to get a big summer rally in gold like in 1982.

Perhaps the danger of a bigger drop in gold and silver has diminished a lot with this and $32 may be the floor for this silver correction with $1470 the floor for the gold correction. It appears the correction in Au and Ag could be over with this breakout in gold.

Gold broke above its all time high at about $1577 and went into the 1580s, then retracing intraday to touch $1577 again as a quick test of that level for support. The move has then gone to $1595 with minor intraday corrections on the way. Silver meanwhile has rallied to $39 and is showing signs of wanting to go over $40. The week ended as it did in the big February to May silver rally with gold and silver hitting the highs at the end of the day, rising right until the last tick on the chart. This was hapening as silver was on its way to $50 in April 2011.

I was wondeiring if we swould have a major credit crunch event that would strengthen the US dollar and smash down silver to $21 and gold maybe to $1400 or so. Bob Hoye has been talking about a 100:1 gold:silver ratio sometime in this credit contraction. I can see where he is coming from but think $100 was excessive, maybe 70:1 would have been possible if gold had correctedt o$1400 and silver to $20. This would have been comparable to the 84:1 ratio in the credit crunch of 2008.

However, in the gold and silver rally from Feb to May this year, gold was late in going to new highs, while silver was flying upwards, as Eric Sprott and others reported dollar inflows into silver market being equal to or greater than dollar inflows into his physical gold products. Same for James Turk. So silver flew and gold trudged up. We didn't see much sign of any gold speculation and blow off, no parabolic move at all. The recent gold correction was mild to say the least, from $1570 to about $1470, about $100 or so, only 7%.

So gold now looks ready for an extended breakout here perhaps. Silver has been participating too, since the speculative long positions in silver were largely washed out in the $49.75 to $32 correction in May.

It would be fascinating to see how gold and silver would react if we had another credit crunch and more bank failures, perhaps on the Euro crisis if Greece and other countries default and cause a derivatives maltdown on credit default swaps, etc. Greece/Portugal could be the 2011 equivalent of the subprime mortgage crisis of 2008. Maybe we might still see a gold and silver correction in the near future but would it go lower than gold $1470 / silver $32? However, with the demonstration that the gold and silver bull market resumed quickly after the 2008 credit crunch, maybe the reaction of the precious monetary metals this time might be a little different. Hold on to your hats!

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