Gold and silver set to dip as China calls the shots?

News that the Chinese Central Bank is tightening up its money supply sent Asian stocks tumbling last night as the rally on Wall Street also seemed to have stalled. The dollar gained and gold and silver lost a little of their recent strength.

Is this the start of a pull back for the precious metals? If so it will be perfectly in order. Gold seems to move in $200 steps and then retrace that move, almost afraid of its own advance.

Volatile silver

Silver is even more volatile: vaulting ahead of gold when things are going well, and then suffering a manic downturn if gold is temporarily out of favor. The market has all the signs of a short term top today.

The chartists like Clive Maund have gold poised for a breakout, and write optimistically that this may be it for gold and silver equities, which have lagged and not lead the gold price upturn this time. Meantime, media that do not normally comment on gold are running big articles about how nobody loses with gold.

Even the editor and publisher of ArabianMoney was on local Dubai TV two weeks ago explaining the gold:silver ratio. This is all short-term market top behavior.

But the key words are ’short-term market top’. There is nothing in current price movement to suggest a spike like oil in July 2008, unless Clive Maund is right and money supply gets out of control and the big rush to gold is on.

Then again the Chinese monetary authorities seem to be in control again. They have acted to dampen the bubble in China by restricting domestic credit. This could be the trigger that brings over-inflated global stock markets down and that will support the US dollar, for a while.

QE II

That is until the US gets stuck into quantitative easing again and upsets the punch bowl. And that would surely be the response from the Fed to a stock market correction of any size, although the US has been asking the Chinese for action and so should initially welcome its credit squeeze.

This QE would obviously send gold and silver back up in price. Thus any short-term price weakness for precious metals will be just that and an opportunity to buy this asset class. There is much more upside in the near future.

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