Gold and silver prices bounce back as the Fed stops manipulating them down and why this will continuePosted on 24 October 2013 with 1 comment from readers
The big sell orders at the end of the day have stopped in the bullion markets and the prices of gold and silver have rebounded in good measure. That’s the win-win scenario that ArabianMoney forecast would follow the raising of the debt ceiling (click here).
The bullion banks are no longer getting late night calls from the Fed to take down gold and as the gold price recovers so the silverbugs get more confident in a tighter market and the price of silver spikes even higher. How long will this continue?
Don’t fight the Fed!
The obvious answer is until the Fed finds itself trapped in a corner again and needs to defend the US dollar. Pulling the rug out from under gold is one way to do this but it is not a trick you can play every day of the week or month of the year.
Will the dollar now hold its own against other global currencies or start to fade away again? Longer term dollar weakness is a very strong reason to hold gold (click here). In the shorter term we would be more worried about China, Japan, Europe, emerging markets and the UK. That does not leave much room for dollar weakness. Against what will the greenback devalue?
What is likely going to happen with bullion is that it will now advance gradually against all these depreciating paper currencies. The central banks are going to keep the printing presses going for as long as it takes to achieve their goal: that’s a global economic recovery, not the hyperinflationary slump that is coming!
In the meantime bullion will be back as the hedge against currency depreciation and monetary inflation. Ask an Indian how this works. Food prices are up 18 per cent in the past year in India and the rupee has collapsed. Only those with their money in gold have actually beaten inflation.
Charts bottom out
Besides from a technical perspective gold is well placed for a price rebound (sorry Goldman Sachs you have your chart the wrong way up!). We are with Clive Maund on the recent bottoming out of gold and silver prices in the charts (click here).
The Fed won’t intervene in the bullion markets to help prop up rival currencies to the US dollar and as these are the ones most in danger now gold and silver are the right place to have your money.
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