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Imperfect Storms Create Gold Buyers

By Roger Wiegand             Printer Friendly Version
July 13, 2006

“Out of raging convoluted markets and geopolitical events comes the seed of legendary returns.” - Traderrog

Trading gold or anything else for that matter gets dicey with increased volatility. We mentioned last Saturday in our weekly letter about a “Creepy Calm-Utter Stillness before the Storm.” This idea no sooner hit the streets then today we learned the North Korean nutcase is busy preparing to toss more missiles. Worse, Mumbai, India, a major gold capital of the world suffered terrible violence by terrorists against commuter trains. Additionally, the enemies of Israel have kidnapped more soldiers and the Israeli government has called up 6,000 troops for action and attacked Lebanon.

China is running that puppet show in North Korea and is now quite worried the little freak has stepped too far over the line. Our best contributing analyst said, “Bush would love to blast this unstable person into oblivion along with all his naughty toys. All that’s needed is a fearful Japan saying to push the button.” Putting this into proper context, it’s analogous to Fido in Cuba target practicing with missiles near Key West, Florida. There are some things you just don’t do as repercussions can be severe, swift and sure. Japan may be unarmed but they have good friends who aren’t and who could use the spring training in spite of Iraq commitments. That American destroyer in the Sea of Japan has enough missiles, with probably some being nuclear, that Mr. Kim’s notorious criminal career and others around him could easily and suddenly come to an abrupt end.

President’s Reagan and Kennedy negotiated the USA and world at large out of deep peril with the communist’s years ago. The gunslinger in our White House today would have no compunction in our view of turning Kim’s capital city into a smoking hole in the ground. The better solution might be to tell China, to tighten the leash on their rabid pit bull before he must be quickly euthanized. In our view, this time the blackmail goes unpaid and Mr. Kim gets a Chinese spanking. China is in charge of Mr. Kim and will not endanger their 2008 Olympics being non-attended over his shenanigans.

The real concern here other than one of Kim’s misguided missiles falling on Japan is little Kimmy’s ordering the 10,000 artillery pieces to open fire from their site along the 38th parallel within range of South Korea’s capital. We noticed thousands of USA troops recently deployed on a large nearby Seoul airbase have been moved away. As is common in these matters, it is first a neat idea to remove the head of the snake. China knows this and will probably take charge after more dust-ups before quieting things down. In our view, the worst thing Bush could do is give Mr. Kim a nickel to go away and behave. If he is paid-off, he will return for the next payment very soon. This is his history.

Mr. Kim Jong is attempting to perform a hold-up on the USA to see how much blackmail American taxpayers will allow before writing him some very large checks. Technically, North Korea has been at war with 56 years of “Police Action” since 1950 and it’s not over yet. They might have signed an armistice but Mr. Jong has never honored it and neither did his daddy. Historically, it has been proven, the only way to negotiate with this kind of person is to flatten him like a size 12 shoe on an insect. In our view, the sooner it’s handled the better. Any signs of appeasement or weakness merely encourage more trouble. England’s Neville Chamberlain quickly learned this, to his dismay in 1939 in trying to appease Adolph Hitler. Weakness will only encourage more trouble.

The Mumbai thing, sadly, is only one page in an on-going nightmarish novel. Hopefully the instigators will be captured and squeezed until they squeal and give up more gang members. Britain’s M-5 and Israel’s Mossad seem better at this sort of thing than our gumshoes. Perhaps they should be persuaded take over this task. We were strongly impressed with the work M-5 did on their recent London train and bus disasters. They got busy, caught the perpetrators and persuaded them to talk with no restraints. We think they did a very quick and professional job netting a big criminal gang.

Politics is not our field, but these events impact all global markets and as analysts we must work to think these things through and help our readers and traders find a path through the mayhem. When stock markets are weakened and have zero buying leadership as in today’s situation, these geopolitical events greatly add to the burden and traders run for safety. Unfortunately, amateurs usually call brokers and tell them to sell everything, even their strong performing gold positions as they must sell good stuff to cover margins and pay for other non-performing investments.

Last week in our Friday reports we suggested gold and oil were resisting and topping while traders shed stocks and bought bonds for security. We think bonds are no place to hide either as our U.S. Dollar and bonds are forecast to sink together this fall along with stock markets.

If it all looks so nasty, where do we go for both security and growth?

One Hour Gold Chart on 7-11-06 Reacting to North Korean and Indian Problems.

August gold futures were primed for a mini-rally with a double bottom last evening of 7-10-06 and in the middle of the night with overseas trading.


Long List of Persuasive Facts Tell Us to Buy Gold.

1. Barclay’s bank issued a statement on this morning of July 12th to stay out of bonds and purchase commodities. When mainstream banks issue recommendations to the public these statements typically carry more weight than those of, shall we say lesser sources.

2. Citibank recently issued a gold forecast for $850 with an uncertain timeline as I recall.

3. In my current review of selected top five analyst’s forecasts for gold this fall and for the first quarter of 2007, I find numbers that generally equate to mine or in fact in some cases exceed my predictions. These advisors all have stellar forecasting records.

4. Crude oil and its distillates have proven themselves to be excellent forecasters of gold and its trading action. The geopolitical problems we have just enumerated will indeed, in our view, provoke gold buying with increasing vigor. This is difficult to measure as the ferocity, frequency and newsworthy effects are all strong gold price drivers.

5. Residential real estate is collapsing in some markets to the extent property values will and are being reduced by 50%. Trader Tracks has forecast those re-packaged mortgages sold as derivatives will be our national and subsequently the global Achilles heel for economies. Several top Wall Street and Treasury official meetings confirm this.

6. A little known situation which is just as ominous, if not more so, is the regional and local banks being horribly overexposed to highly leveraged real estate loans. It has been reported there are significant numbers of banks holding in loan portfolios, a naked exposure of 80% residential and small commercial real estate loans. Under severe stress, commercial will fail faster than residential as small business people have limited cash and credit. Most cannot withstand more than a few months of shortages.

7. We find it interesting that as stocks cave-in traders are moving to bonds which contain the seeds of terrible destruction as packagers of these instruments are taking risks far beyond the norm to gain yield. This strain for gain could prove to be their undoing.

8. Junk bonds have gotten junkier as we recently wrote and many of the least credit worthy have a living shelf life of less than three years. In some cases, certain issues have been downgraded within a few months of their origination sales to investors.

9. Japan and China are each holding close to a trillion in USA notes, bonds, bills and cash. While in our view, Japan can withstand the storm, China’s top four national banks are already technically bankrupt and would have died a natural BK death if not infused with more cash from foolish stock buyers in New York. China National bank was an example.

10. Millions in fees from new equity and bond sales providing cash to the Chinese have been skimmed and stolen. The funds are returning to nations other than China to fund individual safe havens for criminals if and when China finally collapses.

11. The most important reason why gold is a buy reflects gold’s regained stature as a world reserve currency after the United States Dollar and Europe’s Euro currency. Gold has grown with new Exchange Traded Funds (ETF’S) and other metal investment vehicles being offered to ease the investment and trading path for gold buyers.

12. Conflicts among nations create fear and cause gold buying which in some instances can be temporary. Solid, long term investments in gold are the result of imperfect monetary systems and their currency devaluations. This latter reason is gold’s best friend.

Gold, Gold & Silver Stocks and U.S. Dollar Weekly Trends

Forecast supports on these charts are: Gold at $570 on the 41 day moving average. The trading range is $540 to $640 with strong support at $600. XAU support is 140 and dollar remains in a trading range of 86.00 to 88.00 with major support at 80.00. XAU 2006 high is range of 173-226. Gold 2006 high $850 to $873 and Dollar November low is 80.00 support.

Traders should expect a range bound period of choppy trading for gold and the XAU until the end of August. The dollar is trying to mini-rally and is struggling as the primary trend is down. The Canadian dollar, a strong proxy for gold, has been mildly down over national interest rate news. Expect the C$ to rally this fall with the U.S. Dollar sliding and selling to 80.00 support. Recent news regarding disturbances in the Middle East has positively affected both gold and oil. As we complete this report, news of more trouble in Nigeria hit the wires while crude oil charts are moving into a large three wave rally. The Tracks has forecast a rally in energy until September 1-15 followed by fall selling with most stock indexes.

Gold and silver begin their fall rallies near the end of August and should accelerate in later September and all of October as mainstream stocks sell down with vigor. Do not fear market volatility. When you are on the right side of this trade it will plump up your pocketbook. Buy gold and gold related investments and shun most of the rest.–Traderrog