Gold Proving Shelter Against Bailout Bombs

In the midst of 'unprecedented shortages of gold and silver' and with the dead weight of a $2 trillion bailout bill looming overhead, as a hedge against inflation gold has proven its metal. But gold and silver are just beginning their greatest bull market in history. That's a nice little ancillary benefit for those just trying to protect themselves from inflation.
This comes from Gold Prices Newsletter.

In the midst of this present financial crisis, gold is doing exactly as it should do in such times, rising tremendously as it fulfils its historical role as a safe haven in tough times.

Having been sold down severely by many hedge funds that were scrabbling for cash, gold has bounced back terrifically as the rest of the worlds markets, particularly the financial sector, were falling apart.

Having been heavy buyers in August of last year, we took profits on our gold positions in February and have now we re-invested this cash in a variety of gold stocks and call options, with the majority of our buying taking place when gold was trading at $800. We have taken 100% profits on some of our option positions in a matter of days and we intend to hold the remainder as gold prices continue to head north.

In the very short term however, we see some consolidation ahead for gold prices around $850-$800. Regardless of the extremely strong fundamentals driving gold higher, technically the yellow metal is approaching overbought levels as signalled by the RSI and MACD, and the Full STO is already in overbought territory. Therefore we see a consolidation ahead for gold, before it challenges its old four figure highs come the year end.

Be prepared for extreme volatility on the way though, as signalled by the Bollinger Band movements. The BB bands have moved sharply apart to record highs for the USD and gold, signalling that this is historically a time of extreme volatility, so be prepared to hold tight through these big swings.

However, in this volatile market, it is important to keep the big picture in mind. Now here we are not talking about what many mainstream analysts harp on about; that the stock markets will eventually turnaround sometime in the future so if you hold for the next decade or so you should make money. We are talking about the big picture as in the picture now, and for at least the next year or so.

So in this situation one should be short on the USD and long on gold (which is effectively a leveraged short on the USD, since gold has doubled in the last three years, whilst the greenback has lost 20%).

We are long on gold, big time, and would suggest that if you are not long on gold at present, buy a position. This coming consolidation could prove to be a good buying opportunity since its likely that the bailout package from Congress will give the markets a short term boost, which may have a dampening effect on gold.

However in the longer term, these bailouts will have seriously negative effect on the US economy, which will send gold through the roof.

The “Emergency Economic Stabilization Act 2008” is in fact a $700billion bomb that Congress is going to drop on the American economy, destroying the world’s reverse currency.

The US Government has injected $1.8 trillion into the financial system, so far, in an attempt to stave of a recession and a freefall in the markets. This massive increase in the money supply is going to lead to massive inflation to match, and therefore a massive increase in the best inflation hedge, gold.

We have said from the day the “credit crunch” poked its head above the surface, this is not an issue of liquidity, it is one of solvency, and one cannot solve insolvency with added liquidity. If an entity is insolvent, then they should go bankrupt. If Congress actually wanted some “Economic Stabilization” then they would let the enormous credit boom of recent years be stabilized by a bust to balance the scales. That means no bailouts, no rescues, nothing but market forces. Market forces will of course balance the scales eventually, no matter how many trillion reckless politicians and civil servants throw at the problem, by serious inflation.

This inflation will continue to destroy the US dollar, but perhaps more importantly these bailout bombs are destroying the capitalist system.

The architects of these bailouts openly admit that they are doing it do save and create jobs. (By jobs, they mean votes.) This is a socialist concept and defies the concepts of freedom and capitalism that America is supposed to stands for. In fact, China is probably a more capitalist market at present, at least their government is letting the market fall apart as it should.

What the US is doing now is reminiscent of Soviet policies. Bailing out companies in return for a stake, which is in effect a partial nationalisation, in order to save jobs which was a communist practice. So if finance companies are going bankrupt, the government takes over to save jobs. What happens if the motor industry, or construction sector or anything else begins to fail and threaten jobs? Will the government just take them over too?

If the markets are to stabilize, the ban on short selling should be reversed and the market should be allowed to fall, and bankrupt companies should be allowed to fail.

Otherwise the markets will stabilize by a severe inflation, which could be a much worse alternative, especially if hyperinflation becomes a threat.

This crisis has sent a shiver through Congress, a shiver that is looking for a spine. We doubt that Congress and the US government has enough spine to let market forces solve the problem for them, therefore expect serious inflation in the coming months. To best way to protect yourself and even profit from this is to invest in gold and gold stocks, and more knowledgeable investors may whish to trade in call options on gold and gold stocks. We are currently doing all of the above and details of our current portfolio as well as trading signals and market commentary are available on our website www.gold-prices.biz and in our newsletter completely free of charge. Sign up now to stay updated on what you should be doing in this crisis and for ideas on gold investment and trading.