Monday, May 05, 2008

Gold Rebound?

Gold closed up over $18 today as 1) the dollar fell and 2) oil soared to a new new record. Has Gold found its bottom; will we now see an upturn? -- I think it's quite likely.

Look at the black Price Oscillator (PPO) line -- top section of the graph below: As you can see, gold was significantly overbought when it crested $1,000 back in March, but the severe sell-off since seems to be overdone. Notice how weak (oversold) the PPO line is now? Additionally, did you note the recent upturn in the PPO -- an indicator of things to come?

Regardless of what the shills are now saying, our financial crisis isn't anywhere near over and when phase-2 hits us (soon), safety (gold) will be sought after once again.

Take recent Fed actions as the first clue things aren't "all well" in our economy again:

As of last Friday, the Fed now accepts Auto, Credit Card, and Student loan bonds as collateral for new monetary injections. (Buyer of last resort?)

" Action taken by the Federal Reserve on Friday targeting the global credit crisis, in concert with European central banks, included an injection of cash into the stricken student loan market through a special lending operation... In the move, the Fed is allowing investment firms and banks to use bonds backed by federally guaranteed student loans as collateral for the loans of safe Treasury securities that the central bank is making available."

" The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards."

Second Clue:

Bernanke gave the green light Monday to congressional efforts to prevent foreclosures of homeowners caught in the recent sharp nationwide decline in home prices.

"Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," Bernanke said in a speech at the Columbia School of Business in New York. "

A bill in legislation would allow the Federal Housing Administration to back as much as $300 billion in refinanced loans for homeowners facing foreclosure.

Third Clue:

Bank of America Corp may walk away from buying troubled lender Countrywide Financial Corp

Bank of America, the No. 2 U.S. bank, was likely to renegotiate its deal to buy Countrywide, the largest U.S. mortgage company, or might even scrap the deal altogether.

Countrywide shares tumbled more than 10 percent, while Bank of America shares slid 2.1 percent.

Fourth Clue:

Will Fannie and Freddie require a rescue?

As home prices continue their free fall and banks shy away from lending, Washington officials have increasingly relied on two giant mortgage companies — Fannie Mae and Freddie Mac — to keep the housing market afloat.

But with mortgage defaults and foreclosures rising, Bush administration officials, regulators and lawmakers are nervously asking whether these two companies, would-be saviors of the housing market, will soon need saving themselves.

Some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

And if Fannie or Freddie fail, taxpayers would probably have to bail them out at a staggering cost.

Fifth Clue:

Fed Survey Shows More U.S. Banks Tighten Loan Terms

May 5 (Bloomberg) -- The Federal Reserve said the share of banks making it tougher for companies and consumers to borrow approached a record after the subprime-mortgage collapse made them more reluctant to lend.

The quarterly Senior Loan Officers' Survey, published in Washington today, underscores the Fed's concern that $318 billion of credit losses and writedowns among financial firms is causing a credit crunch. The survey, conducted last month, also indicates that the Fed's interest-rate cuts and loans to banks have failed so far to defuse the threat to the six-year economic expansion.

I could go on with endless clues, but I'm sure you get the point -- The Credit Crisis ain't done just yet (maybe phase 1 is).

Bottom Line:

As Credit Crunch Phase-2 kicks in (soon), we will see people flock to Gold once again (as the ultimate monetary safety) and will likely see $1,200 gold by the end of 2008.

All the Best!



ladygoldisliberty said...


Good evening. I believe you have, as they say, nailed it.

There is fifteen times more paper money today than there was in 1970.
M3 may be nineteen times greater than it was just under three decades ago.

We have seen the federal debt load, which was just reaching one trillion dollars in 1980 for the first time, now hovering around 9.4trillion and accelerating higher.

We've been turned, in 28 years, from the world's largest lender to the world's biggest dead-beat borrower. Off-balance sheet nightmares include Medicare, Social Security, and projecting power as a fading Empire. The Middle Class is being gutted as it needs to stagger from one credit card balance transfer offer of 0% or another "teaser" low rate for six months in order to get through the month.

After 1,200 gold during 2008, we're poised to start a very painful 2009-2010.

With the FED's recent actions of accepting suspect paper in exchange for its US Treasury Bonds...they are turning themselves in a giant hedge fund.

To borrow a line from Ray Bradbury:
"By the pricking of my thumb, SOMETHING WICKED THIS WAY COMES."

Thank you for a really great website. Silver and gold are among the best defenses we have. I'm thinking of the "poetry" if, on the 27th anniversary of Nixon's closing the gold-window on 08/15/1971, this summer we cross north of 1,250 per troy ounce for gold and trade over 30 per troy ounce for silver.

Keep up the great work, it's sincerely appreciated.

Prosper & be well.

Tom said...

Ben Bernanke urges "intervention" to stop house price declines and foreclosures while he is cutting interest rates causing gas and food prices to increase, leaving less to pay the mortgage.

Now THAT is a conundrum.

Patrick said...

Countrywide Takes Away Home-Equity Credit Lines in Las Vegas

By Vivien Lou Chen

May 6 (Bloomberg) -- Countrywide Financial Corp. has suspended the home equity credit lines of almost all its Las Vegas customers, including the $60,000 Christopher Whipple says he needed to expand his cell-phone accessories business.

``I hope this doesn't break me,'' the 35-year-old retailer said. His credit score was 790 out of a possible 850, putting him in the top 40 percent of borrowers. ``It's going to hurt more than I thought.''

steve said...

So it's good to be positive about Gold however these guys have more tricks up their sleeve to try to prop the $. Smart overseas money continues to build it's gold position however in spite of FX manipulaion such as the recent $35 billion $ sale or whatever it is to the ECB.

Anyway, don' be sad if we see our barbarous relic go to $800, it will snap back that much faster.