Friday, June 24, 2011

Gold and Silver take a Hit; For Now.

So , Mr Obama is in need of a vote boost, oil prices are high, hence the cost of the gas you put in your car is high. Hmm, what to do?

Sell some oil and get those dumb computer trading algorithms to hit their sell signals? Great idea. 'Tis done.

So there we have it. Last night, the US sold more than 30 million barrels of oil into the market (from their strategic reserves). Down went the oil price and down went gas prices. But algorithm alert! Not smart enough to know an oil commodity from a gold or silver commodity (and one could argue that gold isn't a commodity), all the prices head to the hills.

Gold down US$27.00 and silver down US$1.00.

But don't tell anyone that 30 million barrels of oil will only last for two days in the US alone. So when humans come back to life and look at the figures, they may see bargains and begin to buy gold and silver at goodish prices. Support for gold appears to be around where it now lies, US$1520 per oz.

Let us look at some fundamentals. The US will need to borrow another $2 trillion (2,000,000,000,000) this next year. (It is good to see all the zeros because it helps keep you awake). Mr Bernanke will stop the current program of Quantitative Easing on June 30. From here he will use the proceeds of maturing bonds (created from thin air last year?) to pay for more Treasury purchases.

But this won't be nearly enough to cover $2 trillion. Not even close. So what about the Russians, nope already selling their US bonds and buying gold. China, sorry, doing the same thing and not only buying gold but other strategic commodities and foreign farmland to boot. Europe? One word..Greece. So that leaves Japan. Can you hear the wind blow and tumble-weeds roll.

There ain't nobody out there (except aliens) who will want to purchase US bonds. Mr Bernanke has already stated more 'stimulus' may be required to boost the economy. He may have no other option. Politicians will demand he 'do something' for them to remain in power. QE3 will happen. It may be called a fancy name like 'The People and Government Partnership and Job Support Fund' (I made that up), but it will still look and smell like 'money printing'.

Gold and silver and commodities take a hit. Watch them bounce back when the real action starts.

Gold in New Zealand dollars: $1867.72 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $43.37 per oz
Previous all time high: $48.58
per oz

Articles of interest:

All The Things That Ben Bernanke Avoided During His Press Conference

See article here

Federal Reserve admits US economy is struggling

See article here
The Telegraph

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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