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Is 2015 – the Year the FED comes to the aid of gold and silver investors? In a moment we will provide our answer to this interesting question. The correction in the price of gold and silver is now in its fourth year, and in the words of W. D. Gann: "When time is up – price will turn."
Featured is the index that compares mining stocks (GDX) to gold bullion (GLD). The sure sign of a bull market is when the miners outperform bullion. The breakout at the blue arrow, after price formed a double bottom at 0.15, - a breakout that is confirmed by the supporting indicators, - is very significant. . When this index is rising, it provides positive energy for both the mining sector and gold bullion. The breakout target is at the green arrow.
This chart courtesy Federal Reserve Bank of St. Louis. At first glance the chart gives the appearance that the FED is reducing the Base. On December 10th the money supply had dropped to 3.7 trillion dollars. However by December 24th the Base rose back up to 3.9 trillion, (blue dot). This oscillating is likely what is causing weakness in the DOW and S&P early in the New Year. The last two times the Monetary Base stopped rising (notice the sideways action in this chart, which lasted several months); on each occasion the S&P dropped by 15%. The FED officials are between a rock and a hard place. If they tighten, it will cause the dollar to rise further, and the stock market will drop off a cliff. If they allow the Base to increase, gold and silver will rise sharply. The FED is unlikely to stand by and watch the dollar rise much further, (see next chart).
This chart courtesy John Mauldin's popular E-letter (Mauldineconomics.com), shows the tight relationship between the US dollar (here inverted), and the price of oil. The low oil price is putting a serious strain on a number of financial institutions, along with many energy producers. The higher the dollar rises, the greater will be the strain. The FED can (and very likely will), print dollars to end the current rise and thereby allow oil to seek its supply and demand level. The printing press and the resulting currency destruction will provide energy for gold and silver.
This chart is also courtesy Macrotrends.net. It compares gold to the US Monetary Base. When MB is rising (as now), while gold is correcting (as recently), this index turns lower and starts to warn us that gold is underpriced. The current ratio at 0.31 is the lowest in over 100 years! The time to sell gold is when this ratio is at 3.25 or higher. The way to preserve purchasing power and to protect net worth, is to buy gold when it is cheap. In order to 'sell high' we must first 'buy low'. Peter Degraaf is a technical analyst with over 50 years of market experience. He trades online and issues a daily report for his many subscribers. For more information please visit www.pdegraaf.com or E-mail him at [email protected] *DISCLAIMER: Please do your own due diligence. Peter Degraaf is not responsible for your trading decisions.
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