Since the rather sharp breakout from the cup and handle formation, gold has assumed what appears to be a steady, sustainable trend.
Yes there will be rallies and corrections. It appears that gold will be bumping into the upper end of its trend channel between 1455 and 1480 in the beginning of 2011.
If it maintains the current tight channel, which I think it will do unless there is a panic liquidation, 1390 *should* hold.
A more serious sell off could test 1250.
Will those waiting for a chance to get back into the gold bull market buy into position if it drops to 1390? Or even 1250?
If they did not buy into the worst correction down to 700-50 on this chart then they will probably not. Once you lose your position in a bull market it is very difficult to swallow your pride and climb back on board. One tends to keep waiting for THE low.
Gold is rising because the fiat currencies of the developed nations are being devalued. So while 'cash' may seem safe, it may not be, depending on what happens next. I am struggling with the notion that a hyperinflation will occur for reasons previously stated. It CAN happen, but it would take a series of policy blunders and some event for it to happen. And the Fed has the means to stop it, although they may not have the latitude politically or the will.
It would also require a spectacular act of self-destructive gullibility on the part of a greater portion of the American people. But in this I have rarely been disappointed in the last twenty years.
Silver is rising dramatically as an epic naked short position held by a relatively few parties is being slowly unwound. I should add that a similar scenario is underway with gold, except the parties holding the short side are being supplied with bullion to stragecially cover their shorts by some of the central banks and the IMF. But the difference in intensity is apparent if you compare Gold and Silver deflated by the Commodity Index (CRB) as shown below. Silver is undergoing a massive short squeeze since some of the big banks started scaling down their prop trading operations. I think the gold manipulation scheme has more official sanctions than the silver market manipulation.
For me the big question in 2011-12 about silver is whether it will be remonetized by countries who will once again include it in their official reserves, and even provide some silver content to the exchange mechanism of international trade.
There is little doubt that the international monetary scheme is changing more dramatically since the first Bretton Woods agreement established the dollar reserve currency in 1944, and even more than when the US unilaterally changed the arrangement by abandoning the gold standard in 1971.
If silver is remonetized, I suspect the impetus for this will come primarily from the BRIC's in conjunction with Mexico and other Latin American countries.
There is relatively little discussion of this amongst economists, and almost no mainstream media discussion in the US and UK. Europe is consumed with its own monetary identity problems. Monetary without political and fiscal union is like dating. What is now occuring is that Germany is pondering its options as the betrothal grows stale.
2011 will likely be a difficult year, and 2012 will be worse if the current trends continue. The recklessness and hubris of the central government is an awful thing to watch. I am afraid that it will likely reach a climax and turn away from the current path when the real economy 'hits the wall.' I am not confident that the developed countries will be able to resist the call to fascism in the name of expediency. Too few did so in the 1930's. And even then the denial and recriminations may be quite alarming and confusing.
I see no viable reform movements in the US and the UK, and Europe seems leaderless. This concerns me more than anything looking forward to 2012.
