Good post by rarebird:
Gold:
Many are looking for Gold to soar. I think it will, but probably not immediately. The fundamental reason is that deflation has an icy grip on the economy right now and no amount of fiat money has been able to dent that force yet. The technical reason is that I believe that I should see a substantial amount of mining company accumulation (see chart to Vi above) showing up on my measures before the price of Gold takes off. Of course, this could be a first time. But, in all previous moves in the Gold price, the mining shares have shown sustained buying pressure before Gold has made its move higher. Right now, I've seen a big bounce in the mining shares, but that's from a deeply-oversold condition and current measures suggest that I am seeing more selling pressure into the rally than buying pressure. That's a sign that the smart money is either converting their gains to cash, or are getting short. As I said, it could be different this time and the smart money may be confused by the economy. It's the first time the market has had a deflationary depression in more than a half-century, so it's new to most. But, the odds are that the precious metals will get another leg down before that big surge to the upside so many are looking for.
And, that's what I think will eventually happen, assuming I don't get that 1-in-20 chance of a complete smash of the financial system. In time, the politicians will have to settle with its creditors and some kind of accomodation will be made, such as devaluing the dollar. That, and almost any other settlement which can be envisioned, will lead to a soaring price of Gold into the latter part of the next decade. Right now, though, the metals are caught in the deflation and the metals are not a hedge against deflation.
The turn in Gold will likely be signaled by strong accumulation starting to occur in the mining shares. So, while I might gain some insight from the news, the markets are likely to give me the best signals. For instance, while I can calculate the budget deficit, probably $2 Trillion, I won't know whether that's high enough to send interest rates soaring, an event which will force the day of reckoning with the US deficits. Perhaps China will continue lending the Treasury money to keep zombie banks alive, but not lending themselves. I don't know. The last big rise in interest rates started slowly.
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