Gold and Silver Short Term Consolidation

Gold and Silver have recently been under going a short term consolidation after a strong bull run that started in August.

It seems to me that these markets still have a long way to go to the upside. The following article was written by Peter Degraaf and posted to Seeking Alpha on Nov.29, 2007.

“The pull-back we are seeing in gold and silver is nothing more than some high-volume backing and filling, within the major uptrend. The annual Christmas rally which started in August has a lot of life in it yet.

The sub-prime mortgage debacle is nowhere near solved, and we can count on the central banks to do what they do with every problem they run into: print more money.

NovaGold (NG) just made headlines with news about a problem that most miners are all too aware off: It’s costing more and more dollars to build a mine. The majority of exploration companies even if they find gold, never build a mine! It either costs too much, or it is located in an area that is too remote, or the area is no longer safe. The number of problems are endless.

I’m confident that NovaGold will find a way, in view of the fact that the deposit at Galore Creek is large enough to pursue. Other companies, with smaller deposits are going to have a hard time bringing their gold to the surface. There have been no large gold finds for a number of years, and the increase in the amount of gold being produced is getting smaller.

The price of gold, adjusted for inflation (using the official CPI rate which is deliberately held down), would have to be over $2,200.00/oz, just to match the $850.00 price reached in 1980. The world has since added several billion new consumers. Gold is still cheap!

The central banks on balance, have less gold on hand than they claim to have. They will soon be reluctant to sell the gold that is still in their vaults, for fear that the price they can obtain, will be less than what they can get in the future, and they surely will want to avoid the mistake made by British PM Gordon Brown who with much fanfare, sold gold at $260.00/oz in 2001.

Or how about the Canadian central bank, which over a period of time, sold more than 90% of its gold, and put the money into U.S. Treasury notes - worth almost $38 billion.

The Wizard of Id once asked his finance minister to supply him with some more money so he could continue with his pet projects. The finance minister answered: “Oh, but we can’t do that Sire!’ “Why not,” demanded the Wizard. “Because we don’t have any more gold to back the currency.” “Thank goodness,” replied the Wizard. “For a minute I thought you were going to tell me that we’d run out of trees!”
===========================End of article

Ben Bernanke and the Federal Reserve Bank den of operators must still think there are a lot of trees to be processed into paper money. The high speed printing presses have been running for some time now to design specifications, that is at a high rate of speed. Ben “Helicopter” Bernanke hasn’t to my knowledge started dropping money out of helicopters yet, but he may be getting close to starting that last ditch operation to prop up the US economy.

It’s becoming increasingly apparent that we are nearing an end game with the US Dollar being the world’s premier reserve currency. Investors around the world are becoming more reluctant to accept US money made from trees and cotton fiber rather than gold or silver.

Which form of money would you rather have stored away?

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