Wednesday, September 06, 2006

Gold Price Break Out

Tuesday, the gold price broke out above its 4 month long triangular flag pattern. Very bullish, particularly since it gapped up and out of the pattern. It should not be surprising if gold does not come back down to close the gap. It still has not closed the gap up it made back during the last week in June despite trying 3 times at the 61.8 Fib retracement level.

South African gold production has been in decline for a decade. Australian production is now down to its lowest in 10 years. The Indian central bank just announced an increase in its gold reserves. This is the beginning of the season for increased Indian gold demand. Turkey, a major importer, just keeps increasing the amount it imports. And, the AMEX's HUI index of mostly non-hedged gold and silver companies has been leading the gold price. The gold price breakout makes sense.

"The combination of artificially low interest rates, foreign central bank intervention, an irresponsible Fed, excessive credit availability, the proliferation of low or no-down payment, adjustable-rate, interest-only and negative-amortization mortgages, a can't-lose attitude among speculators validated by ever rising 'comps,' [comparables] the complete abandonment of lending standards, widespread corruption in the appraisal industry, rampant fraud among sub-prime lenders and the moral hazards associated with loan originators reselling loans to buyers of securitized products who perceive minimal risk and an implied government guarantee, has produced the mother of all bubbles." - Peter Schiff on the current real estate scene in the US

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