Great posts -- and further to these references, here are additional reasons that may drive gold to break-out on the upside.
1. Ghost fleet anchors off Singapore.
"Many are container ships, especially taking Chinese goods to the world. However, the Asian juggernaut has had its exports slashed by 17.5 per cent and has had to cut its imports by 43.1 per cent (January 2008-January 2009)."
"For the shipbuilding industry prospects are very bleak, a far cry from 2005, a record year in terms of orders, a golden age when trade between East and West was at its apex.
For experts, all this idle tonnage is a sign that trade is still in crisis, and that the recession may still become a full-blown depression."
All those points are interesting but there's one question that must be answered. Commercial hedgers are at a record short position and speculators are at a record long position. That tells us several things:
- for gold to continue to advance, one of the following needs to happen:
a) more speculative longs come into the market - this is not likely since all the speculators are already long. small specs like us don't make a difference
b) the commercials cover their shorts - this rarely happens but when it does the move can be spectacular
I always bet with the commercials.
now if we combine that with the likelyhood of a stock market correction, and gold is inversely corellated with the stocks (although that can change at any time), stocks down would mean gold would go down.
Now we have two reasons for gold to go down.
The dollar could be ready to break out to the upside. This would drive gold down. The third reason.
Of course if dollar crashes, stocks rise, and commercials cover then gold could go up very fast. That's what stops are for.
Good points RJay -- the USD is the central factor here - from a political, economic and punitive perspective.
Political - after the Bretton Woods Agreement, the USD effectively became the Reserve Currency of the Planet. Everything was stable until the 1960's & 70's until France under De Gaulle started sending USD paper back to the US and getting gold for it -- remember that in those days USD paper was backed by gold ~35 per oz. Under Nixon, the US went off the Gold Standard - gold went thru the roof. Everything then went into "float mode".
Economic - as the controllers of the Planet Reserve Currency, however, US fiscal policy was not anchored by any limits -- remember that there was only a fixed amount of paper that could be put into circulation - fixed to gold holdings = security.
Without any limits or boundaries to this new system, the temptation to just print more paper was just too easy a way to fix those little fiscal problems that came along.
Then the credit era arrived, everyone "needed" to get that nice house, boat, holiday etc without having to put any money into savings first, and then spend it -- instead, future earnings spent today.
Credit levels knew no bounds......and here we are.........the sixth horseman of the Apocalypse who was lurking in the shadows has burst upon the financial capitals of the world.
Everyone now knows him -- and his name is Debt.
"But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the US. Virtually everyone traded with America so it made sense to use their currency."
"And fears are growing, in the light of a spiralling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future."
I have recently seen an article about OPEC moves to detach crude oil prices from the USD.
"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars."
Punative - Many nations across the Planet, rightly or wrongly, are laying the blame for the GFC at the feet of the US. They see this as a massive failure by the US of their Guardianship of the Global Reserve. They believe that there was irresponsible money management practices -- no proper auditing procedures -- no checks and balances -- for far too long.
Many nations are now clamouring for change. For those countries antagonistic toward the US - who could never beat the US through a "feat of arms" - they may well see this as an opportunity to win their war by "other means."
They will jump onto the bandwagon. They won't necessarily state such a policy, but they will add weight to every nation that has serious concerns about the future value of so much debt AND fiat currency.
And back to RJay's point -- the dollar is the central focus -- but when people inevitably panic -- the army of commercial "shorters" may find themselves overwhelmed by hundreds of armies stampeding out of the US dollar and into anything that is not made out of "thin air."
Gold, silver & PMs and any other useful "stuff" will then be in big demand.