Gold up 514% over the last 10 years

This is an FYI post as I was looking over my 401k account and noticed that Fidelity had a 3rd quarter review of the financial markets. This was a slide in the presentation:

Marc Faber on Gold

XGLD Oct 22, 2010

World Gold Index XGLD 3 month daily chart

Gold continues to pull back as quite a few 'experts' expected after a 2 and a half month rally to the upside. There are not too many stocks or commodities that have run up for months without a significant correction of some kind. How significant will this correction be?

Gold hit a top of $1388 on 10/14/10 and since then has dropped to a closing prince on Friday at $1323. It is below the 15dma and there are a few levels of support depending on which indicator you look at.

• A fibonacci drawn from the low and high of this rally brings the 61.8 level at $1300.
• The Bollinger band (Not drawn on the chart above) is at the $1290 level.
• The next 'common' moving average is the 50 day which is at the $1285 level.
• The fibonacci 50% retracement level is at $1270.

Nobody knows for certain where it's going to drop to, but you can use tools to determine possible support levels. Aggressive traders that are bullish on Gold and try to pick 'bottoms' can accumulate positions when they hit any one of these levels. If the price continues to drop, take another position near the next level of support.

Bullish conservative traders should wait until the support is confirmed with the price touching and rising back up. They can start accumulating positions when the price is above the 15dma.

We believe that the price trend for Gold will continue to rise based on the debasement/devaluation of the U.S. Dollar. QE2 may be in process behind the scene.  The US has also recently proposed a 2 billion military aid to Pakistan. Hmm, print up some more dollars...

Seasonally, October has been typically a negative month for Gold as seen in this 'seasonal' chart. Focus on the yellow 1968 to 2010 average.

There are 5 full trading days left in October. (The last Sunday starts off the next trading week for Nov)  The price on Oct 1st was $1309, if Gold closes below that number on Friday Oct 29th, it will be in-trend with a negative October.

There may be some money to be made with the Gold/Silver stocks in November. This recent pull back/correction has lowered many of the stocks in this sector which may have presented buying oppurtunities for those that are still bullish on Gold.

XGLD Oct 20, 2010

World Gold Index on Oct, 20, 2010.  Is this the correction that most professional traders have been looking for? Gold is trading just below the 15 day moving average, stochastics have broken to the down side with a close at $1344 an ounce.
Seasonally, there is a correction in Oct and an upward trend going into November. Of course, this does not happen 100% of the time, but something to note when trading the Gold/Silver markets.
With the talk of EQ2 around the corner, this correction may be over soon and viewed as a buying opportunity with Gold and Silver stocks that were depressed.

Money Supply & Inflation

Above is a chart of the US Money supply from 2006 to the current day. You can clearly see the stimulus package of 787 billion that was produced in late 2008 under the Bush administration to 'save' the financial system. Since then, the government (Obama administration) has printed up more dollars in an effort known as quantitative easing. (See the video post last week for an example)

The picture is getting clearer why Gold and Silver as well as other commodities are rising in value. The U.S. Government as well as other countries are printing up fiat 'money' to bail out the economy, banks and mortgages. (Purchasing toxic assets).

The problem with fiat currency is that governments can print up as much of it whenever they want. Fiat currency is not tied to Gold, Silver or any commodity so it is easily devalued/debased when the printing presses are started. The dollar is a piece of paper with ink on it, you can take a match and burn it to ashes. Hard assets such as Gold and Silver are a rare commodity which has been used as a currency for thousands of years and they cannot be reproduced or printed. It may be a few years away before the world realizes that the only real money is Gold or Silver...

With higher commodity prices outside of Gold and Silver - Oil, Gasoline, Corn, Wheat, Soy, Sugar, Coffee, etc, the food manufacturing costs will rise as a result. It's a matter of time before you see rising costs at the supermarket. I know that many people already see the higher costs over the last few years, but we have not seen hyper-inflation yet...

iShares Silver Trust SLV Oct 17, 2010

iShares Silver ETF SLV, Oct 17, 2010

The bullish trend continues with the precious metals market as seen with this SLV chart. On Friday, SLV was down .28, all of the technical indicators are still intact and suggest a continued trend higher. Stochastics are embedded and the price is above all three moving averages of 15, 50 and 100.

As noted in previous posts and analysis on XSLV and SLV, a fibonacci drawn from the lows in 2008 to the highs in late 2009 sets the 161.8 level at ~$25.60. When and if this level is realized, it often presents a resistance level and may pull back or consolidate before heading onto higher levels.

The bull run from late August 24th of $17.48 to a potential $25.60 is $8.12 per share, a nice little profit for all of those that have invested in this ETF.

Peter Schiff on Fox news talking about the economy and the US Dollar