Gold hasn’t come to a decision

Last week’s news made us mull over the general weather situation by the political and economic horizon. I think the most important point what it is all about is this: Before doing anything else the financial markets decided to lay bold odds against Europe and its touch-and-go Euro. Compared with the US equivalent, the price losses far above average in the European stock markets have been showing for a certain time that considerable lots of money are being withdrawn from Europe. Last week a re-stacking began – out of the Euro into the US$ and other 15 of its most traded counterparts – that’s going to weaken the Euro continuously during the coming months. The well known US$-safe hafen card is lying on the table again, all of a sudden.

As if a world-wide noticeable economical downswing weren’t bad enough per se, I think I can furthermore make out some tendencies that are looking like an open raging bank war. In 2008 we saw such a halting interbank trade already. In this situation the individual banks prefer to invest their money in “their respective central banks” rather than loan it mutually. The US rating agencies would never think of devaluating Goldman Sachs or JP Morgan because of their Greece debts whereas a speedy/immediate devaluation of the French big banks is being discussed because the latters would be most affected by the soon expected (from the American point of view) Greece default.

For me it’s obvious that the American big banks, supported by their government are trying to incorporate a considerable piece of the large European bank cake during the regrowing world economic crisis (just like they did in their home market with Lehman Brothers in 2008) forcing the European banks to defend themselves backed by their respective governments.

The defense reaction of the European governments became manifest last week when the Swiss National Bank (SNB) was tugged into the boat and the Swiss Franc had to couple with the Euro. The European consensus was to be demonstrated thus – WE are a COMMON economic area, we stick together… that’s the motto.

Whereas in autumn 2008, on both sides of the Atlantic they still printed Fiat Money like mad that’s not possible any more today. Aside from the confidence in the banks, governments, currencies now the western central banks are also starting to lack in powder. Last week gold had to suffer from this circumstance.

In the issue of 7/17/2011 I pointed to the possible responsible authors of the gold rally that began on July 4: 

It’s the European central banks! Now, the fact is interesting that the Europeans always use the days before or after a US holiday for their gold purchases or sales supposing that the US banks – being the greatest counterpart against a long-term gold rise (to position their US$ as to be the only trustworthy currency) – would suffer the utmost damage.

At the beginning of July the Europeans started to enter into gold. That led to an overweight on the long side since the Indians and the Chinese are always long anyway. The American Banks JPM and GS being the counterparts had to level their short positions more and more in the course of the last two months because the pressure of the longs was simply too superior. Now, at least the SNB seems to be responsible for the enormous price fluctuation and the violent raids in gold in the beginning of last week by leveling or turning thousands of contracts before it coupled the Swiss Franc to the Euro.

So, possibly not only the SNB but also the other European banks are keyed neutral to gold for the time being. Or maybe a sideways phase has begun making gold consolidate near the highs, simply because the Europeans just have to cash up in the gold market once since they need it elsewhere to absorb the total crash of the Euro somehow.

Gold weekly:

Being small specs we have to pay the utmost caution in this gold war! The extreme swings in gold – technical term is high volatility – are the result of a fight between two gorillas, and we’d better look for shelter in the trench. The market is supposed to keep on being as volatile as it’s been during the last weeks.

Before July 2011 we saw a fluctuation width of maybe 20-25$. Since the countries are making war on each other by means of their banks gold may fall by 50$ within one or two hours rising rapidly afterwards again because perhaps any big bank is pressing the buy button.

It’s a fact that we’ll have to reckon with everything now. Before the collapse of a system or – in this case – a possible price breakout the amplitude of changes grows more and more. That’s quite similar to “playing up” the vibration of a resonance until a resonance catastrophe happens, the gold breakout in this case. With the closing on Friday gold is situated again within the 3rd double arc in the daily setup:

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