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Bullish on Bullion


Gold is now rallying again against all paper currencies, and making new highs against mostly all of them.


From US Treasury Secretary Henry Paulson, during yesterday's testimony on Capitol Hill:

"Increased flexibility in the short-run is absolutely necessary, but it is not sufficient. My goal is to make significant progress toward a fully market-determined, floating Chinese currency."

Indeed, we recall the Great Muhammad Ali, who lived and boxed by the mantra, "Float like a butterfly, STING like a bee."

Focus on the stinging move in the Chinese Yuan this morning, as the US Dollar is plunging to a new bear move low. More from Paulson, with pompous pride in full view:

"China does not yet have the currency policy that we want !!!"

Like WE want? Indeed, he sounds more like a spoiled child that has been denied a cookie before dinner.

Note similarly 'childish' comments from Senate Banking Committee Chairman Chris Dodd, Democrat from Connecticut:

"I go home every weekend and meet constituents, and they are livid."

Livid? Livid about what...low prices for consumer goods??? Livid because the value of the US currency is not depreciating fast enough???

Indeed, note today's spike higher in Gold and then note the chart on display below, revealing that the 52-Week Rate of dollar depreciation is hitting new highs, and fast approaching 4%.

Moreover, I note the push to a new high in the Chinese Government 3-Year Bond Yield, which has penetrated the 3% level for the first time during this bear market move.

Then I note today's "Directive" from the Bank of India to domestic commercial banks, directing them NOT to sell their bond holdings in order to boost lending to consumers.

And also note today's change to the Indian law, which will now allow domestic banks to sell short within the Government Bond market.

Indeed, one day after hiking their official short-term interest rate (Repo) the Bank of India is pumping the monetary brakes a little harder, with a more specific focus on domestic interest rates.

US Lawmakers are specifically targeting US "seniorage" without even realizing it. We ask Paulson and Todd, 'Got Gold?'

Even more 'tellingly,' there is something more happening "behind the scenes," monetarily. US money supply growth has exploded.

Note the following data-details as they relate to the weekly figures offered by the US Federal Reserve Bank every Thursday evening:

  • US M-1 Narrow Money Supply Aggregate rose +$14.8 billion in the week ended Jan. 15, a huge single-week expansion of +1.1% nominally, or, more than fifty percent annualized.
  • 13-Week ROC of M-1 Narrow Money Supply Aggregate expanding at +0.6% rate in the latest week, up from +0.2% growth one week ago, and a complete reversal from the contraction posted at the end of November, pegged at minus (-)2.8%.
  • 13-Week ROC of M-2 Money Supply Aggregate expanding at a robust +7.2% rate in the latest week, accelerating from the previous week's growth rate of +7.0%.

Note the accelerating 13-Week annualized ROC of headline M-2 money supply expansion on a sequential basis dating back to mid-November, when the Fed was fully expected to be cutting rates in early 2007:

Nov-13: up +4.9%
Nov-20: up +5.0%
Nov-27: up +5.3%
Dec-04: up +5.4%
Dec-11: up +5.8%
Dec-18: up +6.1%
Dec-25: up +6.5%
Jan-01: up +7.1%
Jan-08: up +7.0%
Jan-15: up +7.2%

Similarly, I note the following figures extracted from the Fed's Commercial Banking statistics released every Friday afternoon:

  • Bank Loans Outstanding $6.094 trillion in the week end-Jan-17, up by a sizable +$10.0 billion in the latest week, and expanding by +$108 billion (from $5.986 trillion) since the beginning of November. More 'tellingly,' Loans Outstanding have soared from $5.449 trillion as of the beginning of 2006.

Oh, and the most recent figure represents a new all-time high.

In other words, Commercial Bank Loans have expanded by a massively large +$645 billion over the last 54 weeks, a nominal increase of +11.8%.

I'll ask again, as the US targets its own currency with both barrels, politically and monetarily, got gold?

Observe the plunge to new move lows in the US Dollar versus the Chinese Yuan as evidenced in the daily chart on display below.

More 'tellingly,' I focus on the accelerated pace of depreciation in the once mighty greenback, which is hitting a new "high," headed towards (-)4% on a year-over-year basis as seen in the long-term weekly chart on display below.

I'd also note (not shown) today's downside push in the USD versus a multitude of Asian and Emerging Market currencies, including the Indian Rupee and Brazilian Real.

With all that in mind, I turn to the bullion market, noting first that despite the appreciation in the Chinese currency to a new high against the US Dollar, the Yuan is depreciating relative to gold.

Evidence the chart below showing this week's upside breakout in Yuan-Gold, in line with a renewed bullish moving average crossover (50-Day EXP-MA crossing back above the 100-Day EXP-MA, with both now trending to the upside). Additionally I spotlight the renewed push back into positive territory by the med-term 100-Day Rate-of-Change indicator.

And, most of all, evidence the long-term macro-monthly chart seen below, revealing that the Yuan-price of Gold is back above 5000 CNY per ounce, and near its all-time record high.

Bottom Line: Gold is now rallying again against all paper currencies, and making new highs against mostly all of them. For an historical perspective, see my firm's long-term secular chart library contained in our new book, "Gold Trading Boot Camp, How to Master the Basics and Become a Successful Commodities Investor."

Silver has broken out above my firm's key $13.50 upside pivot, a move supported by the chart pattern on display within the longer-term weekly chart below. Note that the steep mid-2006 downside correction held solid at the 50% Fibonacci retracement in line with the 52-Week MA and then again at the 385 Fibonacci retracement in line with the MA once again.

Of specific intermarket interest within the bullion sector is the push higher in Silver relative to Gold. Evidence the long-term chart below plotting the Gold-Silver Ratio (inverted to show Silver as the 'basis').

Strategically speaking I note the upside breakout and positive technical pattern on display within the daily chart below in which we plot the benchmark Gold ETF, the Gold Trust Fund (GLD).

My firm is bullish.

And my firm remains bullish on our favorite core-bullion-investment holding, Pan American Silver (PAAS). Note the longer-term weekly close-only chart on display below and the upside price explosion. Indeed, Pan American's share price has entered the 'lift-off' stage, as it applies to the appearance of our famed 'Launching Pad Pattern.'

We are bullish on bullion --- gold and silver --- along with the Gold Trust Fund ETF, Pan American Silver, and Silver Standard Resources (SSRI).

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Position in physical gold and silver, gold and silver futures
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