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Gold’s Breakout Not A Cause For Celebration

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Jim Sinclair
Mine Set
Wednesday, Oct 7th, 2009

Dear Extended Family,

The gold price has done all of what Erik brings to our attention, but this is NOT a cause for celebration.

The action of gold in the face of the massive commercial dealers short position means that they have finally taken on a force much stronger than the ordinary trader.

The other side of gold is sovereign buying on all reactions, not seeking one price, but rather taking supply away from the cash market on a step ladder basis.

This occurred twice in the 70s, first when the commercial dealers took on France, and finally in 1979 when they met the Saudis in the market place.

The Fed has no stomach nor should they have to carry on an economic war over gold.

The dollar has changed significantly over the last year, becoming the currency of selection for the carry trade. We know that the propaganda that the dollar was a place of safe refuge is silly in light of the weakness in the recovery. Last Friday that message was delivered to the market loud and clear.

  • A d v e r t i s e m e n t

It may even be possible that general equities are being buoyed by the soft dollar in light of Quantitative Easing as there is historical precedent for that.

Clearly the recovery now being predicted by equities is a total fantasy. What we do know is the UN, IMF, BIS, G20, Russia, China, India and Brazil amongst most other major countries have publicly called for an alternative to the US dollar.

Wall Street is clearly out of control if bonuses are a measure of saneness.

The reason why I suggest that today’s market should scare you, and not be a cause for high five because of the implication of the event.

Hyper-inflation has always been a currency event, not an economic event. The currency event has always been, for whatever reason it occurred, a loss of confidence phenomenon. Clearly confidence in the US dollar and its management is slipping. Historically when this currency event comes about the transition is extremely fast.

We have been doing a countdown to the beginning of the end, or that process acceleration. The are 33 days to go.

Gold is then off to $1224, $1650 and then on to Alf’s numbers.

Have you prepared yourself for the implication of such a gold price?

Respectfully yours,

Greetings Jim!

The long-term breakout above that psychological resistance at $1,000 was finally confirmed with today’s huge move higher in gold.

Additionally, the Gold Currency Index confirmed today’s breakout with a move of its own to new highs (see chart linked below). From a technical perspective, today’s action is very significant as it both reconfirmed the breakout from the pennant in early August and confirmed the long-term breakout to new highs for the secular bull market. The next objective will be a weekly close at current levels or higher, after which we are very likely headed to much higher levels.


Prometheus Market Insight

This article was posted: Wednesday, October 7, 2009 at 4:06 am

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