Wednesday, July 30, 2014

Gold and Unexpected Debt

The recent action in gold reflects a range bound price from a low at $1268 to a high around $1324. This does not generate a whole lot of interest when the S&P 500 hits a new record every other week. However, a glance at a boiling pot does not tell you the moment of overflow.
Gold could be setting up for a big upwards move. This is derived from the geopolitical trends to recent reports.
SNL Metals and Mining, a leading authority on metals stated this important observation in their work: Strategies for Gold and Reserve Replacement. Gold production is rapidly declining. In the past 24 years, the total mining production of gold was 1.66b ounces with 217 major discoveries, and 1.84b ounces were put into production. Production has been exceeding discovery. This difference of in the ground and on the market has to be replaced. It appears that is not the case. This leads to the basic law of supply and demand. Less supply, higher prices.
In addition, the Aden sisters just released a report that follows the price action of gold. It reinforces the positive price trend in gold. Gold has climbed over its 65 day moving average. Also, if you look at a long-term chart of gold, gold finds a bottom every five plus years. According to the Aden's, gold just formed this bottom. Gold also shows a reversal head and shoulders formation. Finally, gold on the HUI Index broke above the 234 level. Pay attention to that number. If it stays above it, we can safely say this is not a false signal. It will be the beginning of an upward move. Keep in mind that the money center banks like MorganChase, et al. all hate gold. They are for the Fed and fiat money. These people see the same price trends. They will fight against gold like they always do.
Unexpected Debt
Our government leaders never put money away for a rainy day. As 10,000 baby boomers get in line every day for the next 17 YEARS, Social Security and Medicare will feel pain, which will be reflected in budget deficits. The Congressional Budget Office(CBO)sees our debt shrinking for the next two years and then...nothing but deficits far into the future. These people do a better job than almost all the other government agencies, however they are never correct either. There were two recent developments in the news that will worsen the debt picture in the future. Neither of the two were taken into account when the pluses and minuses were completed by the CBO.
Drug Nation
The average American spends $4K a year on prescription drugs. Most of this will be put into the Affordable Care Act or Medicare. However, a new development has occurred. The early release of prisoners and their medical needs is being pushed into the Affordable Care Act. Remember, this is borrowed money to begin with and we have to pay interest on it. Both of the columns, debt and financing of debt will grow. In addition, the immigrant kids crashing over our southern border is adding billions of unfunded debt that is also being borrowed with interest to house them, cloth them, feed them, litigate them, transport them, medically treat them and more. I predict the interest on our national debt will explode to ONE TRILLION A YEAR. Now, how does gold look?
End the Fed!