With the worsening Eurozone crisis and the failure of government to manage the U.S. debt responsibly, markets are fearful of a meltdown. Traders are driving prices down in the knowledge that many positions are geared [leveraged] and exposed to margin calls. Other positions are protected by ‘stop loss’ instructions, so can be triggered by prices moving down through support levels. Potential buyers are in no hurry to enter the market, either because they feel there is further to fall or because the volumes dictating price moves are too thin to get the sort of positions they want. Overall, the investment climate is very wintery from the bottom of the financial structures right up to the markets themselves.

In this investment climate, the market forces that should prevail are not doing so. The rational approach has been sidelined as markets are blown this way and that by emotions, fears, and knee-jerk reactions. This has always proved to be short-lived with investors kicking themselves afterwards because they did not act rationally. Falls become too extensive just as price ‘spikes’ do so too. Hindsight is an exact science but useless when looking forward. Now, we have to look forward. The way we do that is to look at the forces in play beneath the surface and see their direction. Take a point in the future and see what should happen if these forces keep going in that direction. What place are they taking us to?

The ‘Big’ Picture

The long, slow process of the globe’s wealth moving from the west to the east has been going on for years now. There is no sign that this will change in the next decade. China and India have low-paid, highly intelligent people who will continue to do the job cheaper than, and as well as, in the west. Capitalism, by its nature, takes work to the lowest cost place it can. So the west is directly helping this process along. The first to suffer from this process is the developed world workers who are seeing their jobs go east. The U.S. and European (with the exception of Germany, so far) unemployment figures testify to that.

With growth fading fast in the developed world, the days of live now, pay later have come to an end. Now it’s pay now and live later as the developed world looks at the debts it has incurred and the falling cash flow with which to repay them. As with individuals, when you have to repay debt, you don’t spend, so the economy must lower its performance levels until the process is over. It is naïve to think that you can have growth and repayments when economies rely so heavily on consumer spending. It’s with horror that the developed world sees just how much their borrowings have overshot acceptable levels.

Hence the traumatic situation the U.S. and the E.U. find themselves in. We may well be looking at a battle to save the euro itself as France as well as Greece, Spain, Portugal, Italy and Ireland see the yields on their government bonds shooting up to unacceptable and unsustainable levels. It’s a little better across the Atlantic where the U.S. has the advantage of fiscal union (which we do not believe the E.U. will be capable of achieving) and one overall government supposedly capable of correcting debt levels. The single government and federal financial structure was supposed to have relieved much of the trauma in the U.S., but the failure of the super-committee to lower debt voluntarily bespeaks a deeper malaise that goes to the heart of the mix of democracy and financial management. It’s becoming apparent that the U.S. government will not be able to function properly until the next election in a year’s time and then only if the elections produce a government with a dominant majority.

As a consequence, the currencies of the developed world have a time limit on their global dominance. It is unavoidable that if China continues on its path to power and wealth, that its currency will become a global reserve currency with the dollar and the euro moving into second place, or alongside it. When it suits China, the Yuan will be thrust into the global scene and bring tremendous uncertainty to the monetary system. It is unlikely that China will cow-tow to the developed world then. Whatever the pressure placed on the monetary system in the future, the level of uncertainty in values will grow. The current climate of volatility will worsen as the current accord between the E.U. and the U.S. on currency matters will diminish as another global power brings far less cooperation and much more self-interest to the system.

By extrapolating these currents, we see a picture of greater uncertainty and instability than we see now. Along the way we will see dramatic casualties, which may undermine the ability of the E.U. and possibly the U.S., to influence matters. We may well see either minor or major financial accidents before China shares monetary power with the west.

The Present Situation

The current market falls are not just the result of a single event, such as Spain’s debt costs moving above 7% or the super-committee’s failure to cut spending agreeably. These are symptomatic of the big picture. Fears of the collapse of the euro and the eventual E.U. are very real now. If Greece gets its bailouts, then other nations cause fear to remain high. France has now joined the ranks of nations having to pay to borrow. It’s the underlying undermining of the value of the monetary system that’s causing one symptom after another to burst on the scene on an ongoing basis.

Tragically, the governments of the developed world are looking to protect their power. Junker of the E.U. put it this way, “We know what to do, the problem is being re-elected after doing it.” The fear not growing is that democracy is not capable of putting financial matters right because of the unpopularity it will bring. This is equivalent to taking the rudder out of the water. The drift towards financial accidents appears inevitable.

The interconnectedness of the global banking system – It appears that the debt events of the last 18 months in the developed world are moving almost osmoticaly to a banking crisis as banks fear to lend to one another, uncertain of the sovereign debt values and the holding of those debts by the banks they would normally lend to. This is threatening to freeze up the banking system and not simply that of the E.U.

The fall in the gold and silver prices may well appear inconsistent with its preserving qualities, but when one takes into account the need for immediate liquidity to protect the investor, it is consistent. Once the immediacy of finding liquidity is satisfied, then we see investors returning to the precious metals as they did after the first strike of the credit crunch in 2007. This time round, liquidity needs are not so pressing as then.

The threat of a fall in the gold price to $1,500 appears real at the present moment. Because the fall is being driven by short-term traders and the triggering of stop loss positions with buyers waiting for new support, the situation is a short-term one not affected by the fundamentals of the precious metals markets, which remain excellent. Just as we can have a ‘spike’ to the upside, so we can have a ‘spike’ to the downside. Right now we have see falls from the $1,900 area back to around $1,677 a fall of around 12%. A fall to $1,500 is a fall of 21%, which would be justified if the market fundamentals had deteriorated. But they haven’t. If investor meltdown becomes severe in the precious metal markets to the extent of a fall to $1,500, then it implies the same to the entire global financial markets. Investor meltdown will affect all markets as it has done recently and in 2007. This would paint a disastrous picture for global equity markets for sure. This is possible!

But in the last few days, we’ve seen good buying of gold into the U.S.-based SPDR gold ETF as well as a flight to U.S. Treasuries as last resort paper –if the U.S. bonds sink then everybody’s bonds will sink. Russia has just reported an 18.6 tonne purchase of gold in October as part of its ongoing gold buying. Several other central banks are following their path. This confirms the excellent fundamentals of gold. Even in the current deteriorating global financial scene, expect investors to soften their flight to Treasuries with expedient buying of gold as we are currently seeing. Will this hold off the fall from reaching $1,500? We feel it would be foolish to specify a specific price having seen so many such forecasters prove wrong when they do this. While it is possible, if it does go there it will be only briefly, but more likely by then the tide of investment into gold that we have seen in the last decade will return to gold before it does. But we will have to wait and see.

There are several ways of investing in gold but the one that trumps all is the one where you buy physical gold (and not some paper representation thereof) without all of the hassle of figuring out how to keep it safe, insured and liquid. At the moment, the groups best at this are online gold providers. They basically buy gold for you at a price much closer to the spot gold price than any other gold trader can obtain, store and insure it, and will buy it back from you also at a price that is extremely close to the spot price. As a result, investing in gold online is cost-effective and allows you to invest regularly in relatively small amounts, thus making the whole investment strategy quite affordable and profitable.

Investing in gold online makes most sense to professionals that are either new to investing or want to start setting aside a bit each week or month for a wedding gift, for a child’s education or for your own retirement. Online gold providers make it easy to invest in manageable amounts of gold on a regular basis so that over time, the kilograms you will have acquired can be sold and all of the benefits of gold’s timeless increase in value can be reaped.

Based here in Dubai, GBULLION DMCC is one of the better online gold providers in the world. Their services are simple to use, there are no hidden commissions, service fees are low, storage and insurance are free of charge, and there is a buy back guarantee. They also have a hungry startup culture that pushes them toward being the most trusted brand in the industry.

This time it’s to try to explain why gold soared more than 3% on Tuesday.

But if you believe that explanation, how do you account for gold’s behavior just three sessions previously? The headline news last Thursday from the European debt front was just as dismal, and yet gold during that day’s trading plunged more than 2%.

Just as Greece has become a convenient whipping boy to help explain the stock market’s woes, it is being asked to play this same role for gold as well.

The fact is, of course, that we don’t always know why the gold market went up or down on a given day. Rather than admitting that, we instead tell stories that might have superficial plausibility, but which don’t stand up to much scrutiny—sort of like a Rudyard Kipling “Just So” story.

An important factor that rarely gets the attention it deserves is advisory sentiment. My research has shown that, more often than not, gold rallies following periods in which gold timers are abnormally bearish—and vice versa.

Yet you never see a headline that reads: “Gold rose today because there are too many bears.”

Just such a headline applies to Tuesday’s trading, by the way. Consider the average recommended gold market exposure among the short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). By the end of this last week, this average dropped to its lowest level in two and one-half years—minus 13%.

That meant that the average gold timer was recommending that his clients allocate 13% of their gold portfolios to going short, which is an aggressive bet that gold will go lower.

The last time the HGNSI was this low was in March 2009, when gold bullion was trading in the low $1400’s.

From a contrarian perspective, Tuesday’s rise was not a surprise.

Contrarians furthermore anticipate gold to continue rising. That’s because, even in the wake of Tuesday’s jump, the HGNSI remains almost as low as it was last Friday—minus 6.3%.

Don’t be surprised, therefore, if gold continues to rally in coming sessions. Just don’t blame Greece if it does. –

Source: MarketWatch.com

Posted by Trader Dan at Trader Dan’s Market Views

Have a look: GBULLION DMCC Review

“As a relative newcomer to the world of online gold purchasing I was asked to articulate my thoughts on why I chose GBULLION over the handful of choices that were recommended to me by my investor friends.

The first criteria I looked at was ease of purchase. I have an intuitive sense of the complexities involved with the purchasing and storage of gold, particularly when the medium of exchange is the Web. In my mind, ease of purchase means that the company involved really took the time to think about how to remove as much of the red tape as possible. At GBULLION for example, it is quite evident that the purchase price for a quantity of gold will be no higher than 1.2% above the Gold Spot Price and in addition they will buy it back at the Spot Price. Considering their total service offering this is an incredible deal. I’ll get more into that later though.

After getting an understanding of what the cost to purchase is, it took no more than 5 minutes to get signed up and ready to go. At the moment, it is only possible to purchase through a bank account which is a bit cumbersome from my European bank account as I have a pretty complicated system to log-in and authorize bank transactions. It would be much easier if a debit card or Paypal could be used but I do think that that is coming a bit further down the road.

One thing that I have noticed that has changed since first joining is the minimum quantity of gold purchasable. After purchasing the initial 1g minimum, gold could only be purchased in multiples of one. It is now possible to purchase 1/100g after the 1g minimum. I think that this will be very interesting for people that want to maybe setup a saving plan of a bit every day or week or something. Another thing to note is that when I’m ready to have my gold delivered to me, they’ll ship it to my nearest airport. This is very intriguing given the fact that the gold is stored in Dubai to begin with. Granted, at the moment, only kilogram bars will be shipped the notion that they’d go this extra mile to bring together an end-to-end solution is quite noteworthy.

Another main issue that I looked at deals with security. Having a background in IT Startups information security is quite important to me. On that front there are multiple levels of security. First only one bank account can be the used for withdraws and in order to change it, one must provide documents that only the proper owner has access. Second, certain account activities can trigger SMS notifications. In the event that something strange does occur I can be notified wherever I am. With respect to the gold bars, they are stored in one of Dubai’s (therefore the world’s) most highly secured vaults using two of the most trusted names in security: Brinks and Transguard. In addition to all of this, all gold stored in the vaults is insured by Lloyd’s against ALL risks.

Sure, there are other companies that are bigger and have been around longer: GoldMoney, BullionVault and Anglo Far-East to name a few. GBULLION offers everything that these firms do namely, an Online interface to buy and manage gold, a secured vault to store it, insurance to protect it, and worldwide delivery capabilities. GBULLION somehow not only beats them on price but also in service. It is only a question of whether or not they will remain in the game long enough to make a difference. I’ve got my money on the fact that they will and as I have been assured, they are indeed well-financed. I must say that I do recommend GBULLION to anyone looking for a place to begin (or expand) their investments in gold.”

“I envy anyone that just got back from a two-week vacation.

Nearly two weeks have past since gold’s major correction, and frankly not much has changed. But you wouldn’t know that by watching CNBC or reading the headlines at Bloomberg.

Today I want to show you why this “unchanged” gold market isn’t matching up to the media-driven negativity — and how you can use this info to frame your gold investments…

To start, you may remember last week when we first discussed gold’s “healthy” correction. At that point it was clear from a price perspective that the gold market got a little too steamy and had a textbook cool-down.

In the days since, fear has filled the market. Heck, with some of the news reports I’m reading you would think we’re headed back to the dark-ages. (Heh. Luckily for us, gold still enjoyed its purchase power throughout the dark-ages.)

All quips aside there’s no reason for gold holders to fear this recent market action.

First, as I showed you last week, gold is sitting directly in the middle of its long-term uptrend. Take a look at the updated chart below:

At first glance the few sessions after gold’s pullback seemingly haven’t amounted to much. Further analysis reveals that by staying in the middle of the long-term uptrend gold prices are building a base for a future move higher.

A few other charts will make the same point. For instance take a look at the 60-day chart:

Getting back to that 2-week vacation comment above, had you been away from the gold market for 60-days you’d have a completely different take than those of us exposed to the day-to-day movements.

Think about it. If you just got back from a 2-month market hiatus you’d be more surprised that gold ever hit $1,900 than you would about gold stabilizing at $1,600. Right?

Same goes for someone looking at a 1-year gold chart.

Last year prices were hovering around $1,350 (just 12 months ago!). Nowadays gold is stabilized well above that level, which unsurprisingly is consistent with its one-year trendline.

Solid reasoning points to gold’s overall up-trend being intact — contrary to the over negative market sentiment. This bodes well for gold investors.

Looking to the physical gold market there’s even more positive enforcement for gold’s continued uptrend.

“Investor demand for [physical] precious metals” Goldmoney reported yesterday “seems unstoppable.”

“Instead of bidding on the markets for paper gold and silver” the article continued, “many investors are becoming increasingly interested in holding precious metals in physical form.”

This physical demand is real. More importantly, these new gold buyers are the type who want gold for the long haul. Believe me, I’ve held real gold in my hands and know this is a different kind of gold investor. This sea change in gold investing will undoubtedly help support the overall uptrend.

Why do people want physical metal now?

Well, this is actually one topic that the mainstream media has gotten right…

The global currency crisis isn’t getting better. And as I’ve heard New York Times Best-Selling author Addison Wiggin say around the office “this is going to get worse before it gets better.”

Physical gold investors are putting into action a long-term wealth preservation fallback. This not only confirms gold’s uptrend but it also feeds it.

I’ll leave you with a fitting analogy…

Anyone that knows me, knows I love construction — it’s that whole muddy boots thing — and the past few days (well, nights) I’ve been laying slate tiles on my front porch.

Why slate? Well, my design consultant and all around construction foreman (my girlfriend) wanted slate. As she stated “so it’ll match the roof.” Heck, who am I to argue with watch matches? So slate it is.

Really, I’ve got no complaints with the choice. If this porch, built with slate and mortar, is anything like my sturdy slate roof I’ll be set for years of hassle free maintenance.

You see, slate roofs are built to last. While shingles and tin come and go, slate will weather the storm and endure anything mother nature or father time can throw at it.

The same goes for gold.

Gold is the “slate roof” of resource investments. It’s formed to last and dependable for years to come.

Right now, with the recent deluge of market negativity, is a great time to stick with the dependability that only gold can offer.

Keep your boots muddy,

Matt Insley”