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Gold and silver progress report
by Peter Degraaf
The debate currently taking place between gold bulls and gold bears is whether
or not the central banks of the world are adding to the money supply of the
world, or if money supply is contracting.
If bankers are increasing the supply, then the price of
gold will rise in terms of this inflated money, (although gold does not really
rise in price, it simply holds its value while fiat money loses value, thereby
giving the appearance of rising).
One way to determine whether or not money supply is
increasing is to look for reasons why the money supply would be increasing. This
is because we are not sure if we can trust governments to tell us ‘the truth,
the whole truth and nothing but the truth’ when they publish their reports. We
know for sure the US CPI and unemployment reports are continually
‘under-reported’, so why not the money supply? After all the FED refuses to open
its books to Congress.
This chart courtesy Federal Reserve Bank of St. Louis shows
the US government is running the worst deficits in more than 100 years. If the
Federal Government were a family or a business faced with this kind of a deficit
it would have to reduce spending and increase revenue or go bankrupt. A family
or business has no other options. (Borrowing money only delays the inevitable).
The US government, along with many other governments,
decided years ago that they would not consider a reduction in spending. The most
important goal for the average politician is to get re-elected. Spending keeps
the voters happy and happy voters tend to re-elect.
“When plunder becomes a way of
life for a group of men in a society, over the course of time they create for
themselves a legal system that authorizes it and a moral code that glorifies
The central banks oblige the politicians by printing the
money and then loaning it to the government so the politicians can spend it.
Since we cannot count on governments to reign in spending,
would it be possible for them to increase revenue in order to reduce the
Historically governments almost always raise taxes when
they can justify it to the voters by claiming: “we have no other options”, or
“it’s for the good of the country.” Unfortunately a deficit as large as the one
facing the US and a dozen other countries cannot be covered by increased
Since governments have the ability to print money (an
option not available to families and businesses), we can reach the conclusion
that governments will continue to print money. To stop doing so would mean the
end of a lucrative career for a good many politicians who have never had a job
outside of public service.
Since the financial problems facing the US and Europe
cannot be solved without extreme and unpopular hardships, and since the
‘solution’ to this point has been to ‘print baby print’, we can be almost
certain that the printing presses will continue to ‘print away’.
This chart courtesy Federal Reserve Bank of St. Louis
indicates that the M2 money supply continues to rise almost exponentially. In
view of the fact that the CPI and unemployment numbers are ‘massaged’, it is
possible that the actual M2 might even be greater than 8.5 trillion. Whenever
Mr. Bernanke is asked “who got the TARP money”, he refuses to give a specific
“The Central Bank is an
institution of the most deadly hostility existing against the Principles and
form of our Constitution. I am an enemy to all banks discounting bills or notes
for anything but coin. If the American people allow private banks to control the
issuance of their currency, first by inflation, then by deflation the banks and
corporations that grow up around them will deprive the people of all their
property, until their children will wake up homeless on the continent their
This chart courtesy Federal Reserve Bank of St. Louis shows
state and local tax receipts to be in freefall. As long as weekly first time
unemployment compensation claims remain above 400,000 and businesses continue to
contract, this trend is not likely to turn back up any time soon.
Although this chart covers only state and local taxes, the
trend in federal tax take is very similar.
Meanwhile the demand for social services from the Federal
Government is increasing, acting like a two-edged sword (see below).
This chart courtesy Julie Snider at
USA Today, shows a definite trend toward the ‘two-edged sword’ referred to
above. Both the 41.9% and 17.9% are records! A cynic might say that this is a
rush toward socialism – more government and less private enterprise.
We can draw the following conclusions:
• Spending by the various governments is ongoing, as the will to stop is (not
• The deficits are huge and growing.
• The point of no return (cut spending and increase revenue) is now behind us.
• ‘A trend is motion remains in motion till it is stopped’.
• That trend is: borrow and print.
• Until we see evidence that the ‘trend in motion’ has been stopped, gold and
silver will continue to rise.
Featured is the weekly gold chart.
The blue arrows point to bottoms in the 7 – 8 week gold cycle. This coming week
is week # 2 in the 7 – 8 week gold cycle. The peak in the cycle most often
occurs during week # 4 (36% of the time), followed by week #3 (27% of the time).
The peak in the cycle just past reached a top during week # 7
The Gold Direction Indicator rose to 76% Friday compared to
70% Thursday and 71% Wednesday. When the GDI rises this high it usually means we
are closing in on a spot where commercials take profits. That might happen at
(subscribers). Since we are early in the 7 – 8 week cycle this will simply be a
‘bump in the road’.
Support for gold is (subscribers), with resistance at
Featured is the gold price in Canadian dollars. Price is
carving out a bullish ‘cup with handle’ formation. A breakout at the blue arrow
will lead to a target at (subscribers). The 50D is in positive alignment to the
200D (blue oval), and both are rising.
Canadians might think they are not
in danger, but the Canadian government sold its gold reserves (38 billion
dollars worth) when gold was cheap and invested the proceeds in US Treasury
bills. There is nothing backing the Loonie, and if the Greenback drops in value,
the Loonie is likely to follow.
Featured is the gold price in Euros. Price is carving out a
bullish pennant. A breakout at the blue arrow will have a target at
Featured is the index that compares gold to the ‘bonds of
the world’ (stuff vs. fluff). The trend is up and the 50D is in positive
alignment to the 200D (green oval). The trend is ‘up, up and away.’
Featured is the weekly silver chart. The pattern is a very
bullish Advancing Right Angled Triangle formation. It predicts a coming
breakout, possibly at 20.00 and almost for sure at 21.00 with a target at
(subscribers). The 50D is in positive alignment to the 200D (green oval), and
both are rising. Once price breaks out above 21.00 we’ll see some daily moves of
+1.00. Ideally this breakout would wait till late summer, as it would then
coincide with the annual ‘Christmas rally’, but it could occur almost any time.
“The American Republic will
endure until the day Congress discovers that it can bribe the public with the
Alexis de Tocqueville.
More and more people (worldwide) are becoming aware of the fact that ‘all is not
well’ with the financial system. Fraud and corruption are evident in government
and the banking industry. Gold will be seen as a beacon of safety. Recently in
Greece people were willing to convert paper money for gold sovereigns at $399.00
ea, (the equivalent of $1,700.00 US dollars per ounce).
The bull market in gold is barely underway and will move
higher for many years!
Please do your own due diligence. Investing involves taking risks. I am NOT
responsible for your trading decisions.
Peter Degraaf is an online stock trader with over 50 years
of investing experience. He issues a weekend report for his many subscribers.
For a sample copy just send him an E-mail at
firstname.lastname@example.org or visit his
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Quotes used in this article are from a 60 page collection
of quotes found on our website.
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