The Insanity of the October 6 News and Precious Metals

By John Galt

October 7, 2009

The evening started last night with The Independent breaking a story which has been covered and rehashed in the past by yours truly with some new twists. The news that the Gulf states, Saudi Arabia, Russia, China and France were working on a new alternative currency for the purpose of diminishing the dollar’s role as the standard bearer for pricing oil created a massive stir but not to the extent that one would think. Granted,  precious metals made a nice move to the upside but there does not seem to be the volume to confirm this move YET. If you look at this chart of GLD, a good proxy for the market’s action you get some idea of what I am talking about:

1006GLD1yrIf the gold futures market cracks the 1050 level and GLD breaks 105 with VOLUME, I might accept this as the big breakout move. Until we see that, this could be an intermediate blow off top and a retest of the 50 DMA would be logical here. After that, the last of the gyrations should be in place and an acceleration to the upside of gold priced in Sterling and Dollars should begin. If you look at the silver chart you see the same price action but it is in even worse shape:

1006SLV1yrThe story from the UK newspaper seems to be the logical reason to buy or excuse of the day from Bubblevision but before everyone says it is “9 years from now” I would suggest you reflect on when the stories first appeared on the matter in 2005:

GCC Currency in 2010: Al-Assaf

P.K. Abdul Ghafour, Arab News


JEDDAH, 29 March 2005
— The six-member Gulf Cooperation Council countries are committed to issue the GCC common currency in the year 2010, Finance Minister Dr. Ibrahim Al-Assaf stated yesterday. He denied press reports that the new currency has been named Gulf dinar. “We have not yet finalized the name of the currency as to whether it be Gulf dinar or riyal or any other name,” Al-Hayat Arabic daily quoted the minister as saying.

According to a study, the new currency will be the world’s most important currency union after the euro.

Thus you can see this has been in the planning stages for years and I have been following it since that time. The nations of Kuwait, Oman, Qatar and Bahrain have been eager to establish this new currency but the House of Saud and the Emirs in the UAE have been hesitant to pull the final trigger or agree on a set balance for gold, the euro and other currencies to include in the new basket for the GCC currency. This story has had its ups and downs for years, but there is a good chance that by mid to late 2010, this new currency will emerge as many of the banks in the region have quietly exited the US MBS markets and in fact flipped their holdings from long term Treasuries to short term notes.  I would suggest paying attention to the December 2009 TIC report to see just how far along these plans are.

Until I return from Key Largo, have a good week gang and remember:

Last year when I went on vacation it was BOHICA time with the lock limit down day on the Dow and S&P 500. Gee, I wonder what kind of trouble I’ll trigger this year.

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4 Comments

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4 responses to “The Insanity of the October 6 News and Precious Metals

  1. mthomas

    I appreciate the technical analysis you have discussed here. I am bullish on gold for fundamental reasons and am not that familiar with technical analysis. But I did come across an article on the Arab states meeting to halt the use of dollars in oil purchase agreements at http://www.goldalert.com/gold_news.php, and how this could affect the gold price going forward. I think that foreign nations are getting to the point now where they have little to no faith in the U.S.’s “strong dollar” policy and realize the Fed will continue printing money to bail out all kinds of industries. But perhaps this type of news is the sign of a bottom in the dollar, similar to when all the celebrities wanted to be paid in euros back in early 2008.

  2. frances snoot

    “This story has had its ups and downs for years, but there is a good chance that by mid to late 2010, this new currency will emerge”

    More than a good chance as the IMF is reweighting the sdr currency basket in late 2010. The current basket is weighted US Dollar 44%; European Euros 34%; Japanese Yen 11%; British Pound 11%. Gold has never been a part of any currency weighted for the sdr, and I doubt it ever will be. It seems probable that the pound and the dollar will both be devalued through sdr manipulation by the IMF.

  3. Chubby Ray

    Hi John,

    Hope you caught a big fish this week…Obama certainly pulled one in…on another note and concerning your post on the GCC dumping the dollar…I am holding x amount of dollars in cash here in Qatar and was wondering would it be a wise move to covert over to riyals? I don’t want to get stuck with dollars that are worth less tommorrow than they are today.

    thanks,

    Chubby Ray

  4. Administrator

    MThomas, I think the technical will be much more applicable to a short or intermediate (weeks) term trading range. Everything I have from a fundamental and technical outlook indicates a massive upward wedge along with supply issues which should trigger the break out above $1200 per ounce.