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11 29 2011 Metals Market Update

11-29-2011

At the beginning of the month I posted that the $1791 price was nice and I would anticipate a pullback.  Of course, I also said I would not be surprised if it rocketed back to $1900.  At this time we have seen gold pull back to the high $1600's and is currently back above $1700 trading at $1710.  This is a good thing as gold is setting up a good base here in the $1650-$1750 range.   I always like to see more of a stair step price increase versus a straight shot up.  The stops for building new bases is like climbing to the peak of Mount Everest.  A good base camp supported by multiple staging camps.  A good base with good staging areas is what makes it possible to go the last distance to the peak. 

In the case of metals, a good base with good mid-point staging allows the metal to head higher than the previous peaks.  It is essential that we see controlled up movements and not speculative pop's.

Recently, I have been reading some contraian materials that talk about gold staying in the current trade range but also potentially declining in 2012.  The feeling by these contrarians is that we will see deflation in the near term followed by inflation caused by the massive dollar printing the federal goverenment has done over the past couple fo years. 

With the European fiasco still unfolding, the US dollar is actually "less worst" off and therefore still the "go to guy" when investors seek safety.  This is evidenced by the recent strengthening of the dollar this month during the headline news stories on the European crisis stiring the pot.  This past week the headlines have been a little calmer and the dollar has weakened slightly.  As long as the dollar strengthens we will see gold milling about in the current range.  I think that any uptick to the $1800 range might be a good time to get out of metals partially.  Not fully.  Take some of your profits and hold the rest and lets see what happens.

The U.S. dollar will not lose it's World Currency Reserve status anytime soon.  Simply because it is the most liquid currency in the world.  Look at the ForEx Markets.  U.S. Dollar trades $4 trillion dollars a day.  Other curriences are fractions of this volume.  Sure there will be some side dealing done without conversion to U.S. dollars but overall, it will be a small percentage that will slowly grow over the next decade or two.  It is at that point I think the U.S. dollar will lose it's place as a World Currency Reserve, provided that we are still in our current situation.  If we have actually made progress to debt reduction, revenue enhancement and are clearly out of recessionary events then we may stay the World Currency Reserve.  If however, we are still Trillions of Dollars in debt, have revenue reduction, are still in a high unemployment, lower/stable GDP scenario, then yes, the U.S. Dollar could be replaced as the World Curerncy Reserve. \

If replaced it will not be the Bristish Pound, It will not be the Euro, it will not be the Yen (which is 20 years into their deflationary cycle that was suppose to be short lived). It will not be Candadia, Austrailian or Swiss currencies either.  Heck, in 10 to 20 years it might end up being a U.N. Currency.  That's right "One World Order". " One Currency to rule them all" (Sorry. J.R.R. Tolkein).  Who knows where it will be 20 years from now.  Probably the same old politics with the same old problems.

Anyway, Take care and have fun.

Mother

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