The recent decision to inject 60 million barrels of oil into a market that was already in retreat smacks of outright attempts by U.S. Government to manipulate commodity prices. These actions are reminiscent of the Sunday night blitzkrieg move by COMEX in early May to control silver prices by means of successive margin rate hikes even after silver began declining. These stratagems of manipulating commodity prices lower has not succeeded as both gold and silver are breaking key resistance areas.
For the past several weeks, Gold Stock Trades subscribers have been alerted to the reemergence of quantitative easing by whatever guises necessary. Our economic brain trust is actively committed to a Keynesian solution to the current economic crisis. Commodity investors have just emerged after sailing full speed ahead into the turbulent seas of the oil surprise and margin rate hikes.
Commodity markets were in a state of agitation as the Obama Administration and the members of the International Energy Agency delivered a surprise body blow to commodity investors. This kind of exogenous fundamental development tend to affect technical analysis only for the short term.
Many were keeping an eagle’s eye on the pending announcement by Bernanke and the Federal Reserve concerning the expiration of QE2 on June 30th. When he did speak, he admitted that he did not have “a precise read on why this slower pace of growth is persisting.” This represented a rather sad admission by a highly paid commander of our economic ship of state, who is supposed to be guiding us through our latest economic crisis. All The King's Horses and All the King's Men Can’t Put the Economy Together Again. Instead we are reminded of the young boy who cried out, “Look, The Emperor has no clothes!”, while the assembled elders were applauding the magnificence of the invisible garments.
Dare it be asked, do these guys know what they are doing? One fears that they are marching full force naked into a cold night. Investors are being caught off guard. Financial markets are being stood on their collective heads. Traders are now returning to gold, silver and the miners as it regains the lead as the dollar has lost its traditional safe haven bid.
The recent commodity manipulations and subsequent breakouts prove they are only short term, we would not be surprised if silver’s move to the upside to be quite powerful as many long term holders purchased below $35 from the speculative day traders. It is the basic interim and long term health of the markets that concern us and in which we are focussed on.
For the present it is realized that stimulus programs never die, they simply reincarnate in new guises. One can not help but sense a certain desperation to these recent manipulations. Are our leaders playing a form of russian roulette as the world wonders whether a bouncing ball of economic policies will land on the red or the black? We may be witnessing a roll of the economic dice, which we hope will not come up snake eyes.
In this event, The Austrian School may have a valid point, in that attempts to intervene in natural developmental forces, can only result in markets that return inevitably to the direction in which they had been headed. The Keynesians may well be having their day.
The nagging question is, have the interventions really ever worked? Could Von Mises and the Austrian School inevitably be right on the world economic stage?
Returning to the underlying direction of today’s essay, crude oil prices, miners and silver prices being driven downward to their lowest level in four months and thereby giving a rise in the U.S. dollar was only short term in nature. The long term trends have held.
No matter how you cut it, the release of 30 million barrels of oil from the strategic petroleum reserve, is an attempt to stimulate the economy by the policymakers. They are running scared in the face of recent signs of a worldwide slowdown. On top of this we are seeing weaker manufacturing numbers in China, the Eurozone, and a worrisome uptick in U.S. unemployment. Returning to our contention, that these measures are really an attempt by our economists to discover a stimulus that truly works. Well...Professors it doesn’t look like its working as silver, gold and energy resumes their secular uptrends.
At Gold Stock Trades, we have specifically positioned ourselves in the natural resource sectors as being representative of the sound money arena. The waves that have been hitting us this summer, while they may be rough are temporary. We are now returning to a calm sea and a prosperous voyage.
Attempts to influence the natural direction of the marketplace is akin to suppressing a coiled spring that eventually needs to be released. One is reminded of the boy who attempted to dam the North Sea by keeping his finger in the dike, eventually it broke and swept away everything before it.
Are we witnessing the same attempt to control market pressures that eventually explode in a cataclysmic Krakatoa? This oil surprise is in essence a rear door stimulus. Interestingly, this occurred on the eve of the expiration of QE2. This may represent an under the table tax cut for consumers. Sooner or later a disenfranchised middle class and their children will have to pay the piper. Stay tuned to important developments by signing up for my daily intelligence service and technical studies by clicking here.