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Gold Climbs Above $1600

Only three weeks ago I spoke about the price of gold falling below $1500 per ounce. What I said was if the economic woes continue even with all the hype of how our economy is improving, I expect gold prices to keep climbing. I also said that I don’t trust any government at this time.

Today gold prices climbed above $1600 after eleven straight days of climbing because of fears of the federal government will not be able to raise the debt ceiling. The precious metal hit an all time record high against the Euro and sterling. Gold has been strong ever since Europe has been trying to bail out Greece for the second time and to avoid the European debt crisis. Add to the fact that the Obama Administration and Congress have been unsuccessful in coming to an agreement to raising the debt ceiling.

If you didn’t think it could climb any higher, I would seriously take a look at the technical charts which seem to point to gold moving above $1700 as soon as this fall and many think a move to over $2000 per ounce isn’t too far fetched as it once was.

When you think about adjusting for inflation, gold is still not as high as it could be in relation to the price in 1980 near the end of the Carter Administration. As I said three weeks ago, I don’t have faith in the federal government to do the right thing and lower the spending and not to raise the debt ceiling. With that in mind, I still think that gold is a great investment at this point. I feel it will remain high until after next year’s election. If for some reason the government can put some sort of plan in motion to reduce the deficit, gold will take a plunge and a big one at that.

In the meantime, silver has also done well over the last three weeks when it closed at $33.59. It closed today at $40.27, topping the $40 mark for the first time since May. Silver has climbed more than 15% in just the last two weeks.

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The End Of QE2-Quantitative Easing

Today, marks the end of quantitative easing part two. Quantitative easing (QE) is an unconventional monetary policy tool used by the Federal Reserve to stimulate the national economy when conventional monetary policy has become ineffective. Of course that doesn’t mean the there won’t be a QE3 and QE4. The policies of the Obama Administration have damaged our economy and I’m not surprised at the Federal Reserve for having to step in to try to save it. We’re in dire straits with the current economic situation, it’s hard to believe that we can turn things around in the next few years.

Watching the stock market in this past week would have others believe that we’re out of the woods and on the road to recovery. Instead what we’ve seen in the last four trading days is the smart money getting back into buying equities since the recent healthy pull back on the DOW. I’ve spoken about this before in detail of how when the markets or even good solid stocks pull back 8% from their recent high, you must “back up the truck” and load up for a strong rally that will be happening soon. Eight percent is a benchmark that I use to make decisions on when to jump into a stock or the overall market. Time and time again it has been useful and profitable for traders to follow this method.

If you’re new to investing in the stock market or have been around awhile, this is something you need to keep in your trading playbook. something else to keep in mind is when stocks or the markets move up 8%-10% in a short period, it’s time to unload some of your shares to keep the gains you just made. So far in the last four trading days, the DOW has gain nearly 4% from it recent low. Remember, pigs get slaughtered, so don’t be a pig and try to ride out the wave a little longer. Be happy with the gains you’ve made. Since emotions are not welcomed when trading stocks, don’t be mad or angry if you miss out on some profits because you jumped out too early. Stocks will always have a pull back and with the gains you made, you’ll have capital to trade another day.

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Precious Metal Prices Dip

The DOW didn’t start the week with a bang, but it picked up speed as the day went on. The DOW finished up today 109 points from it’s Friday close. Late in the day it was up over 150 points. The S&P 500 finished up 11 points which means the two indices are up today by nine tenths of a percent. The best of the big indices is the NASDAQ, finishing up 35 point (1.33%). The rally in the markets today was due to Europe’s announcement of optimistic look on Greece’s debt. Even though the gain was welcomed by many on Wall Street, the strength of the markets may only be temporary. Yes the dollar has gained strength, but lost some steam with the dollar index closing at $75.33 today. The Euro gained 0.6% against the dollar. If the Federal Reserve keeps printing money, it will lose even more of what it recently gained.

In the commodity sector, precious metal prices fall. Gold dips below the $1500 level, settling at $1496.40 per oz. and the price of silver also slipped back a bit to close at $33.59. It seems that many countries are lowering their concerns about inflation. The Chinese Premier Wen said the country’s inflation would be below 5%. With views like that, many see the haven of precious metal not being as needed or attractive as it is during poor economic times. At the current levels of gold and silver, they are both at their resistance levels. The 200 day moving average for gold is at $1415, which can signal a more downward slide in the commodity. So this is a good time to watch to see if the support level will hold. Analysts feel that this will all depend on what happens in Greece. Greece needs to prove that they are serious about their debt and how they get it in order. It’s the only way they will be able to receive any more bailouts from the IMF. If the latest measure fails and Greece can not get any more funds, then gold will continue to rise as more Europeans seek out to purchase more of the precious metal. If it goes the other way, where Greece does get the bailout, then stock markets around the globe should see a rise in trading.

Either way you look at it, precious metals, over the long haul will increase in value. I’ve been building a portfolio which holds 35% in precious metals. I do plan to scale out of it, but my opinion is that we’re not done with the economic woes. Politics have a lot to do with the news we’re hearing and I don’t have too much confidence in any government.

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