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Whata € ™ s driving the Gold and Gold stocks (part II)

Justice Litle, Editorial Director, Taipan Publishing Group

ŒWhatâ Second Part of € â € ™ s driving the Gold and gold stocks, â € Justice looks at why 2009 still could be a great year for the yellow metal (and the IT companies that extract).

As we explored yesterday, the short-term outlook for gold and gold stocks has cooled a bit. But I still believe that gold reserves could be in place one of the main charges of the year Views period once this short cycle. Here are some reasons why.

Gold Stocks Bullish Reason # 1: excessive volatility.

In normal market conditions, a sudden increase in volatility can be a powerful sign … € a â € œclueâ so that significant change is underway. If increased more or less the average volume is above party, Thata € ™ s an indication that even more powerful œsomethingâ € â € ™ s € happening here.â

That said, Itâ € ™ s important not to view graphics in a vacuum. Rather we should try to make sense of the logic behind these movements to determine Whata € ™ s likely to occur then. This led to the purchase? This led for sale? These drivers are sustainable in nature, or subject to reinterpretation rapid progress?

In terms of gold and gold reserves, the market has been almost constant tug of war with itself in some very large for months. Will we have inflation? Can we avoid deflation? We have seen the bottom? Was it just an imbecile € ™ s rally? And so on.

The level of uncertainty regarding to these key issues â € "if we see inflation if the current recovery is real â € and so on" has played an important role on gold and gold stocks win this way and that. The dynamics of the crisis of protection and also fell out of favor and the mood of investors.

And because of these feelings of uncertainty have been so constant and intense large fluctuations in the unstable wind up less weight charts. When Mr. Market becomes a neurotic, in other words, it takes only a little more room to move. In this perspective, the outlook for gold stocks remains interesting despite of excessive volatility … or at least a € € œsignalâ should not be dismissed in excess of the additional € â € œnoiseâ Wea € ™ re currently available.

Gold Stocks Bullish Reason # 2: â € € œWall Money comes.

As John Dizard in the Financial Times has a strong IT, â € œHowever clumsy execution, Treasury € ™ s wall of money is like hitting slow tsunami.â €

This is very TRUE. Investors havenâ € ™ t yet had an incredible head for the steps taken so far to combat this global crisis. For example, the U.S. government and the Federal Reserve already have â € œspent, loaned or pledged 12.8 trillion U.S. dollars, â According to Bloomberg € â € "about one in every year € ™ s the value of economic output in the United States.

If Doesn € ™ t raise his eyebrows, consider this: The U.S. government has already spent three times more what happened the fight against the first Great Depression (in proportion to then-versus-now GDP). And possibly even through the worst!

Meanwhile FEDA € ™ s stock has exceeded $ 2 million, with a clear path to 3 billion dollars … and the rest of the world is entering in the multi-billion dollar stimulus also Thurs. The G20 meeting in London, he pledged $ 1.1 million. The European Central Bank a quiet relaxation accounting standards for Eastern Europe. Financial supervisory bodies in the UK have warned that Britain is on the verge of heading to Banana situation Republic through its great expense. Countries struggling against deflation, as Switzerland and Japan are about to bomb their currencies kick and another series of major œcompetitive devaluation €, â € also known as œTop Thisa € â € or â € OEI can print faster than € you.i

All this is hugely radical, mind-blowingly unprecedented. The scale and scope of what we see today has never been simply a dream, much less tried. In this context, gold is the only alternative currency are not subject to the whims of a printing press … and gold stocks are lever for price gold.

Gold Stocks Bullish Reason # 3: Many more banks could fail.

Texas billionaire Andy Beal â € "described as a â € œ56 years of age, who plays poker Forbes College Dropout € â €" seems the most intelligent American banker through her movements in recent years.

The eponymous name Beal Bank, Beal 100% has been virtually non-existent agreements between 2004 and 2007. Instead of working, Andy Beal has spent much of this period during the lunch, play backgammon and racing, all to resist the temptation doing something stupid. In the heyday of the crazy season for the rest of the World Bank, Beal € ™ s friends would get a good steady dose of him in the way the world has been flooded with œstupid loans.â € â €

But now that banks in most of them have jumped, vomiting their guts, or both, Beal Bank withdrew all of a sudden incursion of the loan market struggling with an enormous treasure trove of cash money. Billionaire hopes to make a killing, which describes the purpose of your life.

No matter € ™ t mean it I think the balance is negative, however. Here Beal € ™ s projections for the lemming as competitors: "The banks are serving as a kind of prayer that prices will go back and not have to face reality … unemployment is about 10%, commercial real estate has it not started to collapse and the failure credit companies are doing just € started.â

Beal still believes in 4000 like many other banks, if they were not obliged to provide an actual accounting of their toxic assets-balance mounted. These banks have seen a correction in the short-term suspension of mark to market accounting standards (as mentioned yesterday), but that does not t ™ € improve his true health.

If we see another series of bank failures, investors quickly adapt to crisis mode and start charging in the gold stocks again. If the Treasury, the Fed and the FDIC's attempt to avoid a new round of bank failures occur, other hand, the only option thei € ™ ll be a stimulus is shot in the bank … shoveling hundreds of billions more into the open mouth. The arrival of this reality would crush the demonstration in finance and, in turn, stimulate the gold and gold stocks.

Gold Stocks rally Reason # 4: Consumers are not Out of the Woods.

Another alarming development is the next wave of resets œmortgage € â € â € "motor synchronization processes by which a low monthly mortgage payment suddenly becomes a monthly mortgage payment higher.

Now, the pig is less than 40% of the way through the python, which means more than 60% of Americans have owners signed a mortgage reset havenâ € ™ t beaten with the payment schedule more still high. Stop and think about the consequences of this for a second.

Worse, if they match the price schedule arch restoration of the bubble housing, we see that the wave of resets is going to call Best price paid (all the poor that is marked up with their purchases in late 2006). These resets the big and ugly.

This means that the next hit in the pockets of consumers will be a doozy … which, in turn, calls for a new round of belt mass consumer inevitable adjustment, with side effects for the U.S. economy and a fall of greater value to all types of consumer loans associated bank.

For At first glance, the news of the contraction in consumption is deflation, not inflation. But you must remember that the situation becomes more ends, until the contrary extreme measures imposed by the Treasury and the Federal Reserve.

When the fire department has to fight a fire burning a house, other words, nâ € ™ t worry about first determine the proper amount of water used. Only figure to smother the fire as soon as possible, that liquidity is overwhelming. The government will inevitably do the same and they do too, a very substantial amount.

There is an element of political calculation here too. The Obama administration has inherited this crisis of the Bush administration. This means that problems in the first quarter of 2009, of course, could be attributed to € â € œotherâ boys.

But if we see a return to darker days, now after the big market recovery after the new administration had time to settle, Team Obama (and Turbo Timmy Treasury, in particular) will be responsible for all the strength of opinion American public.

This reality will concentrate the minds of the White House, and give further impetus to conduct artillery exercise tape in the case of a return to economic crisis mode.

Whata € ™ s more, with the buzz of the media finally, how this contradiction is glaring is the White House â € "the last little new to be superior economic adviser Larry Summers € ™ payments multi-million dollar industry of hedge funds and Wall Street â € "is also likely that the next Hail Mary pass of the season Obama could have his way to write checks directly to consumers. This could create for ourselves a heck of a light show.

Bullish Gold Stocks Reason # 5: Cramer called the bottom.

The pinata ¨ ce de rà © tion: â € € OEMAds mad money Jim Cramer says the end of the crisis last week, telling his television audience that it was time to buy shares of banks with both hands. This call was some real nerves, especially the man who a little over a year, hit the table, screaming at the top of their lungs, not â € Oedo take your money Bear Stearns! â €

With all due respect, Mr. Cramer, sir, I think IA € ™ ll pay more attention to Andy Beal.

I could give you more, but that feels like enough for now, so LIENA € ™ s bottom line. As impressive as the recent stock market rebound was … And itâ € ™ s been a doozy, giving the S & P, the best week of four consecutive wins since 1933 … Opportunities are strong, an overwhelming majority almost sure that we're not out of danger yet.

And even if out of the woods and on a roll to reflationville Needs Piper some are still paying last pot lining multitrillion World stimulus interference in U.S. dollar denominated on a scale never seen or understood in history human.

This gives us two ways to win: If we return to the crisis as banks imploding and consumers affected by a clash of reset, stocks gold could begin to run as they did in the 1930s.

If on the other hand, we're safe transition to a stimulus oriented a € € œfunny recovery money in the role that fires up the moon, the final inflation, but on arrival Mayor and gold reserves will be gone.

These are the main reasons I still think gold futures on the stock, if not sooner than later introduced to one of the biggest slam-dunk business in 2009.

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About the Author

Justice Litle is Editorial Director for Taipan Publishing Group. He is also a regular contributor to Taipan Daily, a free investing and trading e-letter, and Editor of Taipan’s Safe Haven Investor and newly introduced service Macro Trader.

Justice has worked with hedge funds, traded equities for a private partnership, written multiple articles for Futures Magazine, been quoted in the Wall Street Journal, sought for market commentary by the likes of Reuters and Dow Jones, made contributions to the book, Trend Following: How Traders Make Millions in Up or Down Markets, and also filled the lead editor of Outstanding Investments, a popular natural resource newsletter.