Tuesday, May 11, 2010

What The EU Rescue Plan Means For Gold

The strong EU rescue plan has bolstered investor confidence, but the massive increase in the money supply may lead to inflation in the long-term. This could be good news for the long-term prospects for gold which sits currently at $1200. See the following post from Expected Returns.

Talk about a short squeeze. The $1 trillion dollar printing press program in Europe has shorts scrambling for the exits. I'm not sure if we'll see a 1000 point Dow day today, but we're certainly seeing a ton of buying pressure here out of oversold conditions.

Stocks took out resistance at 1150 with little problem. Keep an eye on how stocks react to this level- a bounce off 1150 and this rally may be sustainable.

Of course in sympathy with the rise in stocks, volatility has cratered.

Gold is coming under mild pressure this morning, which is very unjustified in my opinion given the massive injection of liquidity the EU rescue plan entails. I see the early morning sell-off as nothing more than a profit taking event. With gold trending upward and firmly above its 10-day moving average, I believe we are still well-positioned to see new all-times highs in gold.

If this is the most gold sells off when the EU crisis has supposedly been avoided, imagine where gold will be when sovereign debt concerns inevitably reappear. Here's a friendly warning: do not lose you position in gold.

The markets are definitely keeping things interesting for investors who have been lulled into believing stocks can only melt up. The next severe sell-off in stocks will likely come when complacency reappears.

My only concern here is that the stock market is projecting massive inflation in the intermediate term. I am pretty confident we will see new highs in stocks after a correction in the shorter term. Also keep an eye on gold and silver here. Gold is comfortably sitting at $1200 dollars with very little fanfare; no one is rushing to buy at these levels. We are seriously putting in the conditions for a historic spike in gold to new highs. To all the gold bugs out there: sit back and enjoy the show.

This post has been republished from Moses Kim's blog, Expected Returns.

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