Gold Poised To Break Above $ 1700

US Gold Standard Balance (Photo credit: hyperion327)

Gold and silver prices posted very strong finishes to the end of last week, and look like they could at long last be at the start of a significant trending move higher. Gold gained 3.46% over the week, with silver recording an impressive 8.98% weekly gain. The white metal has broken above an important resistance level at $30, and judging from the price action this morning looks like it could launch a quick assault on $32.50 – a level that marked stubborn resistance for much of the first half of this year.

Our Exclusive Richardson / Bass quant continues to forecast $ 2000 gold before the next 12 months – and the momentum of the call for stimulus is likely to increase after Fridays job report. Forecasts are now at the 125,000 level – down from the last month and confirming Ben Bernanke‘s gloom at the speed of the recovery.

Shorts May Be forced To Cover

Over at KingWorldNews Dan Norcini notes the rash of short covering that took place in the silver market last week. He points to $35-$35.50 as the last “line in the sand” for these speculative shorts, and thinks that we could see a huge new influx of money on the long side of the market if this price level is bested. $40 will then be in play again.

The story is similar in gold. If the yellow metal rises above $1,700, we can expect to see speculators dashing to cover their short positions. Aside from the increasing likelihood that the Federal Reserve is getting ready to launch another money printing scheme within the next few weeks, gold bugs have also been encouraged by chatter about the Republican National Convention discussing a  platform calling for a “gold commission” to study the feasibility of relinking the US dollar to gold.

Similar congressional commission was convened in the early 1980s, and to nobody’s great surprise endorsed the (non gold standard) status quo. Given the restraints that a genuine gold-dollar link would impose on federal spending, it is in fact almost inconceivable to imagine Washington voluntarily agreeing to return to a gold standard. However, the talk about gold gives impetus to more investors to become holders of bullion and  the gold mining shares . The rise of the commodity price and constant news about the sector becomes a self fufilling prophesy for driving the price higher.

 Lather, rinse, repeat” as the old saying goes. The problem (one of many), as we’ve discussed on this site before, is the law of diminishing returns associated with money printing: the more you do it, the bigger and bigger the stimulus doses have to get in order just to achieve the same “high” as last time. The more central banks resort to this, the more painful the inevitable economic correction, which makes going “cold turkey” on the money printing even more difficult.

Bloomberg Reports :Speculators Buying

Speculators increased bets on rising gold prices to the highest since March as mounting speculation that the Federal Reserve will expand its record stimulus drove the metal to its second-biggest monthly gain this year.

Money managers raised their net-long positions by 19 percent to 131,687 futures and options contracts in the week to Aug. 28, U.S. Commodity Futures Trading Commission data show. Combined bets across 18 U.S. commodities fell 1.9 percent to 1.3 million contracts, still near the highest in 15 months. The Standard & Poor’s GSCI Spot Index of 24 raw materials gained for the fifth straight week, the longest rally since June 2011.

Investors accumulated record holdings last week in exchange-traded products backed by gold, exceeded only by the U.S. and Germany when compared with national reserves. Fed Chairman Ben S. Bernanke pledged in an Aug. 31 speech to promote growth with “additional policy accommodation as needed.” The price of the metal rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.

Anytime they’re putting more money into the economy, it’s good news for gold,” said Dan Denbow, a fund manager at the $1.8 billion USAA Precious Metals & Minerals Fund in San Antonio. The outlook for monetary stimulus “allows the risk-on trade to come back in to the market.”

“As long as there is a worldwide monetary bias toward liquidity, easier money, quantitative easing and other measures, the underlying environment for an increase in commodity prices is favorable,” said Michael Cuggino, who manages about $17 billion at San Francisco-based Pacific Heights Asset Management. While Bernanke “didn’t really say anything new, he kept the door very, very open to further action down the road,” he said.