Another all-time high for gold, whatever happened to the summer lull?

Traditionally gold prices are weakest in the summer period, and yet here we are at the end of July with gold futures pointing to a fresh all-time high of $1,637.

Traders are pointing the finger at the US debt ceiling debacle and signs that the US economy is heading back into recession as the immediate reasons for the rise in yellow metal prices.

Silver up 15%

As usual the focus is on gold while silver is actually up by more in July, rising 15 per cent in the month, again also against the normal seasonal trend.

Gold and silver are increasingly being treated as an alternative currency to the US dollar that cannot be printed. The supply of precious metals remains static – or may fall if the new labor dispute in South African mines gains traction – and that ensures it will rise in value in dollar terms as the supply of dollars surges.

But it is more than that. The total reserves of gold are very small, and silver miniscule. Once demand for precious metals really takes off it will drive the price much higher than the rate of monetary inflation.

We noticed an advert on TV on the back of a WestJet flight seat for scrap silver yesterday! They never used to bother with silver because its price was too low.

Of course, a last minute deal on the US debt ceiling is expected in financial markets and that might reverse precious metals for a few weeks into their traditional summer lull.

However, what if such a deal is not forthcoming or falls way short of the compromise that is built into stock market prices? We could see a mayhem in markets.

That maybe what the Republicans want to embarrass the president who seeks re-election next year. On the other hand, they will be mindful of being blamed for a sudden stock market crash.

Blame game

And yet the incumbent president is bound to take the blame for events on his watch. Tripping him up is a part of the political theatre now, and it is arguable that extending the debt ceiling without any attempt to lower the debt is bad government. This is obvious really, so far removed has US economic management moved away from reality.

Would gold and silver go higher if financial markets came off the rails, or fall as in 2008? It is hard to say, nobody thought gold would be at a record high now, the consensus was for a correction.

Still aside from shorting stocks what else is worth doing right now aside from holding onto precious metals?

NB : directed from link : http://www.arabianmoney.net/gold-silver/2011/07/31/another-all-time-high-for-gold-whatever-happened-to-the-summer-lull/