With this week’s action in metals, it’s no real surprise that many articles are coming out with claims that we’re on the cusp of the next major move up. In fact, we’ve been awaiting the next major upward move ever since metals began their drop back in February. As early as May we thought we saw signs of a rally. But the market proved otherwise.

We’ve discussed a lot of things over the past few months. Today I’m thinking of two aspects specifically; sentiment and economic expectations. And, while I’d love to see metals climb to the moon, right now might be a good time to caution investors not to get too hyped.

I know, that’s not what we want to hear. We want to hear exactly what the headlines sell. Take a look at some of these.

• Gold To Rally As Central Banks, Investors Buy, Coutts Says
• Yesterday’s top story: U.S. silver output plunges between January and May-U.S.G.S.
• A New Gold Rally Could Be Just Days Away
• Gold & Silver off to the races
• Silver’s posture turns bullish as it hits 2 month high
• Gold And Silver Begin Launch On Schedule
• Nick Barisheff – $10,000 Gold within 5 Years

If that’s not enough to get our bullish blood boiling, then I don’t know what is. The issue is not whether this gives us bullish sentiment personally, but if what they’re saying is true.

First of all, it could be. In fact, Nick’s comments about $10k gold in five years is absolutely possible, if we see the economic implosion that we fear. But it may be premature to make such claims. Either way, it certainly is sensational and grabs reader attention.

Sifting through the hype that so many of these articles present, let’s get down to facts that we can sink our teeth into. I won’t reference each point, but will simply glean them from the articles linked above. First we’ll list claims, and then we’ll list facts. After some of them I’ll post a comment in [brackets]. Some of these will be simple quotes that offer you an opportunity to examine the claims.

Claims:

“The reason we’re positive on gold is that major currencies around the world lack credibility,” Gary Dugan. [While we’d agree that currencies lack credibility, investors still are focused on them as a refuge of sorts. Until that changes, it hasn’t.]

gold and silver have now started a major move to the upside. This move will be relentless with only minor corrections before we reach $4,500 to $5,000 in gold and substantially over $100 in silver.

Now it’s gold’s turn to bust out to the upside… We took a look at the shiny yellow metal just three weeks ago. But based on the action in the other precious metals, we ought to keep a close eye on gold. It’s on the verge of an explosive move that could happen any day.

Facts:

“The natural buyers of today are emerging-market central banks, and over and above that, it’s going to be further investment demand,” said Dugan. “People continue to naturally gravitate to gold.”

Gold for immediate delivery, which traded at $1,640.75 an ounce at 6:57 p.m. in Singapore, has rallied for 11 years and reached a record $1,921.15 on Sept. 6. Holdings in ETPs including the SPDR jumped to a record 2,437.495 metric tons yesterday, according to data compiled by Bloomberg.

Central banks will purchase close to 500 tons this year after becoming net buyers in 2009, according to the producer- funded World Gold Council. Central banks added 254.2 tons to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves.

Platinum broke out last week.

Silver exploded higher yesterday.

Sales of American Eagle gold coins by the U.S. Mint dropped 49 percent to 30,500 ounces last month, the lowest level since April. The mint sold 18,000 ounces so far in August, data on its website showed on Aug. 20.

SPOT MARKET prices to buy silver rose to their highest level in two months Tuesday, hitting  $29.09 per ounce- 3.5% up on last week’s close – after extending gains from yesterday’s trading.

Dollar gold prices meantime climbed to their highest level so far this month this morning, hitting $1626 per ounce.

U.S. mines produced 84,900 kilograms of silver (2,729,600 troy ounces) in May 2012, a 14% drop from the 99,300 kg (3,192,570 ounces) of silver output reported during May 2011. The average daily production rate in May of this year was 2,740 kg (88,903 oz.).

Contrary indicators:

[T]he global economic slowdown, driven by the debt crisis in Europe, hurt demand in the second quarter, with consumption declining 7.1 percent, the London-based council said on Aug. 16. Imports by India, last year’s biggest buyer, slid 56 percent to 131 tons in the second quarter, the council said.

These observations are based mostly on macroeconomic analysis. As far as trends go, their understanding is probably excellent. The hard part is tracking sentiment on the way to where it’s apparent the market should go.

From a macroeconomic perspective, the following video is very helpful. This reflects our long-term expectations very well. And, with this in mind, we’ll be accumulating as much as we can along the way. The facts and thought process are very good. The timing and path? Well, we’ll have to wait and see.

For your prosperity,

J. Keith Johnson
The Gold Informant