One Reason Gold Is About To Bounce

 Gold Returned 4.93% On Average In Last 10 Years

There are a record 47.6 million Americans, representing 23.1 million households, on food stamps today. The cost of the program will hit $63.4 billion in 2013 - less than what the Federal Reserve is printing every single month today. Yet, very tough benefit cuts to food stamp recipients kick in today. The move by Congress will siphon $5 billion from a program that helps one in seven Americans put breakfast, lunch and dinner on the table.

“If you look across the world, riots always begin typically the same way: when people cannot afford to eat food,” Margarette Purvis, the president and CEO of the Food Bank for New York said.

More ‘irrationally exuberant’ market participants are ignoring the poor fundamentals of the U.S. economy. Most market participants fear an improving economy could prompt the U.S. central bank to cut back its, very bullion friendly, money printing measures. This remains highly unlikely and far more likely is a double dip recession - potentially a very sharp one which will lead to even more quantitative easing and currency debasement.

The head of the eurozone finance ministers Jeroen Dijsselbloem said yesterday that governments need to prepare legislation for bail-ins. His important comments were not widely picked up, but they are important as they are another sign that bail-ins and deposit confiscation will be seen when banks get into difficulty. 

 My view:

The gold sell off of the last four days looks overdone at this point.

The yellow metal bounced off an important support level at $1306.

Given the seasonality factor and oversold conditions, a significant bounce seems due.

Over the medium term, as banks struggle to improve their tangible capital ratios, gold will rise as trust in the banking system diminishes.

What is most telling, is the fact that six Canadian banks, supposedly the most stable in the Western world, have been named as "systemically important".  Therefore they qualify for "bail-ins".

That phrase, and the legislation that supports it, demonstrates the fragility of the entire fractional reserve banking system.