Yes, for now. That's how Bernanke got away with his first few helicopter drops - there was still some leeway. The window is now closed; most governments are backed into a corner and the reciprocating effects of competitive devaluation (it hasn't gone away, just slowed temporarily - the Swiss fired their salvo while everyone else is reloading) are coming back to drag on the US economy.

It's impossible to cause even a minor financial disturbance without international markets being affected to some extent. With the various bailouts, enough displacement occurred to further damage the underlying financial structure (esp. confidence and reliability of counterparty security). Politicians and monetary overlords have excused themselves from adhering to a "do no harm" credo.

The banks may have offloaded a portion of their worst liabilities, but it was tossed onto the plate of the institution they were bailed out by. Gov't has its back even further against the ropes because of that. If the losses were realized, that would be one thing - instead, by been shuffled elsewhere they're festering.


Right there - no responsibility on behalf of the banks; moral hazard.


Yes, yes and yes; dominant for the past few months.


Not merely "is going to" - is being forced to because of cause & effect. The banks figured out how to effectively monetize debt and until the debt instruments are unwound, it will remain as long-term, illiquid money. For an individual, this would be like having a retirement account - you have an asset, but it's locked up. If the Fed doesn't formally monetize the debt, there's no way it can be reverted back to simple loan structures in a timely manner.

How long does it take to unwind these instruments? Legal proceedings must take place to determine who the defendants and plaintiffs are in each case. With many securitized instruments having dozens or even hundreds on both sides, determining who is associated with what and collating that across multiple sets of records becomes daunting. It's like trying to figure out the path a dollar bill takes as it's used in various exchanges to understand how to reverse that exact series of transactions.

The task is daunting, to say the least. On top of that, how many lawyers have sufficient expertise and technical knowledge to properly navigate these financial instruments? How many disputes will there be? How will market value be determined? What about counter-claims and tertiary suits and on and on?

The debt cannot be unwound fast enough to ensure that business and the economy will function when deflation takes full hold. It may take a decade to make that happen. In the meantime businesses continue to fail, banks keep bleeding and government is still in panic mode. How many goods and services will remain? The power dynamic would shift entirely away from the current hegemony.

We cannot just look at the US. Fed-initiated QE forced other nations to follow suit. That disruption has finally percolated throughout the world. Each monetary authority that inflated alongside the US added to the problem. Sure, the banks have been rescued for now and some of the non-performing debt has been transferred to gov't books, but moving it around doesn't solve the problem of excess debt.


Why do they have to loan out money? In order to make up for the crunch, they'll become more aggressive in other aspects. Encouraging the average Joe to deposit funds for trading will bring an influx. Proprietary trading desks are still all the rage. Not to mention the ongoing returns they're getting from gov't bonds. Kick leverage higher to allow for more flexibility.

Forget the banks, how much more will the government have to keep paying out to prevent the banks from deciding they can get better, reasonably risk-free returns by unleashing what reserves they can? In other words: if the banks keep being crimped, what is the threshold where they'll be forced to search for cash elsewhere unless the rates paid on reserves rise? How much further does deflation have to squeeze them for that situation to arrive?


I agree. However, from the Shillings chart you posted earlier, it's rather obvious that gov't is picking up the slack where consumers are falling off. More recent information might show a different picture. I don't know of a more current data series or chart offhand - do you have one?




Again, slack in financials is being picked up by gov't. Also note that lending is still occurring, it just isn't at as rapid a rate as it was at the peak. It isn't as though everything freezes up all at once.


Absolutely. One question: what happens when large numbers of students aren't occupied with studies and are unable to find jobs? Panacea? I'd lean toward unrest. Maybe those loans will continue after all...


Rising, but nowhere near what we saw in 2008. Maybe that's because the stress is on the European side this time?


Rehash of consumer slack being picked up by gov't.


Yes, there are flow disturbances. This was acknowledged.

It must be kept in mind that the gold market is tiny compared to most others. Bonds, currencies and equities all dwarf the gold cap. Thus only a very small amount of flow needs to find its way to gold in order for major price moves to occur. There is also an entire world outside the borders of the US.


Yes, although a stronger term might be necessary - terrified perhaps. A lot of capital is in the hands of non-professionals. These are people who don't understand exactly what's going on. They're the people who hear gold blasted in the news and get advice from their domestically-educated investment advisers whom have likely lost a good chunk of their own wealth as well. It's the blind leading the blind.

After taking stock of what's going on, those people will eventually dip a toe back in the water. It's a gradual process.


This distinction is extremely important: monetary inflation is not the same as asset price inflation or economic growth. Businesses do not manage the money supply (derivatives and securitization by banks notwithstanding). Monetary inflation can provide room for business (and economy in general) to grow, but there is not a 1:1 relationship. Asset price inflation can result from monetary inflation, but only due to underlying supply/demand fundamentals.


Pay attention to the increasing volume at the bottom of the chart. Either HFT has progressively gone haywire, or rising amounts of capital are flowing into the sector. I will point out again that a $300 drop from $1,000/oz to $700/oz in 2008 was a 30% correction while the same $300 drop from $1,900/oz to $1,600/oz last month was only a 15% correction.

The price does not show the supply/demand fundamentals. Those are set up in almost exactly the same bullish formation as in 2008. At that time, price was also the only piece of data that was bearish for precious metals; misdirection.



Monetary inflation triggers asset price inflation, then wage inflation. Monetary inflation has been held in check, so now the crunch hits. Those are domestic factors. If that was the only concern, I might consider deflation a possibility. There are numerous external factors, so deflation is not an option.



Maybe a detailed explanation is due, based on more than price action. Vague and intermittent associations offer tenuous arguments.


Again, pay attention to silver volume. Magnitude increases in volume suggest increased capital flows from rising demand. There is also a severe drop-off in volume on the second spike down as compared to the May 2011 decline. This suggests that there are very few longs bailing out.

The same numbers behind the scenes reflect another bullish setup, just as with gold. One more time: price is the only bearish data.


A simple strategy is good, but I think you've gotten a bit too simple. The inverse association is intermittent.

For this thread supposedly being about global economics, there sure was a lot of gold-related sentiment in these recent posts.

I have to say, it was refreshing to see all of the STL Fed data sets displayed - thank you. So we've agreed again that deflation is the dominant force at the moment. This series started off very nicely. When it came to the price charts, there was no real explanation for why the price action in gold and silver are occurring aside from deriving meaning from the price actions themselves. Circular reasoning is a fallacy.

Let's take a look at some technical price analysis versus fundamentals.

What about lumber? It looks like it's in a range, but that's heavy. Deflation is in vogue.



Perhaps more paper will be needed for the myriad new legislation and IRS forms coming down the pipe? In all seriousness, there are so many uses for lumber (construction, repair, fuel, paper, etc.) that there really isn't any argument against it.

Still not convinced? Try AT&T on for size. Recession? Depression? Where? Business as usual, go back to your daily lives.



Would it stand to reason that the company is consistent because it's part of critical infrastructure?

No? Alright, I think Genesco's price chart looks great. So much for deflation, right? I mean, price is everything.



Or maybe this is due to the fact that brand recognition still counts, or at least because people still wear shoes.

I haven't seen a reply from you on the issues of:

• Open Interest
• Volume
• Commitment of Traders reports
• COMEX/NYMEX deliveries
• COMEX warehouse inventories
• SPDR ETF (GLD/SLV) trust holdings movements

I suggest we just see how things play out this month. After that, we can reassess what's going on and adjust our theories.

I'll leave with the news that over 1 million silver eagles have been sold by the US Mint as of October 3rd, following a near-30% drop from September 21st through the 26th. Silver coins sales were immediately halted for "repricing" purposes. Even with a similar decline of nearly 30% in price, gold coins are still being sold.

Silver sales are about 200,000 away from hitting a new record, and there is still one more quarter left in the year. It isn't as lofty, but gold is high also. I would think it safe to assume the fundamental of supply and demand is the cause. Where is the bubble? Participation is still low, and these buyers won't be letting go unless substantial profit is involved. If they view precious metals as insurance, they probably won't let go for any fiat price.

Got physical?

* And farewell, Steve Jobs.

You're right, the USD wouldn't collapse just because the Swiss alone devalue their currency the same way the Fed has done to the dollar. It's when Korea and Japan and Australia and the EU and the UK and South Africa and Belgium and every other nation does the same to keep from being isolated in the markets they've become so integrated with; the lack of independence you pointed out. The Swiss move was brilliant, but won't change the trend towards currency devaluation.

As cypherdoc has mentioned, each intervention occurs in sequence - partially because each national entity has a different tolerance threshold (disparate monetary officials are forced to act), and because staggering provides maximum effect (two popular movies released at the same time will share the spotlight to some degree; released a month apart, they each garner the majority in turn).

With the US trying to escape its own debt grave by devaluing the currency, the world acting in aggregate to the same effect locks the former in - no change overall so equilibrium resumes, negating Fed efforts. If the Fed can maneuver and devalue fast enough, a window of opportunity develops from which the US can escape the debt burden before that option becomes completely impossible. Of course, if any sovereign defaults, it could trigger the final deflationary collapse; the US needs the system to hold together in order to save itself, but everyone will be worse off with a crash landing now that monetary inflation has begun.

China is in a dire situation financially right now (mostly among its own, not with foreign interests), but it also has been stockpiling assets. That will allow it to coast for a while, providing the precious commodity of time which so few others have any of. In addition, even though it will take a long time, internally it is capable of growing whereas the US can't even maintain itself. Being able to take care of issues in-house is always preferred over being subject to the whims of a foreign interest (EU/US debtors at the mercy of foreign creditors).

If any nation were to allow its currency to appreciate, it would come out the winner and probably hold reserve currency status should the base grow large enough. The problem is that it'd be an extremely difficult transition and individual citizens of any nation, especially those without an understanding of finance, can't be expected to understand such a move. It would appear as if the entire domestic economy imploded until internal dynamics kicked into gear - that could take months to years, by which time there would probably be a popular revolt. Catch-22.


Which currency won't matter (SDRs?). The consolidation of power you picked up on is key. Undermining that base of power is the way out - crypto-currencies make central banks irrelevant; it'll just take patience and persistence (and hopefully not too much actual blood in the streets).

Yet again, boasting more brazenly than Al Gore: controlled deflation is not a new concept. I'm no angel myself, but if you're going to claim exclusive credit as if you're the only expert in existence, be sure to acknowledge the reality of independent discovery.

From about 2 months ago:


The archives strike again.


How? Deflate too fast and the result is at least civil unrest, at worst global war. Deflate too slow and there's a risk of pressure accumulating to a point where it simply overwhelms all efforts at controlling it, more likely arriving at the latter outcome. The pressure from deflation is strong enough that there is no way to maintain control without inflation, which brings its own set of problems.

The Fed isn't the only institution with a "self-preservation" incentive. Natural write-downs will be fought as financial entities have their own mechanisms that will oppose Fed efforts. Politicians have a self-preservation goal of maintaining office at the expense of all else. Other nations have their self-preservation plans that involve cutting Europe and the US loose, leaving them to sink or swim lest they drag the world down - inflationary effects coming from the EU and US will be retaliated for from those countries damaged by them (as we've seen from even the Swiss, the choice will be independent inflation methods).

It may have its own internal dynamics, but America is only one piece of the pie. As Jim Sinclair puts it: there is no practical solution. I'd like to add that there is also no timely solution.


(emphasis and bracket section added)

A reminder to keep the previous section in mind. Deeply indebted western nations are not the entire world. In fact, decentralization is creating pockets of independent, autonomous regions within the official lines on maps. Enforcement of rejected national laws within these regions rapidly escalates costs - the benefit shifts to the defiant entity.

Bitcoin is not a viable solution yet. It isn't universally recognized and there are certain structural concerns that still need to be addressed. That is certain to change over the course of a few years, but today it is unrealistic.


Bingo. Tax rates have already begun to see diminishing returns, so the "invisible tax" has to be ramped up. And again, dead on: Bernanke holds a pseudo-political position. He could be discredited and replaced in an instant if he bites the hand that feeds him. Dominique Strauss-Khan, anyone?


So is this a form of legitimate concern from the Fed, mere lip service to keep the reins of control taught or a political effort to maintain relevancy? Will it matter five years from now?

Agreed - the price can move lower. Production cost isn't a "hard" barrier; more like a pivot point. Only the strongest and most efficient of mining companies can withstand low prices and/or return for extended periods of time, though.

The reasoning for price not being able to remain below production cost comes down to simple supply & demand fundamentals.

If gold is in demand and there is enough supply to meet the demand, fluctuations in price will be minimal - price stability. With the kind of huge overabundance distortions in supply that have been masked by derivatives, in combination with rapidly rising global demand means that there will be major price volatility as capital flows into gold.

For whatever reasons, many analysts still dismiss the supply/demand dynamic of gold production as well as the metal's increasing monetary function, despite the data being obvious.

It might help to imagine an inverted crash.



As the supply/demand fundamental line rises, capital becomes increasingly attracted to it. The price swings will revolve around that line, growing more violent the more capital flows in.

Price can only diverge so far from the fundamental before it completely decouples into its own abstract exchange, the financial instrument related to the underlying component only being associated by name - not function (i.e. the "price" of gold fell to $1,535, but the actual item couldn't be bought for less than $1,650 - take that to extremes; an official price of $1,000 - dealer sale price to you of $10,000 or more).

We're just starting to witness the first real waves hitting - 4th quarter of 2010 was just a warning surge. After this year is over, we get slammed with a full financial storm. It will start to rip apart official market associations, and anyone not on financial high ground (by holding physical gold) will be swept away into decades of poverty (Bitcoin may not be a viable solution yet, but having some wealth in the system now could be highly rewarding even for "late" early adopters).

Thanks.

At the end of November, most December contracts are generally rolled into the next year. All of the big fraudulent games must take place before delivery cutoff in November - after that, it's mop-up. Year-end profit taking usually keeps the prices in check during December. The first quarter then follows with potentially large delivery months in which another round of stomping the grass to startle the snakes is embarked upon.

Banks are struggling for survival in an obsolete system while the decentralized tide of sentiment erodes the established power dynamic.


Yes. There wasn't anything to comment on, though I will point out this:

"Strategic Total Return has about 17% of assets in precious metals shares..."


Please read the following again, paying particular attention to the pricing notion which connects to and affects everything:


The distinction is that the influence is reversed from your perspective. Other sectors are influencing gold less, while gold is gradually influencing them more. There are worldwide changes that go beyond deflation or inflation. The same applies to the cause of inflation - it is demanded and will occur because of the policy response to that demand. It's been said before and I'll say it again: these are processes; nothing goes in a straight line.


The impasse. At least hold onto your physical, as a hedge if you want to think of it that way.

Gold is reasserting its monetary role whether the dollar goes up or down. If the dollar goes up, it takes a longer time than if the dollar were to go down. Having been forced to use dollars for decades, the world is fed up with being subject to the whims of the US and its increasingly manic behavior. Without a return to responsible monetary management, the USD will face decreasing global significance no matter what is done to make the dollar more attractive for investment.

Did the ferocity of the attack on Pearl Harbor cause the US to curl up and die? The US has been bullying the world and the world has been taking it for decades because of the leverage provided by America having the reserve currency. Nothing lasts forever. Derivatives are the western attack on the world's Pearl Harbor, and the world is finally rising to fight back - by making the USD irrelevant.

One more time: the substance could've been anything - nose hair, tree bark, large chicken talons. Due to physical properties, it happens to be gold. Deal with reality, not just the derivatives that behave as you expect.


No leverage, dividend returns and long-term accumulation (i.e. profitable) - remember? The only way the course of events can change now would be for something like an alien invasion to begin or the sudden disappearance of centralized governments and banks.


Misdirecting. But that's just semantics.


You weren't saying that yesterday when gold was up. Nice selective memory, USD fanboy.


Another article that ignores supply and suggests that demand is the be-all and end-all.


It's easy enough to see that as the result. The fantasy realm is entered with expectation that the derivatives really are gold. You've made no distinction between paper and physical. Do you really expect physical gold to be obtainable at the prices quoted?

With debt being the real issue and fiat currencies being built up with debt, gold is the only realistic and universal alternative money (Bitcoin is not yet realistic because it isn't universal). That's why movement within the futures market is so vital to understand - it is the major gold derivative mechanism (few ETFs have similarly stringent requirements regarding physical metal).

Gold is money (it links physical reality and tangible wealth with the abstract monetary world) and remains constant with no counterparties while derivative debt collapses around it. The monetary masters of the established powers are simply adept at putting off the collapse and minimizing upside shocks from upward gold revaluation. It is folly to ignore reality.

Next year is shaping up to be a major battleground between the established money authorities and fiscal failure - greater than anything seen so far. Gold will probably experience a 50%+ decline sometime during 2012, if not a complete separation between paper and physical pricing. Psychology of the masses can be guided, but only within a given sphere of influence. The Chinese will not buy US propaganda, nor will South Americans. US futures markets and pricing can only be managed within the US.

If you are an American living in the US with your awareness governed by domestic media, the USD might appreciate indefinitely after a few more systemic shocks (at the Lehman or Greece scale). Reality will leave America behind if the nation continues to pursue this self-destructive course.

These markets are enormous. Collosal forces are in play and move glacially compared to typical human perception so it could last for months, all else being equal. Since there are other factors creating a race against time, I think either the European or US leadership hand will be forced within a matter of weeks.

LOL

Alright, progress. Excellent chart - it shows more information than price charts alone can offer. It's impossible to see where the COMEX could potentially be in default just by looking at the price of gold. Monitoring the TED spread is good as well, but less direct of a factor in regard to the main topic of gold.

I assume you consider the chart to show a collapse in demand for gold? Please correct me if I'm wrong.

Also, do you have a link to the article the chart is from? For now, I've added some information based on the assumption that the data is from the CFTC CoT report, with the gold OI scale on the left side and silver OI on the right side. It doesn't appear that the chart includes the "nonreportables" category, which is a good portion of potential delivery requests.



Keep in mind the potential for options to be executed and stand for delivery. That activity has been increasing, putting additional pressure on COMEX warehouse stores. It's much harder to estimate options execution, though. Futures options serve as a target for these price declines to prevent just that option execution wave from taking place and draining COMEX registered gold.

It would've been nice to have 2008 visible to show the similarity in pattern formation, but that's available elsewhere. I'll post a chart if I have the opportunity.


Article tl;dr. The gist is that credit is contracting and commodity prices will fall with it. If I'm not mistaken, this thread is about gold, not oil. Oil is primarily a consumable commodity; gold is not.

Gold is reasserting a monetary role: it is being propelled to act as cash, especially in reserve capacity, and therefore will provide a basis for pricing rather than having a price attached to it; relative pricing will be determined by the base of available gold the same way we currently use the USD base money supply.

It doesn't matter if the average person doesn't use gold in daily exchange. Large businesses, cross-regional or international transactions may be conducted in grams or ounces instead of dollars and Euros. That would provide the solid golden base layer upon which fiat acts as a representative instead of the backward system today.

This is psychology in conjunction with supply & demand; non-linear. Reco'nize, son!


All equity markets have been tumbling, what's your point? We already agreed that contraction is the flavor of the month. The charts are just prices yet again (at least with volume, but that's decreasing which suggests the downtrend is slowing) and the point of contention is still gold. I consider news of insatiable demand for gold as far more relevant to the topic.

No, because nobody wants precious metals, remember? Except for the rest of the world, that is. Silly world - it should listen to Americans, sell all gold and silver because they're worthless!

Yes, lots of theory with details on the theory, but the only "data" has been in the form of price chart patterns. Those have already been discussed as being malleable and unable to provide a complete perspective, especially on gold.

Price charts are only a look at price trends. They don't bare the underlying mechanics of the system, nor do they offer genuinely predictive information. This is what data looks like behind the scenes:




Now you want to play the quote game?

From the original August 8th PM:


From August 9th through the rest of the month:


All I know about your positions is that you've kept your remaining physical but otherwise gone short. I make no assumptions about your profitability, social standing, ethnicity, physical ability or asshat status.


This is an unbiased statement? Maybe you're right. Maybe I've started listening to Raptor Jesus again.


What contrary information? Price charts that mask accumulation occurring behind the scenes?


How long will this childish insulting continue? Perish the thought of you being married with children. I thought this thread was about gold?


Imitation is the greatest form of flattery. Ridicule in the form of mimicry is not. Maybe I shouldn't have used that method to make a point but as I said, this discussion has become entertainment for me.


Textbook ad hominem yet again. I must be the most important person in the gold industry if its price depends on my words. Very well, then: I renounce all of my prior statements - gold will fall to negative value within a month!


You're so right! The first chart I posted in this thread couldn't have been for a weekly time frame. Oh wait, it was.

What's this? The second chart I posted was a 654-year. Shocking! Does this mean I should resort to dailies instead? If I point to a strong up day, can I state that it proves my case?


Such fear mongering!

Please do quantify these "losses" that you presume I've incurred. The most novice trader understands that you don't actually incur a loss until the respective position has been closed. Go ahead - log into my accounts with the passwords you apparently have which allow you to calculate the unrealized losses that you think are present. Close a few of my 1,000% positive positions while you're at it.

I suppose it may elude cypherdoc that it's possibile for other trading strategies to exist besides his. Such non-linear concepts can be difficult to grasp.


Once again:


Trading is your own concern, regardless of recommendations. Are we in the business of saving people from themselves now, a la socialism? Physical metal is the necessity.


You're right, I must be as you described. Finally getting out of the gold carry trade after its price had nearly doubled to almost $500/oz just couldn't have been a change in my perspective. It was wrong of me to admit that the bear could be over, because it's obviously resuming now that the price has retraced similarly to 2008. I'll completely ignore the fact that gold has doubled from that point. I've seen the light. Thank you for showing me the path, cypherdoc!

I understand now that gold must be due for a fall to $255/oz, despite the fact that it doesn't tarnish and has been used for thousands of years as money when other forms failed as they're failing now. The entire precious metals market is based on a lie, because the principles that give paper currency value must not apply to physical metals. Besides, it's perfectly possible for 1% of the population to wield 80% of the power and wealth in the world without the other 99% rising up against them or at the very least trying to protect themselves.

Thank you again, cypherdoc. It feels so much better to remain oblivious to the facts.


Presumption is dangerous, particularly when erroneous. I hold physical gold to protect against fiat default and global economic destabilization. It doesn't propel me higher - it keeps me at my current level while most others fall, leaving those with gold on the high ground. Again, it's a matter of perspective.

When have I ever suggested in this thread that I don't hold physical gold? These ad hominem attacks aren't even based in any way on anything remotely factual anymore.

Gold illiquid? Another invalid argument; perhaps you haven't tried finding a buyer for real estate and jumping through those hoops recently.

If paper prices plunge, nothing changes. If the real price falls, it can't go much below the production cost (currently averaging about $1,100/oz). If demand evaporated from the entire world, you might have a case. This is similar to positing if the prices fall on grain and I have a warehouse full of it, I'll starve. Do you understand that?


Will it take a mere keystroke to buy physical bullion that's unavailable after having been vacuumed up by contract holders standing for futures deliveries? We can focus on a Bitcoin aspect instead: can you acquire a 5970 card to mine Bitcoins without paying through the nose? Not so easy as a keystroke, is it?


Of course you would... how neutral and unbiased!

Maybe I should call you a born-again permabear, or a Prechterite. Those seem to come out every time gold declines, proclaiming how "right" they are. I'll let you know when I'm no longer bullish on gold - you can quote me on that.

I hypothesize that a deflationary mindset is more likely to exist when long-term memory is deficient.


You're absolutely right. In fact, my neighbor and the bum on the street both have mobile phones. It is therefore completely obvious and logical that they are both trading COMEX gold and silver futures, along with everyone else on the planet! Congress no doubt wants the whole world to live the American dream of "trading paper contract futures on the commodity exchanges".

Seriously, cypherdoc - thank you for so much great material.

Awesome, thanks!


Darn, I've lost the praise of someone who ignores reality. Mortifying. Oh - you might not want to admit that you're cackling to yourself like a crazy person.

Daily technicals flip faster than the latest GPU cores and that's supposed to be significant? Fundamentals are screaming that any point below $1,650 in gold is a buy (same for <$32 silver), widespread shortages of silver are present even without public participation and I don't use anything leveraged. Aside from the options, I can sit happily and let everything ride without chasing paper trails. Even then, the options have at least another quarter to show a positive run. I have the luxury of time while the banks and western world in general are rapidly running out of it.

No pain here, but thanks for your repeat presumption. I've previously stated that I am accumulating (bullion & equities without leverage) much more than trading. I'm patient enough to wait for the big moves to come to me instead of the other way 'round. Those open equity orders weren't filled on the last dip, but are still waiting in staggered tranches. Another spike down and it'll be kid-in-a-candystore time.


OMG UR RITE SILVER WORHTLESS END OF WRLD!!!1!oneoneone

Now let's take a breather and zoom out for a better perspective.



Oh, the dollar is only up 35% over 3 years - the scale big money pays attention to. With all the hootin' and hollerin' and panic selling to boost the USD, that's as far as it could go? Even from a purely technical standpoint, that's sad. The emperor has no clothes, but he's running around screaming as loud as he can that he does.

Going further back to prior peaks in the USD, we can see that it was around 120 in 2001 and as high as 164 in early 1985. Over 16 years elapsed during the USD drop from 164 to 78.5 before that move's 50% retracement was tested. It sure does take a long time for these kind of actions to take place. Troubles and crises seem to be hitting harder and faster, though.

Looking at the USD:SILVER ratio in 2001, the dollar was 120 and silver was about 5, making the ratio approximately 24:1. A jump in the ratio from 1.5 to 2.6 is 1.1 - compare that to 24. That's about 4.5% difference; barely worth getting out of bed for. This should impress upon you the importance of greater scales and that they must be taken into account even when looking at the dailies, unless your goal is to stay glued to the charts.

In addition, USD (and UST) volume declined heavily during the latest rise compared to the prior peak. Volume has also declined to very low levels in gold and silver. Trends experiencing declining volume eventually reverse - continuation is unsustainable, just as continual accumulation of debt can't last. To reiterate - using a log scale for charting keeps price moves in perspective when there is rising volume because of increasing participation. Just look at the volume numbers for the past two months (one month for USD) - records across the board by orders of magnitude!

This thread has become my primary form of financial entertainment, along with Money McBags. Deflationists are as amusing as permabull gold bugs (and just as dangerous).

Key points bolded. One note of disagreement - gold doesn't have many industrial uses at all. Even new uses won't be enough to have statistical significance. Gold remains primarily money.

Yes, the US is in the Middle East and hasn't left because of the USD as reserve currency issue. Wasn't it odd that the first act by the "rebels" in Libya was to set up a central bank? Who does that? As web developers, they'd upload a pretty mock-up image of a new site before starting to even examine what functional aspects are needed.

If major nations (especially those that produce what the US needs) kick the dollar habit, then the US has to provide another form of currency in exchange for critically-required oil. Cheap dollars for oil, or expensive real assets for oil - the US cannot afford the true price of oil, so the military is there to ensure that USD-based exchange is maintained. Any other reason is a cover.

Gold is not a promise, just as Bitcoin is not a promise. Both would rise in a deflation situation for the same reasons that the USD is rising against the Euro as the latter contracts.

I haven't seen anything about China's gold-backed bank accounts, either. This makes it easy for anyone with one of these accounts to effectively use gold as a transactional medium - instant conversion from gold savings to a spending currency and vice versa - with banks getting transaction fees, obviously.


I can't help but interject here. Nominal prices can rise despite growing inflation because a smaller number of people are participating in the active economy. This is the same reason that unemployment appears to remain under 10% - fewer people are qualifying for the politician-defined term "unemployed" even as a greater percentage of the entire population aren't working. This doesn't require QE to happen; gov't meddling in other ways is more than enough.

Nominal depictions versus real performance. It's like trading in your luxury sports car for an economy model because times are difficult, but you notice that the new car's speedometer starts at 100km/h. Suddenly, you're speeding every time you get behind the wheel - by all measures taken from that speedometer, it's exciting because you've been breaking records across the board. In reality, if you look out the window you'd see you aren't actually going any faster and everyone else is laughing at you for being so gullible.

I think it's hilarious that we agree on so much, yet have such a profound difference on one or two niggling points.

The Fed's purpose was to mediate those cycles. Also, remember that there is no single cycle: there are many for each sector and at different scales. Dismissing the multi-generational cycles in favor of a yearly cycle is folly. The former overrides the latter every time.


The dollar has been declining for a century. Gold has been rising for a century. This inverse correlation is nothing new: it's been present for longer than anyone reading this has been alive.


Welcome to the club! I still prefer buying puts on TLT, but to each his own. I'm also still wary of committing in size - there could very easily be a spike that rattles investors and triggers stop-loss orders.


Yet the banks are still exhibiting signs of stress (piles of bad debt still on their books, major civil and possibly criminal lawsuits, political and public ire, etc.). Apparently, they haven't been bailed out enough. I'd be more interested in knowing who owns the real assets and gold than pieces of paper.


Conflating asset value deflation with monetary inflation results in nonsensical conclusions.


They still have crude instruments - backed into a corner with nothing other than fists, a booming voice and a printing press. Lie to the world so reason is drowned out, beat the banks into providing funding for gov't and print to keep the economy moving.


And we know that chart formations are 100% guaranteed. "Past performance is not necessarily indicative of future returns."

Should I point at the bear trap now?


As mentioned earlier in this thread: Soros dumped almost all holdings in the GLD ETF. This is what has been hawked as "gold". He immediately turned around and bought gold mining shares with the proceeds.

The article plays on ignorance of the dichotomy in paper and physical gold, as well as the difference between bullion and mining shares. It is nothing more than a plausibly authoritative-sounding piece of propaganda that anyone who understands how the precious metals industries work can see right through. Therein lies the power of the post - very few people understand the precious metals industries.


Have you run numbers on the wonderous forced healthcare plan? Does your business manufacture or produce anything real?

Desperation indeed. Let's get non-linear. What do the people who don't have jobs do? If they can't support themselves, is it reasonable to expect that many will move back with family - perhaps with those same older people you're employing? This is a foregone conclusion, as it's already happening. The entrepreneurial-types might try to stake their claim in another country that has better economic prospects than the dying western nations, which completely removes that higher level of productivity from the domestic pool.

Now how do households function with the additional financial burden of extra members? Savings can be tapped to make up any difference, greater wages or benefits might be demanded, etc. On the plus side, those unemployed who double up could provide support to the income-earner(s). If that support is not financial, the aforementioned results are still likely.

What seems like a boon to (non-manufacturing or agricultural) business owners now has a greater likelihood of turning out to be a pitfall later.


In the end, no. But they've been quite adept at putting doomsday off for quite some time now, haven't they?


So linear and US-centric. Banks don't operate in the USD arena alone. They also deal in gold, among other assets.

Next: if a billionaire were to see 50% depreciation his USD holdings, he'd just be a half-billionaire. He won't be hurt by that, unless you consider construction of a man-made island critical to his quality of life. On the other hand, a baby-boomer with $100,000 retirement fund losing 50% of that could mean the difference between being able to retire or working to his dying days. Going more extreme, a 90% depreciation in USD means the billionaire is only a mega-millionaire and the former retiree might as well be penniless.

Stick with the rioting.


Have you been paying attention to what day it is? I'll give you a hint: it's the last day of the month. It also happens to be the last day of the quarter. Reports on performance are due, which means profits are taken to shore up balances that make clients think happy gumdrop thoughts when they get their statements. Anyone who's been trading longer than a few years ought to recognize these patterns.


Hmm...



No.

That sure doesn't look like 2008, does it?

Since you admire technicals: a new high in September 2010, a higher low in March 2011 (from previous low in January 2010) with a supported retest three months later, another new high this month... should we contrast this with the broader equity markets? Because technical chart patterns are guaranteed, of course - especially short-term ones. </sarcasm>

Did you even bother to take into account dividends? Quit making this so easy for me - you were offering genuine challenges recently.

These "defaults" are still occurring agonizingly slowly and at the least painful level for the banks - someone else's wallet. They aren't writing the debt off, they're trying as hard as possible to offload at as little a discount as they can - passing the buck the way a politician hands off a bigger problem than he started with. So until we have multiple trillions in realized losses from financial institutions, I doubt we'll have a sufficient cleansing.


Damn right. To clarify: long-term residential mortgages hit the big-time in the 30's as a way to keep farmers on their properties. Since then, 30+ year home loans have become the norm, allowing for a greatly amplified active debt rise.


Aside from the striked-out sections, I agree. The dynamic wasn't denied. There are some structural elements that create the conditions necessary for hyperinflation. Again, we need to focus on the debt issue - debt had been treated like money instead of debt by the market itself; now that said debt is locked up, it remains as money until it can be unwound. If the debt is merely handed off, it hasn't been unwound. In addition, when the debt instruments are finally deciphered, there will remain such massive distortions that pricing will be still be heavily distorted. That leads us to gold.

Gold is not officially acknowledged as the world's reserve currency, for that would defeat the purpose of US hegemony held in place by the dollar. The dollar is linked to gold whether it's admitted or not. This link is not fixed, but determined by floating exchange in a market environment. Why is it that gold is such a threat to the established financial institutions that gold is persistently manipulated? Why did Volcker suggest that allowing gold to rise too quickly was a mistake? Why is gold held by banks as reserves? Our assumption that the dollar is backed by GDP or government is a half-truth at best.

Gold remains the asset side of money that provides the functions of a store of wealth and metric of value; in extreme situations, also a means of exchange. Banks and governments obviously realize this, or they wouldn't view gold as a threat; actually, it wouldn't even register at all. Yet it certainly does. Save in gold, spend in fiat.

The Federal Reserve is walking a tightrope. Too much deflation or inflation would result in upheaval and its demise, stemming from the entity's failure to maintain the mandates set forth. Self-preservation doesn't work to boost the deflation argument. Bernanke could have boomed from the rooftops that there would never be another QE if outright deflation were being given consideration. No, instead we see him pussyfooting around the elephant in the room (isn't it a little suspicious that Hoenig announced months ago that he's leaving on October 1st and we're now seriously on the precipice of European sovereign default?).

Instead, that self-preservation is seeking to delicately cut a narrow path through a financial and political minefield. Stability is critical to the Fed's survival. Too far in either direction and the angry cries rise to a crescendo. The real problem is that the actions being taken to remain in control are actually making that stranglehold more difficult to maintain. Is volatility not far greater than it was three years ago? Haven't the factors involved in the crises been shown to be larger in scale and scope than previously imagined? What happened to stability?


Hard to tell, plus you were on a roll. Oh, and you're too damned professional with your double spaces between sentences.


If the debt can be unwound quickly enough, yes. That would probably require major banks to effectively self-destruct. The world's myriad legal systems would also have to burn the midnight oil to even make a dent in the case load. If the backlog of RMBS-related foreclosure cases were a priority, would we have people living in houses for 3 or more years? That actually benefits the banks to a degree - the longer a debtor remains in a house (rent-free or making even irregular payments), paying utilities and maintaining the property, the less the banks will have to lay out for the same purpose - until they finally get around to legal proceedings.

The debt won't be unwound in a timely manner for the simple reason that the banks will attempt to muddle through this. It doesn't matter that they'll be so weak on the other side that they probably won't be around for long - they're in survive-at-all-costs mode. Granted, this is an assumption, but does it seem likely that they will? This means that the real key to a raucous deflationary outcome is not the Fed, but the world's major creditors, particularly the big derivative producers. Yes, I acknowledge that there are other factors, but none so overwhelming as this.


Fed mandate: price stability. If massive deleveraging occurs, price stability evaporates instantly. Without price stability, there is panic. Panic causes to civil unrest. That's politically unpalatable - it causes further contraction of business and the economy overall.

One solution: restrict the deleveraging as much as possible to slow the decline. This has been going on for three years now. It's too slow to bleed off a sufficient amount, but the rate can't be allowed to increase or major banks would blow up overnight.

Another solution: inflate the currency just enough to support market prices at or near current levels. Again, this has also been going on for three years. It's worked to a certain extent, preventing extensive defaults in financial instruments and other obligations. The effectiveness is wearing off and cannot be maintained with POMO.

Yet another option: lie, cheat, steal, cover up and deceive. If only the truth were so easy to hide. Time is running out; the next stage of retreat will soon be necessary.

On top of domestic problems, the rest of the world's issues are exacerbating those in the US. Think non-linearly.


There's now a daily backup of this thread just in case any Cosby-style craziness should happen again.

For a debtor with DTI that is approaching or exceeding 100% and with stagnant or declining income, any inflation or further debt accrual is completely intolerable. The debt will never be manageable in that situation. Should it continue (so far no reason to expect it won't), the accumulation of debt will accelerate to default.

What the USA Today article linked above glosses over is the fact that, unlike the businesses listed, the US economy is not growing enough to outpace its rising debt burden and there is no economic driver on the horizon. Even if a revolutionary technology were to appear tomorrow, it would take years before the entire economy began to benefit.

There are numerous small technologies on the runway that could make an impact, but they're being held back because of reluctant capital investment in an uncertain business environment. Many efforts are moving to smaller, more open nations. Too much time and effort has been wasted. The only solution is to accept the facts and rebuild instead of prolonging the form of death known as stagnation.

Without comprehensive default, rampant inflation is inevitable in much of the world - even hyperinflation.

With all of the debate over deflation or inflation, most normal people will opt out, choosing to hold real assets that have value they can readily quantify in relation to other assets. I know I can get $X for my car and I can then immediately use $X to buy the equipment necessary to keep my business going - equipment that has value which won't change. Gold is an asset and its value won't change (at least significantly to the downside) relative to other assets.


Opinion. Where is the data?


They are. What other currency? If only gold is accepted, there is no other currency. The one who has the desired goods chooses the currency, not the recipients of the goods.

I have food, you need food. I want wood carvings for my food. You have no choice but to give me wood carvings or produce your own food. Replace wood carvings with anything you wish - in the case of Zimbabwe, it is gold.


More opinion. Again, where are the facts?

Here are some facts: Gold is rising in all paper currencies. The dollar can rise against other paper currencies, but it is still lower in terms of gold. All currencies are "tanking" simultaneously, relative to gold (and most real assets in general).

Additional data:

Average Annual Price of Gold in USD & GBP


Gold % rise in USD, GBP, EUR, AUD, CAD, CHF, JPY, CNY and HKD from January 1970 to September of 2011

* ZAR, INR and MXN were not included because gold increased relative to those currencies by ~50,000%, ~14,000% and ~5,000,000% respectively and the other currencies would not have shown up on the graph. The three currencies below 1,000% are CHF, EUR and (surprisingly) JPY. Gold is up against them by "only" ~900%, ~400%, and 800% respectively. Note that the Euro kept pace with the strongest currencies' depreciation since its inception. The currencies just over 1,000% are the CNY and HKD.

Gold % rise in USD, GBP, EUR, AUD, CAD, CHF, JPY, ZAR, INR, CNY, HKD and MXN from September 2001 to September 2011


Is the "bubble" going to collapse thousands of percent? Will gold atoms vaporize?


This connection is absurd. Do you really think the currency matters? Would a drug dealer care what he's paid in, so long as it's usable? The answer is: no. The USD doesn't cause this any more than asphalt causes hot temperatures when the sun shines on it.


In some circles, yes - when available and if it's accepted instead of gold. Other nations have used USD or other regional currencies that were more stable than the local one. However, if even the superior fiat is no longer viable, real assets and monetary precious metals rise to the occasion. See the video above.

+1


Yes, convenience is the name of the game. Stability from gold is now coming into greater favor than convenience of fiat paper. Gold's value relative to other assets has remained very steady compared to paper's valuation, and paper is only experiencing more disruption.

The ignorant and foolish will play while the smart and aware prepare: Donald Trump, chairman and president of The Trump Organization, explains why he will accept gold as a security deposit in lieu of U.S. dollars.

Really? As though the dollar is in a bubble by itself? As if we haven't seen how currencies are dumped in favor of the real thing when the link is severed (CHF 2011, USD 1971, etc.)?


Pay close attention to "central bank of the world" above. Also the point about silver, which applies even more to gold. The precious metals reasserting their monetary role through distributed public ownership is the real threat, yet impossible to stop - it can only be delayed to a degree that prevents catastrophic failure of the global economy.

Bitcoin is in the same situation, albeit garnering a marginal awareness. That factor is critical and will take much longer than the return to gold as money (I didn't say a fixed gold standard). Regardless, what's good for Bitcoin is good for gold (and silver, precious metals in general).


Really?

Price charts showing textbook representations of action play to emotions. Numbers behind the scenes remain consistently bullish for precious metals.

It's all an illusion:
Plunge In Price Of Gold All Electronic

Investors starting to wise up:
In "dash for cash", gold ETF investors hold on

Behind the scenes:
Gold Futures Advance As Biggest 3-Day Decline Since 1983 Spurs Purchases

The Fed's roadmap, with GDP numbers due tomorrow:
Bernanke: Fed Ready To Do More If Economy Worsens Too Much


An arbitrary perspective of price action doesn't dictate fundamentals. Painted charts only fool the little players. Selling has been done into the waiting arms of entities that weren't squeezed by intervention.

Deflation/Inflation is no different from Bear/Bull. Fundamentals determine which is dominant overall. Gyrations within the trend are normal - nothing goes in a straight line. There are always multiple currents affecting movement.

I'm still waiting for my fills.

The interest paid by the Fed can't be lowered or it would encourage release of reserves. Repo offers will offer marginally better return and are coming from the same guaranteed backer as the interest on reserves. That will allow for a rotating flow of credit from banks to Fed; the Fed gets access to massive amounts of funding that has heretofore been held in a bubble, while the banks continue to garner risk-free return.

At every level, leverage is increasing and will provide necessary liquidity from the existing pool of funds; the debt from debt we discussed. It isn't a direct QE in the manner we've become familiar with, but a magnification of the amount already out - it just hasn't hit the real economy yet. When the problem grows further and the existing reserves have been leveraged to the hilt, more conventional QE will have to be accepted as it will be the only alternative to the final crushing deflation we're still waiting for.

It's all like an uncontrolled thermonuclear chain reaction.