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Author Topic: Gold: I smell a trap  (Read 78414 times)
cypherdoc
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August 25, 2011, 03:27:46 PM
 #321

another source is junk and corporate bonds which do poorly in Depressions.  basically everything can get sucked down into the vortex black hole of UST's including gold.  Antal Fekete has great insights into this altho he would disagree on the gold part with me.

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MatthewLM
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August 25, 2011, 03:56:07 PM
 #322

If you are correct in that the federal reserve will stop pumping money into treasuries, which wont happen of-course, then those treasuries will fail eventually and any semi-intelligent person would stay far away.

Around the world people will continue to wake up to the horrid fiat and the safety of gold. Gold is a rebellion against the devaluing fiat currencies and the fiat frauds.

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miscreanity
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August 25, 2011, 04:43:22 PM
 #323

miscreanity:

well i guess i ought to reveal a little secret to everyone here also:  You Sir were the inspiration for this thread.  your unsolicited PM coming out of my computer screen free of charge, an unknown voice from the Internet advising me to close out my short positions and buy because gold and silver were going to the moon.  A voice with years of experience and wisdom in the precious metals markets filled with concern over my well being.  you along with my secretary, gold pundits, TV ads, Gold stores around the corner all bullish on gold.  how could anything go wrong?

as you said earlier; its nice to know who i'm taking money from.

When the message was sent on August 8th, gold was around $1700. I had suggested not buying in size, but also not shorting. My intent was to convince you to keep your physical metal holdings, though I could've been more explicit on that. As it so happens, gold rose $200 from where you were getting ready to short. Do you feel lucky now? Are you willing to bet your wealth on luck, or a more measured approach?

Just some words of caution; how you trade is ultimately your decision.

The conversation has obviously gone more toward short-term trading than long-term investing, although both the fundamentals and technicals have been covered extensively from numerous angles.

I still stand by the advice of holding your physical come hell or high water. Trading has once again become as much an art as a science.

My overall rationale for offering the advice is this:

The most powerful banks, corporations and governments of this world have taken us all to ruin. As the system crumbles and they try to prop it up, there is a window of opportunity during which individuals can build up some protection and survive or even thrive. With all of the misinformation and placating being done to help the giants maintain the status quo, the vast majority of people will succumb.

I've been studying the precious metals and related history for years. I've also been putting that knowledge into practice, with a lot of experience to build from thanks to some truly great people in the sector. It's become fairly easy now to see through the methods used by the organizations listed above. Ironically, in trying to keep the masses calm and protected, greater suffering will ensue. Therefore, even though it might be a futile effort, I try to offer explanation for what's going on beyond the inconsistent gibberish that come from the media.

The key here is that the more people who survive intact financially, the less devastating the overall effects of a collapse will be. If too many are completely wiped out, there will be major violence and a breakdown of society to an unimaginable level.

If nothing else, just take away one thing - hold onto your physical metal. If you don't have any, get some. At least an ounce or two of gold while it's still readily available.

There are repeated head fakes being perpetrated, and this is yet another of them. As I said earlier, Bernanke's announcement to come at Jackson Hole will simply be a trigger for what's been building over the last few months, particularly in silver.

When statistical concentration is stretched to its limit, it must reverse. As Harvey Organ noted yesterday, during the two day fall in gold and silver, more than all of the world's entire yearly production was shorted. Very similar selling happened in 2008, but the drop then was far more than 10%. Where is all of the metal to back those positions coming from? It doesn't exist; this is a paper game and you can only throw so much money at a problem before it becomes ineffective.

Weakness will be feigned with a higher high, followed by another assault leading to a lower low. It will look like an outside reversal to the downside. This is a pattern that has repeated many times at all chart scales from 5-seconds to monthlies. After watching it play out so many times, I've lost count of how many times I've lost count.

Compare GLD with an apparent outside reversal to gold which held support on a closing basis:





GLD is a paper game. Physical metal is running the show.

no it won't.  that article you posted about shipping problems to Venezuela proves my pt.  and having a couple of centralized sources like the LBMA and the Comex?  how'd that work out?

Your point would apply if such physical shipments had to occur on a regular basis. They do not.

As I mentioned earlier, the problems arose during a fixed exchange which leverage grew around. Floating exchanges preclude the mass imbalances that were spawned from that.

Edit: Did those fibonacci trading techniques work before they were invented?

Did patterns exist before trading?

i'm agnostic on UST's.  really don't know what will happen with them.

however, everyone knows the bond floors of Japan are littered with the bodies of shorts trying for decades.  i could see a similar situation here.  miscreanity would argue that theres no way that can happen b/c Japan's bonds were funded by the great savings of its citizens.  i would argue that UST's will be funded by the savers of the world b/c our bond mkt is the largest and most liquid of all.  the USD should skyrocket as well which would help. if gold tanks the only other choice is UST's or Bitcoin.  and we still have the largest most successful and developed economy of the worldwide midgets.

Sure you do, it's just the timing that's virtually impossible to call right now.

Bonds are an institutional medium. Widespread demand will be for a general transactional medium, such as the Euro or USD or local currency (gold/silver are last resort), leaving the bond burdens to be supported by... ?

next wave of bad news for gold:  USD beginning its ascent

Gold is clawing its way back up as well. Do you want to start singing the 'one day does not make a trend' tune on that now? It would apply to the dollar just as readily. Be careful when you jump without looking. Temper the type-A; patience is the greatest virtue. Smiley

Around the world people will continue to wake up to the horrid fiat and the safety of gold. Gold is a rebellion against the devaluing fiat currencies and the fiat frauds.

Indeed, they are. They certainly are not acquiring fiat currencies or buying bonds.
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August 25, 2011, 05:29:15 PM
 #324

Quote
Did patterns exist before trading?

What I mean is (I'll take an example) if the fibonacci trading techniques state that at a certain point an uptrend will reverse and people follow the techniques then it will reverse because people will be selling at that point wether or not there is any proper reason to. Does the market make the fibonacci patterns or do the fibonacci patterns make the market?

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cypherdoc
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August 25, 2011, 06:09:14 PM
 #325

Quote
Did patterns exist before trading?

What I mean is (I'll take an example) if the fibonacci trading techniques state that at a certain point an uptrend will reverse and people follow the techniques then it will reverse because people will be selling at that point wether or not there is any proper reason to. Does the market make the fibonacci patterns or do the fibonacci patterns make the market?

no one knows.
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August 25, 2011, 06:10:51 PM
 #326

miscreanity:

i have a question for you.  what would it take for Ben to drive up the USD and to drive down the price of gold?

please don't say he won't do this.  i'm asking a theoretical question and am interested in your opinion as to how he would do this.
miscreanity
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August 25, 2011, 06:14:17 PM
 #327

Quote
Did patterns exist before trading?

What I mean is (I'll take an example) if the fibonacci trading techniques state that at a certain point an uptrend will reverse and people follow the techniques then it will reverse because people will be selling at that point wether or not there is any proper reason to. Does the market make the fibonacci patterns or do the fibonacci patterns make the market?

I see. If you agree that gold's price is currently in uncharted territory, then there are methods to project where potentially significant price levels will arise. One of those is a Fib projection. Others involve trend lines or temporal estimates. Jim Sinclair uses a French curve to project parabolic rises over varying time periods, although I think he's had custom software designed to do that now. It's a simple fact that humans are good at pattern recognition and will come up with all kinds of ways to explain them and recognize more intricate ones.

Just because we can plot projections obviously doesn't mean they're going to be the defining factors. That lies with the basic supply and demand. Sure, the run-up to $1913 touched a Fib projection level, but it wasn't the projection itself that caused everyone to sell.

Why didn't the selling occur at the 161.8% or the 261.8% level? We don't have the position information that the banks, exchanges and various market makers do, so only they can figure out where a break will occur in a timely fashion. Since many of them have trading divisions, who's to say they aren't using that information to game the system, using projection levels as points to attempt a reversal?

Fibonacci retracements are significant and used all over, almost as much as plain ol' trend lines. The projections make just as much sense to use, and it worked very well this time around. There's probably some element of self-fulfillment at work, but how much is anybody's guess. It's kind of chicken & egg with certain discernible influences taking the lead periodically. I hope that answers your question at least a little bit.
miscreanity
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August 25, 2011, 06:31:59 PM
 #328

miscreanity:

i have a question for you.  what would it take for Ben to drive up the USD and to drive down the price of gold?

please don't say he won't do this.  i'm asking a theoretical question and am interested in your opinion as to how he would do this.

He'll try, along with those in the private sector trying to keep things from falling apart.

The most obvious way would be to change the rules: price controls. Efforts at capping various rates are along those lines (a la operation twist), though legislative means are sure to follow when they prove insufficient. Capping will keep interest rates down, but won't do much for operational funding. There are numerous other minor methods that can be used together in order to guide/incentivize/force demand to one degree or another. Whether they're used individually or in conjunction remains to be seen.

There's an outstanding article at Jesse's Cafe Americain today which goes into a good amount of detail regarding that very matter.

I think the Repo market tactic will provide the most direct means of getting the banks to start dumping their reserves into the markets instead of holding them. That would kick up dollar velocity and liquidity while also providing operating capital in the form of loans for government without resorting to the typical high-profile QE method. Several of the other methods in the article above would almost amount to strong-arming certain sectors of the economy into demanding dollars.

That's why I agree with you that dollar demand will rise, but it's value will be a much less definite issue. Bernanke is doing his best to bail out a rapidly sinking ship that keeps springing new leaks, so he's got some sympathy from me. On the other hand, he and his ilk dragged us all into this mess in the first place.

At the very least, how can you not die laughing from this?

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August 25, 2011, 06:33:41 PM
 #329

Jesse always has the best photoshops.  And thank god he wasn't able to keep that awful MIDI player when he changed to a blog.

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miscreanity
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August 25, 2011, 06:55:09 PM
 #330

I don't think the CME waited for gold to decline, like the article says they raised margin requirements a few weeks ago.  It's all due to heavy volume and volatile price swings.  It's more likely that traders started to sell in anticipation of the margin hike.  The Shanghai GE raised margins on Tuesday so it's not like this could not have been anticipated.

Another gold margin hike imminent? If it does come to pass, I fail to see anything at all legitimate about the move. The gold price has paused and to raise margins while the price is near a low point is absurd, unless you buy into the premise of there not being sufficient unencumbered physical metal at the warehouses.
miscreanity
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August 25, 2011, 06:57:54 PM
 #331

Jesse always has the best photoshops.  And thank god he wasn't able to keep that awful MIDI player when he changed to a blog.

Agreed! Smiley
cypherdoc
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August 25, 2011, 07:06:46 PM
 #332

Jesse always has the best photoshops.  And thank god he wasn't able to keep that awful MIDI player when he changed to a blog.

Agreed! Smiley

he's as bullish as you are Grin
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August 25, 2011, 07:41:44 PM
 #333

Jesse always has the best photoshops.  And thank god he wasn't able to keep that awful MIDI player when he changed to a blog.

Agreed! Smiley

he's as bullish as you are Grin

I don't think this was directed at me, but...  I decided long ago that everyone was wrong about economics, including me.

I mostly read doom and gloom types (Jesse, Mish, Steve Keen, etc) for two reasons.  First, the positive view is ubiquitous, it is permeates every part of our culture.  There is no need to seek out the message that is all around you.  Second, I'm pretty conservative financially, in the sense that I'm more interested in avoiding downsides than gaining upsides.

In the end though, I don't think that either side is much better than the other.  I think that they are both wrong, in different ways, at different times, and for different reasons.

I'm pretty sure that the value of the dollar will approach zero, because that seems to happen to all fiat currencies.  And I think it possible, maybe even probable that this will happen during my lifetime, but I wouldn't care to bet much on exactly when, or even roughly when.  So, I don't want to hold dollars any more than necessary, even if dollars are doing better than everything else at any given moment.

And when it comes up in other contexts, I defend the dollar.  Our fake paper bullshit money is the best fake paper bullshit money on the planet, right now, and reports of its impending doom are certainly premature.

The one indicator that I watch carefully is the DJIA priced in gold.  Chart here.

If that is low and falling, like it is now, I feel that buying gold and silver is a better bet, long term, than buying stocks.  Once that turns around, I'll probably dump my metals and buy stocks (index funds, actually).

The good news for me is that I don't have a lot of assets, so it doesn't really matter much that I also don't have the time to spend watching markets, or learning to be better at watching markets.

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August 26, 2011, 12:11:44 AM
 #334

sold some gold at 1770  Cool

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August 26, 2011, 01:50:36 AM
 #335

If that is low HIGH and falling, like it is now WAS IN 2001, I feel that buying gold and silver is a better bet, long term, than buying stocks.  Once that turns around, I'll probably dump my metals and buy stocks (index funds, actually).

I think you just convinced me to trade my metal for the Dow! Smiley


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August 26, 2011, 10:35:42 AM
 #336

If that is low HIGH and falling, like it is now WAS IN 2001, I feel that buying gold and silver is a better bet, long term, than buying stocks.  Once that turns around, I'll probably dump my metals and buy stocks (index funds, actually).

I think you just convinced me to trade my metal for the Dow! Smiley

You need to see it in the bigger context.  See the long chart on the first page of this report.

1999 would have been a good time to dump your stocks to buy metals.  Each share of a Dow index would have picked up ~40 ounces of gold.  Right now, a bit under 6 ounces will buy you one share of the Dow.  I expect that to get down to about 2 before the trend reverses.

Of course, you can't really know for sure, so you need to pick your own indicators.  I've decided to go with either a ratio under 2, or a strong upward trend.

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August 26, 2011, 02:21:28 PM
 #337

Excellent. Thanks for the report link. From a technical perspective, why shouldn't we draw bands somewhat as I have (green) below? Fundamentally, couldn't we see 1980 an undershoot after Nixon's shock wave?


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miscreanity
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August 26, 2011, 02:30:21 PM
 #338

Excellent. Thanks for the report link. From a technical perspective, why shouldn't we draw bands somewhat as I have (green) below? Fundamentally, couldn't we see 1980 an undershoot after Nixon's shock wave?

Good chart. Overshooting to the downward slope is a possibility, especially considering the similarities between today and the late 1970s. Market participants will obviously be looking first for horizontal support at about 2:1, then 1:1.

@ cypherdoc:

Looks like Roubini has been doing a few too many lines of coke off naked strippers.
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August 26, 2011, 02:48:28 PM
 #339

Excellent. Thanks for the report link. From a technical perspective, why shouldn't we draw bands somewhat as I have (green) below? Fundamentally, couldn't we see 1980 an undershoot after Nixon's shock wave?

Good chart. Overshooting to the downward slope is a possibility, especially considering the similarities between today and the late 1970s. Market participants will obviously be looking first for horizontal support at about 2:1, then 1:1.

@ cypherdoc:

Looks like Roubini has been doing a few too many lines of coke off naked strippers.

LOL.  Zerohedge is one of my favorites too!

sorry but i had to add to my DZZ at the bottom this AM!!! Grin
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August 26, 2011, 02:59:02 PM
 #340

just finished reading Ben's speech.  the 2 most important messages i heard was 1. no more direct QE and 2. the need for more fiscal discipline.

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