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Author Topic: Gold: I smell a trap  (Read 78469 times)
netrin
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August 26, 2011, 03:06:00 PM
 #341

Overshooting to the downward slope is a possibility, especially considering the similarities between today and the late 1970s.

Could you elaborate on that a bit? Nixon precedes me.

Is it true that the Dow was exclusively trading American stocks with USD by primarily American people before 1970? If so, how can we connect that time with a fixed gold/USD price to a post Nixon global market with floating exchange?

"All information is already in the chart." Fair enough. But under 7:1, 4:1, 2:1, 1:1, 1:2 all look equally arbitrary to me.

Ben's speech...no more direct QE and...

Bitcoin bugs did not appreciate the news.

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August 26, 2011, 03:13:02 PM
 #342

Overshooting to the downward slope is a possibility, especially considering the similarities between today and the late 1970s.

Could you elaborate on that a bit? Nixon precedes me.

Is it true that the Dow was exclusively trading American stocks with USD by primarily American people before 1970? If so, how can we connect that time with a fixed gold/USD price to a post Nixon global market with floating exchange?

"All information is already in the chart." Fair enough. But under 7:1, 4:1, 2:1, 1:1, 1:2 all look equally arbitrary to me.

Ben's speech...no more direct QE and...

Bitcoin bugs did not appreciate the news.

another way to look at the difference in opinions here is that I and S3052 believe in investing countercyclically, ie, selling on the way up before the crowd and buying on the way down.  or should i better say trying to pick tops and bottoms?  most others here believe in trends and momentum.

of course others will just say they are following strong fundamentals which won't change the course or direction of the gold market.  this will take time to play out.
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August 26, 2011, 03:17:41 PM
 #343

interesting response by the stock mkt, eh?  perhaps the spin will be "Ben finally advocating fiscal AND monetary discipline so buy, buy, buy!"

interesting how PM's aren't following.  perhaps we'll have that multiday/week stock rally with PM correction i was talking about.
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August 26, 2011, 04:02:05 PM
 #344

Ben:  no mention of Operation Twist or repos.  if bitcoin didn't like it what will gold do?
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August 26, 2011, 04:13:01 PM
 #345

What do you think to this? http://mises.org/daily/5574/On-the-Brink-of-Inflationary-Disaster

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August 26, 2011, 04:19:40 PM
 #346

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.

comments?

No more direct QE was pretty obvious - too much opposition. Calling for fiscal discipline is just lip service unless actions are taken to back it up. Without political backing in conjunction with monetary tightening, there's no action.

Also, saying that the deficit needs to be fixed in a way that doesn't hinder the economy is like telling someone with a dislocated shoulder to pop it back in without causing any pain. Not possible.

What struck me more was the suggestion that they'll do what's needed to assist economic recovery. To me, that says it's going to be more of the same, just not immediately; maybe when the markets have crashed a little further from where they are now, or the crisis in Europe moves to a breaking point.

Of course, that's all verbiage. A liar can keep lying until he's blue in the face and there still won't be a consensus on whether he's telling the truth or not. That's a politician's job, or in this case an economic head - placate the people/markets. It's exactly what happened: treasuries and gold are steady, equities aren't entirely spiraling out of control and the dollar is relatively steady as well - mostly because it wasn't thrown under the bus.

If you look in the right places, you'll see that the story is quite different. A duck might look calm while on the surface of the water (Bernanke speaking), but underneath his legs are kicking like mad to move him around (extreme volumes, open interest and statistical concentrations). The same is going on behind the scenes. Again, I'll defer to Eric De Groot in examining spread trade statistical concentration.

The more spread trades put on, the less investors' fight-or-flight mechanism is certain of which way to go. That means that there will be fewer on-board when the train leaves the station, at least when it comes to position size. Most have either lightened up their long positions, closed out entirely, gone short or taken hedging/spread positions. Where was all the selling coming from during the 23rd and 24th? Was it just longs taking profits or was there a helping hand flooding the market with short positions? What happens when those shorts are covered or take profits?

All this week during the $200 gold decline, I can almost guarantee that commercial trading positions (bullion banks and other big players) have been accumulating on the buy side; frustratingly, we won't know for certain until next week's CoT report. The price will be pushed up and as the current shorts cut their losses, the covering will provide the additional selling for those commercial interests to buy into. As the price rises, existing longs alongside the commercials (like me!) will add to their positions while additional 'dry powder' funds will come in. Momentum buying will carry the price further until the retail suckers pile in (mostly from fear of missing the ride up) and cause another spike high well above $2000/oz.

With that happening so shortly after such a large run-up already, down comes the bullion bank hammer (assisted by margin increases and negative media) and flushes all the doubly-weakened spiders out. Calls of the bubble top will make the rounds yet again after a near-$1,000 drop occurs (~30% or so corrective declines are normal on the way up). This time, enough cumulative froth will have been built up that many will decide the insane volatility and $200 price swings aren't worth it, so there won't be as much resistance on the way down as there was this week (picture a clean left hook followed by a solid uppercut). An outside reversal to the downside will be painted for the remainder of 2011 and the price will rise on a gentle slope until the low-liquidity end-of-year games.

These annual games are shaping up no different from other years, just with a progressively earlier and stronger resistance to their efficacy. It's the market forces that make things happen, not the speeches given at Jackhole or from the White House. Those are reactionary, taking credit by responding to what they can no longer control or hide.

As long as you've still got some physical metal, trade paper all you want. I'm trading paper to get physical. Smiley

another way to look at the difference in opinions here is that I and S3052 believe in investing countercyclically, ie, selling on the way up before the crowd and buying on the way down.  or should i better say trying to pick tops and bottoms?  most others here believe in trends and momentum.

of course others will just say they are following strong fundamentals which won't change the course or direction of the gold market.  this will take time to play out.

All of those factors matter. Right now, short-term trading is immensely dangerous. For example, I managed to squeak out 50 pips profit by shorting USD/CHF at 0.8120, but doing so regularly would be a fool's gambit. That type of short-term counter-cyclic trading only presents opportunity once in a while.

For momentum, I'm riding the 11-year gold bull which doesn't seem to be ready to take a major pause quite yet. You're right, it will take time and is the long-term play. Short-term there isn't often enough room for momentum to build, which is why hedge funds are shredding themselves apart as technical indicators keep getting falsely triggered.

Use the appropriate technical strategy for a market as long as you have a solid understand of each respective market's fundamentals; swim perpendicular to a rip-tide, not against it.
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August 26, 2011, 04:22:58 PM
 #347

interesting response by the stock mkt, eh?  perhaps the spin will be "Ben finally advocating fiscal AND monetary discipline so buy, buy, buy!"



Spin is probably: "Ben has demonstrated in the past that he's willing to act in a big way if he thinks the economy is tanking, but since there are no new policy announcements this time, the economy must be in less danger of a recession than the market has been thinking over the last few weeks." ... Or something like that.


Bitcoin is the first monetary system to credibly offer perfect information to all economic participants.
But Bitcointalk & /r/bitcoin are heavily censored. bitco.in/forum, forum.bitcoin.com, and /r/btc are open.
Best info on Casascius coins: http://spotcoins.com/casascius
miscreanity
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August 26, 2011, 04:27:53 PM
 #348

Ben:  no mention of Operation Twist or repos.  if bitcoin didn't like it what will gold do?

If the Bitcoin economy were of sufficient size to be a source of influence instead of being influenced, that comparison might hold. Currently, Bitcoin is still too small of a market to hold its own and continues to be buffeted by capital flows, exhibiting behavior similar to equities at times and currencies (including gold, but more so anti-dollar types - AUD, CHF, EUR) at other times.

There's also the fact that the Bitcoin monetary/unit base is still being rapidly inflated by mining, so the price may have held for a while prior to this major event (Jackhole), but now I think a lot of people are starting to offload somewhat due to their expectations not being met.

Now where are those news stories about BitCon 2011 from the media?
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August 26, 2011, 04:52:28 PM
 #349


wow, this was from Robert Murphy in whom i generally respect?  problems in his article i see:

1."For example, if the Fed buys $10 million in mortgage-backed securities from Joe Smith, then Smith will deposit the check in his own checking account. His bank will credit Joe Smith's checking balance by $10 million, but at the same time the bank's account with the Fed itself will rise by $10 million too."

this is a terrible example and misrepresentative at best.  the Fed doesn't buy the MBS from the consumer, its been buying them from the banks directly and they've been hoarding the USD's at the Fed in the form of excess reserves and NOT lending it out to Joe Smith.  in his example he implies Joe Smith has access to this money in his checking acct and then can spend this money in the real economy.

2.  as i discussed earlier up the thread the increase in demand deposits has been more a function of investors moving their USD's out of money market funds due to the UST debt downgrade.  again, not a fx of those excess reserves leaking out into the economy to the accts of Joe Smith.

3.  in that table of required vs. excess reserves he only points to the fact that the excess reserve column has decreased by approx $8,000M.  he ignores that the required reserve column has increased by $5,000M for a net decrease of req plus excess reserves of $3,000M; not nearly as bad as he one sidedly misrepresents.

in 2007-8 i was heavily in miscreanity's camp of stagflation.  i got squicked by the dive in energy and mining stocks and a bit in bullion holdings offsetting my massive gains in stock shorts for an overall small net positive.  guys like John Williams and others like Jim Puplava were screaming for the dreaded hyperinflation which never came.  i still don't see it coming.
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August 26, 2011, 05:09:16 PM
 #350

That Joe Smith example was just to explain that the money is from nothing.

The excess reserves appeared when the federal reserve replaced the banks hidden losses (Through their derivatives) with cash, and banks are just leaving a lot of this cash around. What is your explanation to what happens to these excess reserves next?

And that is only part of the story, money has leaked out elsewhere.

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August 26, 2011, 05:18:06 PM
 #351

That Joe Smith example was just to explain that the money is from nothing.

thats no excuse.  he should give a true example of how it works.  he implies Joe Smith has direct access to that monetization money.   they don't; thats why the real economy is getting strangled.

The excess reserves appeared when the federal reserve replaced the banks hidden losses (Through their derivatives) with cash, and banks are just leaving a lot of this cash around. What is your explanation to what happens to these excess reserves next?

And that is only part of the story, money has leaked out elsewhere.

i agree that "some" of this money has leaked into stocks, commods, and pm's by the banks recouping their losses.  now that they have their bailout USD money and bonuses, why would they destroy the value of those USD's by hyperinflating it away to the benefit of the avg American?  they made that mistake in the 1970's and i think have vowed to never let that happen again.
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August 26, 2011, 05:49:36 PM
 #352

if there are any doubts about market manipulation just look at the straight line up in WHR (Whirlpool) stock today.  i don't think i've ever seen such a straighter, unabated rise.  this is why i'm so suspicious of parabolic rises; you don't know when they're gonna pull the rug out.
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August 26, 2011, 06:05:40 PM
 #353

Would someone please explain how the 70's are related to 2010's?

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August 26, 2011, 06:14:21 PM
 #354

Would someone please explain how the 70's are related to 2010's?

Stagflation. You are going to be hearing that word a lot from now on.
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August 26, 2011, 06:14:47 PM
 #355

very strange.  USD down, EVERYTHING else up.  all one mkt except up.  i don't like it.
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August 26, 2011, 06:18:14 PM
 #356

Would someone please explain how the 70's are related to 2010's?

Stagflation. You are going to be hearing that word a lot from now on.

i was going to launch into a long winded attempted comparison but that one word just about sums it up.
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August 26, 2011, 06:31:48 PM
 #357

Quote
i agree that "some" of this money has leaked into stocks, commods, and pm's by the banks recouping their losses.

You forgot US treasuries which is a big one to forget.

very strange.  USD down, EVERYTHING else up.  all one mkt except up.  i don't like it.

Of-course USD will be down, Ben Bernanke made a speech remember?

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August 26, 2011, 06:40:19 PM
 #358

Could you elaborate on that a bit? Nixon precedes me.

Is it true that the Dow was exclusively trading American stocks with USD by primarily American people before 1970? If so, how can we connect that time with a fixed gold/USD price to a post Nixon global market with floating exchange?

"All information is already in the chart." Fair enough. But under 7:1, 4:1, 2:1, 1:1, 1:2 all look equally arbitrary to me.

In the '70s, the US was the world's primary free-world economy. The world's primary source of oil had shifted to the Middle East. In the late 1970s, the oil exporting nations realized their power and stood up against American dominance (largely because of irritation at being paid for their real asset of oil with worthless paper no longer tied to another real asset - gold). That triggered a general economic slowdown as the nation's source of energy was squeezed. This led to rather sudden asset and production deflation in the face of money supply that was still rising. As Hugo offered: stagflation.

Over the years there have been several cases of similar resistance (particularly Saddam Hussein), though it wasn't a unified front as during the late '70s. Now we are seeing a global shift to remove the USD as reserve currency and reject American dominance. This is far more troubling, as there is no way for the US to prevent such a massive tidal shift in desire for freedom from the wealth-siphoning effect of the USD. Without being the reserve currency, the US will have to pay with assets instead of dollars.

Gold for oil, and not cheap (sub-$1,000) gold - gold at its real value many times higher than current.

It wasn't the greatest movie, but I strongly recommend Rollover (1981) for a good idea of how the interrelated aspects would cause serious consequences. The action can be seen in this video. Even though it's an old film, the depiction is still very applicable to the current situation.

There is also a much more in-depth explanation from FOFOA, as well as a follow-up with additional clarification. I have to say, I recommend everything from FOFOA. If I'd come across his information (also that of Another, FOA, et al.), I wouldn't have had to discover nearly so much on my own. Make use of the resources offered by him to understand where the world is headed.

With the chart, nothing really stands as support between here and the previous long-term lows of 2:1, then 1:1. Those are the targets for big money. When those ratio levels are reached, they'll start lightening up their positions. That will happen as the little guys who still have some investable wealth have finally decided to get into the game, providing potential for an overrun below 1:1 and putting their own heads in the noose. The rich get richer.
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August 26, 2011, 06:54:33 PM
 #359

http://www.bloomberg.com/news/2011-08-26/u-s-banks-said-to-seek-relief-from-regulators-as-deposits-swell.html

for a series of perverse, conflicting facts as a result of current happenings, read this.  doesn't sound USD bearish to me.
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August 26, 2011, 06:58:50 PM
 #360

In the '70s, the US was the world's primary free-world economy. The world's primary source of oil had shifted to the Middle East. In the late 1970s, the oil exporting nations realized their power and stood up against American dominance (largely because of irritation at being paid for their real asset of oil with worthless paper no longer tied to another real asset - gold). That triggered a general economic slowdown as the nation's source of energy was squeezed. This led to rather sudden asset and production deflation in the face of money supply that was still rising. As Hugo offered: stagflation.

Over the years there have been several cases of similar resistance (particularly Saddam Hussein), though it wasn't a unified front as during the late '70s. Now we are seeing a global shift to remove the USD as reserve currency and reject American dominance. This is far more troubling, as there is no way for the US to prevent such a massive tidal shift in desire for freedom from the wealth-siphoning effect of the USD. Without being the reserve currency, the US will have to pay with assets instead of dollars.

To add to this, the distrust for the dollar comes from before the end of Bretton Woods by Nixon. People did not trust Bretton Woods as they saw it was a fake monetary system. Already at the end of the 40's Saudi Arabia was having problems getting an once of gold at $35 (and remember FDR devaluated 40% just a decade before), and so the USA had to create special gold coins and send them to the arabs as payment instead of the paper dollars. During the 50's and the 60's the price of gold went crazy (well over $35) a couple of times, until the USA could not control it anymore and had to default during the 70's.
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