Gold: I smell a trap

[cypherdoc]

i think its coming; very, very soon.

cypher, what do you mean with "its coming?". the further gold decline? If so, i agree 100%

yup

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[MatthewLM]

I hope you are right because I want to buy.

[cypherdoc]

hint to where i think we're going:

[cypherdoc]

Google knocked it out of the park in AH earnings.  up 9%.  tomorrow ramp time!  LOL!  what a game...

edit: AAPL, AMZN up in sympathy.

[cypherdoc]

well, how'd you like them apples? 

i'm actually more constructive on pm miners now given todays action.  what i think may be happening is a generational move from debt to equity investment.  BIG PICTURE STUFF.

i'll have more this weekend when i have more time.

[miscreanity]

i'm actually more constructive on pm miners now given todays action.  what i think may be [is] happening is a generational move from debt to equity investment.  BIG PICTURE STUFF.

This.

Similar to Martin Armstrong's suggestion of a secular shift from trusting public government to trusting private interests.

For the technical perspective, this chart is excellent:



The progressive extension for each iteration can be attributed to a rising monetary base from official efforts such as QE in conjunction with liquidation of dollar-denominated assets that return statistically significant amounts of currency to cash status. Need for liquidity in USD is what will reduce its relevance, as the dollar won't be tied up with real assets as much, leaving the door wide open for alternatives. It is becoming a shallow reserve.

A deep pool of water evaporates slowly because little of its area is exposed at the surface; a shallow pool of water has greater exposure by percentage and thus evaporates more rapidly. The latter stages accelerate to finality. Trust is what's evaporating from the dollar.

[zby]

So what is the safe heaven now?  automaticearth that you also linked to at some point argues that for this stage cash in dollars is what is going to rule the market.  If not dollars then maybe CHF?

[miscreanity]

So what is the safe heaven now?  automaticearth that you also linked to at some point argues that for this stage cash in dollars is what is going to rule the market.  If not dollars then maybe CHF?

Gold. Real assets. The Swiss Franc is the closest fiat currency to gold, so it will continue to gain against the dollar, but lose against gold. Likewise, highly liquid currencies will be in demand for various reasons, but all forms of money are depreciating against gold.

Multiple dynamics are in play; only gold wins in this situation (and crypto-currencies such as Bitcoin, eventually).

[netrin]

(and crypto-currencies such as Bitcoin, eventually).

Do you not feel that a crypto-currency requires some base inherent value? The bitcoin transaction is a valuable, not-scarce service, while the bitcoin unit is nothing at all.

[miscreanity]

Do you not feel that a crypto-currency requires some base inherent value? The bitcoin transaction is a valuable, not-scarce service, while the bitcoin unit is nothing at all.

Yes, and they do have value. Functionally, crypto-currencies are no different from central bank-managed money - transactions are a commonality between fiat and crypto-currencies. The distinction is in where and how the management occurs.

Bitcoin may be an ideal reserve currency, but gold is an ideal reserve asset. A grocery store is wonderful so long as it has groceries. Bitcoin works great as long as the network is operational. Gold is great only if you have it. Both Bitcoin and gold are essential. Together, they are Captain Planet!

...

How many gold coins do you need to carry with you to start a new life elsewhere? If living expenses keep deflating, a single ounce of gold may come to be an average person's life savings. For now, at almost $2,000 per coin, a suitcase would easily hold a hundred ounces or so. Just make sure you've got wheels on it and hope you don't get stopped at a border. The latter problem applies to paper money too. That's where Bitcoin comes in.

Stick some gold in a bank as collateral and you can use the same currency system you've always been used to. Buy some 1/10th ounce coins and buy enough groceries to feed the family for a month. The internet may have caused whirlwind change, but it hasn't eliminated the need for food, water, shelter and a method of acquiring them. Without the internet, no Bitcoin. Then what?

Paper currencies (including digital variants) were as good as it came for ages, but the manifestation has always proved too whimsical to be stable. The only difference between any of them is physical presence.

Paper is subject to human nature, which can be unreliable to put it nicely. And you never know, the internet could conceivably be completely shut down and take Bitcoin with it, as unlikely as that is. Gold would still exist, even though it's harder to transport.

In a sense, Bitcoin provides debt with its own measure of value - it gives the abstract concept a definable quantity without being backed by anything other than its sheer existence, which is why it works as long as it exists. But again, if it somehow ceases to exist, we still have gold - the final insurance policy.

heres where it gets fascinating.  the argument for Bitcoin as money.  i would argue that Bitcoin is backed; by the network.  the huge amount of hashing power which has been brought to bear to process tx's and the blockchain.  this is what the gold bugs miss when they say there is no "backing" for btc.  the network comes with a cost and a BELIEF.  you said earlier belief in money makes it what it is.  lose that belief and it vaporizes.

Precisely! It isn't just belief, but mathematically-provable certainty. Currencies over the ages have been structured in a bid to mitigate the human intervention element. Bitcoin actually does it - it's as abstract as the concept of money itself. And yes, the network is the reason it has value; existence of the network is the belief and therefore the existence of Bitcoin. Well, that in combination with the way individual, relatively straightforward technologies are utilized in conjunction with each other (cryptography, distributed networking, triple-entry accounting) to form a truly unique system that is (as cliche as the saying is) greater than the sum of its parts.

Forget just gold bugs, almost nobody (even some economists with doctorate degrees) grasps that distinction thus far. For now, it's just a bunch of nutcases pushing computers to melting points who "get it". I'd even go so far as to say this is as big a development as written language, but to go down that road I'll have to start talking about Gaia theory and human-machine integration - i.e. fringe.

We definitely agree on Bitcoin.

The fundamental value is intangible but necessary, as the network itself minimizes fallible human intervention and management. It's only a matter of time until crypto-currencies have matured and become widely adopted (probably a few years, at least). Banks are struggling to stay alive right now - soon they'll have to struggle to stay relevant. I can see them becoming transaction verification acceleration providers and/or returning to genuine investment services.

[cypherdoc]

the breakdown has started.

[cypherdoc]

1.  stocks up
2.  gold/silver down
3.  UST's down
4.  pm miners?

[cypherdoc]

OMG, this is beautiful.

[cypherdoc]

USD's just pouring out of UST's and into stocks.

as long as $DXY behaves itself, this will go on for months.

[cypherdoc]

if you're a stock bear this should scare the shit out of you.  2 of the most bombed out sectors; financials and housing both doing an outside reversal on massive volume and with leverage.

what we're seeing is the Age of Deleveraging out of debt to equity investment; at least for the next few months.

[miscreanity]

the breakdown has started.

Based on the isolated and linear notion of price action? Is there a reason you do not share details for your method of analysis?

1.  stocks up
2.  gold/silver down
3.  UST's down
4.  pm miners?

What you're seeing is a Hail Mary. Following the money provides a very different picture than price shows.

Participation in both gold and silver futures is minimal; there are very few that are willing to liquidate their long positions, not to mention overwhelming physical demand. As discussed previously, the open interest is not being reduced during price drops. Because of that, the exchanges risk default. This is plainly visible in both of the linked gold and silver charts.

Time-based events drive price manipulation efforts. Options expiration is this week and that is always a target to squeeze longs from the market. The same applies to futures options expiration and delivery notification day, generally the last trading day of the month. These blatant attempts at painting charts to force investors out are standard fare when desperation becomes a factor. There is no doubt that the world's major banks and governments are desperate.

Buying opportunities are present with gold below $1,650 and silver under $32. Silver in particular is accelerating and poised to present another slingshot move, reducing the gold-silver ratio to below 30. As the days have been dragging on, there are already very few participants. This is the psychological uncertainty that is exaggerated by price chart movement without examination of other factors.

[cypherdoc]

now that we're up and out of the bear flag we should start trending; you know, that everyday up a little thing with a down day every long once in a while.  LOL!

[cypherdoc]

[cypherdoc]

the breakdown has started.

Based on the isolated and linear notion of price action? Is there a reason you do not share details for your method of analysis?

don't be mad at me miscreanity.  its just that when i talk to you, it feels like i'm talking to the wall.

[miscreanity]

now that we're up and out of the bear flag we should start trending; you know, that everyday up a little thing with a down day every long once in a while.  LOL!

The same applies to gold, only none of the indicators are against the uptrend (volume, RSI, MACD). For the Dow:gold ratio, the RSI is approaching oversold. The MACD is already at extremes, and the ratio has retraced to about 50% of the decline. I won't even get into the weeklies other than to say that looks even heavier.



Note the MACD and RSI which are at extreme lows instead of highs. MACD has crossed over to the upside. The dollar is in a much weaker position with RSI in the middle and MACD having made a decisive crossover to the downside.

The only indication of merit here is the 50-DMA which has just turned up a bit. With gold, the 50-DMA has begun to roll over. The last time that happened, gold dipped about 3.5% in one week to touch the 144-DMA and then raged on to new highs just over a month later.

This time around, the 144-DMA has been hit already and the 50-DMA has taken an extra two weeks to turn down. That is not suggestive of a weak market. In fact, I think a brief 1-day dip is in store if today's wasn't the only one to be seen before the rally takes off. It would also be wise to remember the basics of higher highs and higher lows.

Alone, the price technicals are inconclusive with only the 50-DMA pointing to further decline. However, this analysis in conjunction with futures data (and taking into consideration global demand) points very strongly to a "surprising" explosive move in the precious metals within the next couple of weeks. While I'm impressed by how much additional time has been squeaked out by the monetary authorities, I am also even more concerned that the resulting push up could induce a retaliation that will break the system and shut out small investors.

I do have to revise my time projection for the major rally to begin from October to extend into the first half of November.

Tuesday is the cutoff for CoT reporting data. From observation, the bullion banks load up on shorts at the end of the reporting period (Tuesday) which distorts the data enough to induce some confusion. That leaves the rest of the week for deceptive maneuvering. I expect pressure to remain into options expiry, although short-covering may occur.

An animal is most dangerous when it is wounded and desperate. That's the circumstance many banks and governments are in - they're exsanguinating and panicked. They will fight tooth and nail to escape the debt crisis without being destroyed in the process. Gold is the way out, but vast amounts of it are needed to cover the losses that will be exposed during the systemic financial collapse.

I have one question for you, cypherdoc: do you think the markets are being intervened in by monetary authorities?