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Author Topic: Gold: I smell a trap  (Read 44345 times)
cypherdoc
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August 23, 2011, 11:40:20 PM
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miscreanity
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August 24, 2011, 12:06:22 AM
 #222

the return will be waiting to buy assets at the bottom of the Depression for pennies on the dollar.  the wealth transfer at the end of the Depression of the 1930's was historic. 

That's what I'm looking at as well. Not many people will be able to avoid drawing down their savings to survive, leaving those with appropriate wealth management to scoop up dirt-cheap real assets.

Because its time:

we're at the top of a trading cycle in silver and today we formed whats called a swing high along with a downturn of several long term indicators shown in the bottom of my picture.  notice how the RSI, MACD, and Money Flow Index have been weakening for almost 4 months.  we hit the top of the overbought trading cycle today and should enter a drawn out downphase that could last months.  SLV in one day has turned down and is just hovering above $40.  it should slice down thru $40 like a knife thru butter.

edit:  sorry, the Money Flow Index got chopped off the bottom of my chart.  you'll have to take my word for it.

It isn't time until the market says it's time. Smiley

There's no doubt - the charts and indicators certainly are screaming for a correction. At the same time, it's dangerous to discount peripheral information that can potentially be more relevant. This whole thing just feels like it's going to whip around in an effort to throw off those who can't hang on. SLV isn't GLD, but they're functionally close enough in a monetary sense.

I do want to point you to one item; the GLD total NAV tonnes in the trust (source). There's an indicator that I came across while reading FOFOA's blog called the GLD Puke Indicator (yes, puke). It has had an almost perfect record of predicting a rise in gold within a day or two; it triggers a buy signal when the amount of gold in the trust has declined by >1%. That has been an indication of capitulation selling by holders of GLD.

Here is the relevant information, in tonnes:

Date08/2208/23
Tonnes1,284.4021,259.569

1259.569 / 1284.402 == 0.981 or a 1.9% decline.

That's an even greater decline than the ~1.8% drop on August 11th. In light of the fact that Jackhole is coming up, along with futures options expiration, there could be more selling pressure imminent to squeeze the weak hands further and/or at least hold the price below the $1850 level. If that's unsuccessful, we could see yet another rocket up approaching the $2000 level. I'm leaning toward the effort of maintaining the price level until the end of the month.

Ponder this for a moment:

Date08/0808/22
Share$167.12$184.59
Tonnes1,309.9221,284.402

How is it that the price per share is up over 10% while the tonnes held in the trust declined by almost 2%? That's either shoddy fund management, or the metal was needed elsewhere. Venezuela? COMEX deliveries? Perhaps other sovereign funds that have requested delivery? Eric Sprott is always looking for billions of dollars more in metal...


The last margin increase didn't do much to gold or treasuries; more like a speedbump. A lot of strong hands that can pay 100% margin want their metal delivered. Not to mention insatiable global demand. When the margin rates are increased in rapid succession or to a 1:1 ratio, I'll raise an eyebrow.

Finally, here's an interesting and creative solution to the issue of getting all the gold from BoE to Venezuela.

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cypherdoc
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August 24, 2011, 12:21:08 AM
 #223


It isn't time until the market says it's time. Smiley

its telling me its time.

That has been an indication of capitulation selling by holders of GLD.

that doesn't make sense.  holders of GLD can only sell their shares, not the bullion itself.

How is it that the price per share is up over 10% while the tonnes held in the trust declined by almost 2%?

how about capitulation buying from investors like Roubini?  he's an economist afterall.  gotta be right. Undecided

Finally, here's an interesting and creative solution to the issue of getting all the gold from BoE to Venezuela.

thats a great article.  and this is the real money backing thats supposed to fit into the new digital age?
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August 24, 2011, 12:55:59 AM
 #224

http://globaleconomicanalysis.blogspot.com/2011/08/2-year-treasuries-at-record-low-21.html

so when's this UST selloff supposed to occur?  and just how is inflation supposed to get going when the banks prefer to buy UST's instead of lend to each other?  UST's are acting like a big black hole sucking the life out of the real economy.  they're gonna drag gold down the hole too as everyone scrambles for cash to pay their basic expenses.
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August 24, 2011, 01:07:49 AM
 #225

That has been an indication of capitulation selling by holders of GLD shares.

that doesn't make sense.  holders of GLD can only sell their shares, not the bullion itself.

Fixed!  Grin

The suggestion is that weak and/or amateur hands that bought recently are panic selling. Meanwhile, bullion can be obtained by redeeming baskets of shares worth the equivalent of a 400oz good delivery bar. That means big money is grabbing lots of shares during these shake-downs, like a baleen whale scooping up shrimp. GLD is like low-hanging fruit for them; immediately available and simple to obtain.

how about capitulation buying from investors like Roubini?  he's an economist afterall.  gotta be right. Undecided

He may have suggested the QE route, but he did call the housing crash and subsequent problems. You can rely on him to understand the problem, just not offer a proper solution. That's beside the point, though. There are all kinds of calls for high prices in gold from various sources that people have grown to distrust. Is that intentional or a bid to maintain legitimacy? Does it matter?

There's still too much conflicting information and sentiment for me to say that the clamor for gold is indicating a top. I'll take it with a grain of a salt and make my own decision; that's still looking for gold in the mid-$2000 to $3000 range by late October to November before the real smack-down occurs.

thats a great article.  and this is the real money backing thats supposed to fit into the new digital age?

Why wouldn't it fit?

The world recognizes gold, but not Bitcoin yet. Such a change will be a process, not an instantaneous transition. Don't worry, give it time and we'll be rewarded for our BTC holdings - it'll be a lifetime worth of profit.

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August 24, 2011, 02:00:05 AM
 #226

Quote
how about capitulation buying from investors like Roubini?  he's an economist afterall.  gotta be right. Undecided

He may have suggested the QE route, but he did call the housing crash and subsequent problems. You can rely on him to understand the problem, just not offer a proper solution. That's beside the point, though. There are all kinds of calls for high prices in gold from various sources that people have grown to distrust. Is that intentional or a bid to maintain legitimacy? Does it matter?

yes, he did get the housing call right but i've always been severely disappointed in his solution for MORE fiscal stimulus.  
Quote
thats a great article.  and this is the real money backing thats supposed to fit into the new digital age?

Why wouldn't it fit?

even in 2011 they can't move gold around the world w/o all the listed problems and concerns in the article.  how are nations supposed to perform balance of payments of gold from debtor to creditor nations on an ongoing basis if we go back to a gold std?  it'd be crazy complicated and expensive.  we need something digital/instantaneous.  did someone say Bitcoin?
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August 24, 2011, 03:32:56 AM
 #227


I agree with everything you just said, miscreanity. That doesn't happen to me very often.

I'm pretty agreeable. Grin

http://globaleconomicanalysis.blogspot.com/2011/08/2-year-treasuries-at-record-low-21.html

so when's this UST selloff supposed to occur?  and just how is inflation supposed to get going when the banks prefer to buy UST's instead of lend to each other?  UST's are acting like a big black hole sucking the life out of the real economy.  they're gonna drag gold down the hole too as everyone scrambles for cash to pay their basic expenses.

I don't know. Smiley

Treasuries definitely aren't the sunshine and roses safety solution that capital needs, but old habits die hard.

The government's playbook includes a line that states: "If you make the rules, you can change the rules." As a last resort, gov't can play dirty. Think Frankendodd.

For now, the repo market twist look like the best option. You really need to read Alasdair Macleod's article on that. The gist of it is that the Fed will make it more desirable to enter repo contracts than to sit in treasuries or other "safe" instruments, probably by offering better contract terms than the paltry short-term treasury rates. As long as enough of those contracts wind their way back to Fed authorized participants (which can be forced by changing the rules), credit will effectively have been extended to the government.

In effect, it's a colossal shell game: "We loan money to the banks, the banks loan money to the gov't, the Fed bumps up the base monetary supply and loans more to the banks..." That will allow for business as usual and the games will continue for a while longer, but it's now in full Enron-mode; i.e. vapor. That first phase of getting money into the banks is over, so now it's time for banks to start lending to government since nobody else is buying (other nations don't have to sell, just stop buying - interest still accrues like quicksand on existing debt). The banks are becoming trapped in the vortex they unwittingly created; little more than puppets of the government they thought was theirs to control.

That still doesn't explain why gold should be dragged down, especially when its been behaving as a safe haven. As dollar velocity increases, its volatility will rise as well. Sure there'll be that initial surge of demand you described, but as the effect wears off and capital flows into assets, more money is needed. The more money in the system, the more destructive a deflationary crunch will be.

Eventually, no amount of money injection will work and the post-inflationary deflation will finally and violently take hold. Either way, gold stands as the king among assets because it also functions as money. I know you're still skeptical of it resuming that role; why is it receiving safe haven flows, then?

yes, he did get the housing call right but i've always been severely disappointed in his solution for MORE fiscal stimulus. 

Yeah, that's about when I wrote him off as a grade-A douche. I've heard he throws cool parties, though.

even in 2011 they can't move gold around the world w/o all the listed problems and concerns in the article.  how are nations supposed to perform balance of payments of gold from debtor to creditor nations on an ongoing basis if we go back to a gold std?  it'd be crazy complicated and expensive.  we need something digital/instantaneous.  did someone say Bitcoin?

There's no need to physically move the reserve bullion (just as dollar reserves are rarely ever 'move'); the existing system works insofar as gold is concerned (large-scale distributed storage with registered ownership of numbered bars). It's the leverage (and in turn the current custodianship) that's at issue. That built up during a fixed gold standard, but with gold freely floating via market exchange that rigidity is nullified, allowing it to form the basis for all currencies and goods exchangeable against it.

Market forces determine gold's value and values of everything else in relation to it; actually a very elegant system in its universality and self-correcting nature. Then the real issues shift to the fiat currencies instead of gold, but that's after the revaluation everything is undergoing - you could even look at these crises as price discovery on an epic scale.

Because gold is floating at that point, it and Bitcoin would effectively be mirrors of each other. Bitcoin is definitely the future and has some additional benefits but like it or not, gold is here to stay.

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August 24, 2011, 07:42:19 AM
 #228

Gold has legs yet. The downspike we saw yesterday was merely a blip on the road to $2500. From there, who the fuck knows.

At this point the Fed is simply waiting to pull the trigger on Quantative Easing round 3, the only bullet left in their arsenal in the fight against recession. When that happens, gold will go crazy.

If you're lucky enough to sell at the peak following QE3 you'll be extremely happy. Some are saying $2500, some are saying $3500, it will be a nerve-wracking decision that may roll around as soon as November.
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August 24, 2011, 01:47:53 PM
 #229

SLV:  $40 goes down.
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August 24, 2011, 01:49:26 PM
 #230

DZZ ramping.
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August 24, 2011, 01:50:53 PM
 #231

sorry guys.  its golds turn.
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August 24, 2011, 01:56:51 PM
 #232


At this point the Fed is simply waiting to pull the trigger on Quantative Easing round 3, the only bullet left in their arsenal in the fight against recession. When that happens, gold will go crazy.


THIS is your investment thesis?  Depending on what you think the Fed will do? 
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August 24, 2011, 02:03:19 PM
 #233

Imagine trying to sell your bags of junk silver, stacks of gold coins and bars at the local coin dealer in a line of a hundred people.
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August 24, 2011, 02:15:47 PM
 #234


For now, the repo market twist look like the best option. You really need to read Alasdair Macleod's article on that.

ok, i read it.  not impressed.  you know, a long time ago i realized that gold bugs are just inflationists in "sound money" clothing.  they'll concoct the most amazing methods to continue the inflation they supposedly hate.

As dollar velocity increases, its volatility will rise as well.

uh, i don't know if you've realized it yet, but money velocity has been plunging.

I know you're still skeptical of it resuming that role; why is it receiving safe haven flows, then?

its called "speculation".


There's no need to physically move the reserve bullion (just as dollar reserves are rarely ever 'move'); the existing system works insofar as gold is concerned (large-scale distributed storage with registered ownership of numbered bars). It's the leverage (and in turn the current custodianship) that's at issue. That built up during a fixed gold standard, but with gold freely floating via market exchange that rigidity is nullified, allowing it to form the basis for all currencies and goods exchangeable against it.

why does this sound like MyBitcoin?

gold is here to stay.


i beg to differ.
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August 24, 2011, 02:18:25 PM
 #235

Check the following Max Keiser report out.
Interesting stuff about an bank run for gold...

http://www.youtube.com/watch?v=pudykXGTDtg&feature=channel_video_title

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August 24, 2011, 02:20:11 PM
 #236

Gold dipped 5% today in a matter of hours, it it the start of the debated decline?
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August 24, 2011, 02:22:49 PM
 #237

Gold dipped 5% today in a matter of hours, it it the start of the debated decline?

i have long since stopped being amazed at what is truly amazing in the financial markets.  the carnage has only begun.
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August 24, 2011, 02:30:42 PM
 #238

Does DZZ drive the price of gold? How many clever speculators have been waiting for gold to fall, especially with the price rising almost exactly to a 423.6% Fibonacci projection from the May 1st to 5th decline? If gold retests its $1900 high, how many of them will panic and sell DZZ? When has it ever been good to ride with the masses, much less try to catch a falling knife (DZZ)?

everyone knows that "investment" or speculative demand is driving gold.  when you see capital flows (as you've said many times in this thread) go into a speculative investment that uses a leveraged position to short gold, you'd be crazy to ignore it.

The tail does not wag the dog. Here today, smoke tomorrow. Just cash in while you can - I'd sell most of my short positions now. That's the voice of experience: you don't forget losing a one week, seven-figure profit in a matter of hours.

who's losing that amount of money in a matter of hours? 

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August 24, 2011, 02:31:04 PM
 #239

Gold dipped 5% today in a matter of hours, it it the start of the debated decline?

i have long since stopped being amazed at what is truly amazing in the financial markets.  the carnage has only begun.

True. Yet this is gonna be interesting, I've been watching the price climb for months now, very dynamically, I wonder how this plays out Smiley Exciting times!
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August 24, 2011, 02:49:04 PM
 #240

look guys, this was never meant to be a "i told you so" or "i'm right, you're wrong" type of thread.

i really meant "i smell a trap" to try and warn everyone not to buy the parabolic blowoff.  if you're trapped in physical bullion and you agree with me that we've topped, at least try to save yourselves by buying a hedge like DZZ to cut losses. (disclaimer: of course i own DZZ as i've openly said many times here!).  this goes for those who've put most of their savings in illiquid bullion.

we're all Bitcoiners in the end.  lets let the die hard gold bugs bear the brunt of the selloff.
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