Gold: I smell a trap

[cypherdoc]

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.

OMG, you ARE amazing.  you must blog for a living.  don't you have a day job?  i don't know how you consistently produce these tomes but they benefit all even though i disagree with some of your conclusions.

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[cypherdoc]

sure enough, Whirlpool forms a ^ at 10:50am and heads straight down.

[CurbsideProphet]

Sentiment indicator plotted over GLD.

[hugolp]

Sentiment indicator plotted over GLD.

What does sentiment represent? Or said in another way, how do you calculate sentiment?

[miscreanity]

OMG, you ARE amazing.  you must blog for a living.  don't you have a day job?  i don't know how you consistently produce these tomes but they benefit all even though i disagree with some of your conclusions.

Thanks, lol. Like I said, I trade - and sometimes offer private financial consulting. The blogging has become somewhat of a hobby, along with Bitcoin. I avoided it for a while because most of what I have to say was available elsewhere. Everyone's free to form their own conclusions.

Here are future gold price estimates. The gist is to watch the 40 & 50-week moving averages, as well as the 144-day moving average.

[CurbsideProphet]

What does sentiment represent? Or said in another way, how do you calculate sentiment?

Sentiment indicators are employed in technical analysis to quantify the levels of optimism or pessimism present in various markets. For example, some indicators will account for all the long and short positions on a particular exchange in order to determine a bearish or bullish market.

As you can see from the chart, with sentiment below GLD, this has been very bullish.  We are now seeing a rather strong divergence.  Enough to at least give me time to pause and reflect.  One chart is not the end-all of course, just trying to add to the data. 

[kjj]

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?

Heh, why bother drawing lines on the chart if you are just going to ignore them when you want to? 

But really, yes, it is quite possible.  If that is the case, we are pretty much on the lower bound of your green channel right now, and right now would be the time to dump metals and buy stocks.

I'm not sure that I buy the four seasons model advocated by the longwave group.  It does make sense at times, but I usually end up back at my theory that everyone is wrong.  If it does turn out to be right, we can expect the next bottom at around 2 or 1.  Two would be appropriate for a "winter" bottom.  One would be right if we match the 1896 and 1980 crashes, but ignore 1932.  Below that, to the 0.7 or 0.5 level as suggested by the 1932->1980 trendline (black line on the chart) seems a bit silly.  I think we would have bigger problems of the Mad Max variety before it gets there.

The difference is not trivial.  Getting it wrong means that you buy a third or a quarter or a sixth or a twelfth as much value as you could have.

If 6 comes and goes, start watching closely around 2.  If 2 comes and goes, then 1 is almost certainly the sure winner.  The problem will be knowing a temporary pullback from a sustained move.  I would watch for a sustained rally in the stock market that coincides with a sustained decline in the gold market.  Sustained meaning about 2 weeks, but I think it'll come down to a feeling rather than a set duration.

[cypherdoc]

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?

Heh, why bother drawing lines on the chart if you are just going to ignore them when you want to? 

But really, yes, it is quite possible.  If that is the case, we are pretty much on the lower bound of your green channel right now, and right now would be the time to dump metals and buy stocks.

I'm not sure that I buy the four seasons model advocated by the longwave group.  It does make sense at times, but I usually end up back at my theory that everyone is wrong.  If it does turn out to be right, we can expect the next bottom at around 2 or 1.  Two would be appropriate for a "winter" bottom.  One would be right if we match the 1896 and 1980 crashes, but ignore 1932.  Below that, to the 0.7 or 0.5 level as suggested by the 1932->1980 trendline (black line on the chart) seems a bit silly.  I think we would have bigger problems of the Mad Max variety before it gets there.

The difference is not trivial.  Getting it wrong means that you buy a third or a quarter or a sixth or a twelfth as much value as you could have.

If 6 comes and goes, start watching closely around 2.  If 2 comes and goes, then 1 is almost certainly the sure winner.  The problem will be knowing a temporary pullback from a sustained move.  I would watch for a sustained rally in the stock market that coincides with a sustained decline in the gold market.  Sustained meaning about 2 weeks, but I think it'll come down to a feeling rather than a set duration.

Longwave;  isn't that Ian Gordon?

[BitcoinBug]

OMG, you ARE amazing.  you must blog for a living.  don't you have a day job?  i don't know how you consistently produce these tomes but they benefit all even though i disagree with some of your conclusions.

Thanks, lol. Like I said, I trade - and sometimes offer private financial consulting. The blogging has become somewhat of a hobby, along with Bitcoin. I avoided it for a while because most of what I have to say was available elsewhere. Everyone's free to form their own conclusions.

Here are future gold price estimates. The gist is to watch the 40 & 50-week moving averages, as well as the 144-day moving average.

Is noblenomads.com your blog? You just got a new reader, if it is

[netrin]

Heh, why bother drawing lines on the chart if you are just going to ignore them when you want to?  
...
If 6 comes and goes, start watching closely around 2.  If 2 comes and goes, then 1 is almost certainly the sure winner. 

I learned all I know from the likes of the gentlemen here and their links. I thought the black line to 0.5 looked pretty optimistic/catastrophic and just painted what looked to be a tighter fit. Do you insist on discreet ratios or are you just horizontal with 1896, 1932, 1980, and other historical bottoms?

Buy as much physical metal as possible and hold it outside of the western banking system before using any remaining cash to trade with.

You're all invited to join me up in Greenland for a treasure burial and hunt. If the world goes medieval, we're prepared. Copious pristine water, wildlife, bountiful fish, not to mention fist sized rubies, gold, and oil!

[miscreanity]

As you can see from the chart, with sentiment below GLD, this has been very bullish.  We are now seeing a rather strong divergence.  Enough to at least give me time to pause and reflect.  One chart is not the end-all of course, just trying to add to the data. 

By itself, I'd agree that the extent of the rise is concerning. Is it safe to assume the data is the net long position for all of GLD and not broken out into different classifications of traders?

With the safe havens offering greater incentive to park wealth in them instead of other asset classes amid continuing financial turmoil in Europe, it's unlikely that these longs will sell just yet. This week's correction has probably cleared out all of the newcomers and left only those who are in for the long haul, both in equities and futures.

If the current GLD holders are indeed the strong hands, the price will have to rise to meet demand/sentiment before the longs will even consider divesting in size. With such a massively sustained jump, that point could be very high. I don't know if there will be another push down when markets reopen, but it's extremely unlikely that we'll see new lows.

As soon as the peak is reached (I'm still thinking in the $2,500 to $3,000 range), there will be a hellfire of short-selling ammunition unleashed just as happened with silver in May. This week was probably a mid-point assault. Until the gap by $1,680 is filled, it will still be the target. The overshoot should approach the trend acceleration breakout point - approximately $1,600. That's simply the way players in this market have come to operate.

Buying a few hundred $200 GLD puts when they're pennies should have the potential to make millionaires, probably by year-end. Not bad for a few thousand dollar risk. Do so only if you understand options trading and have the discipline to mind your stops!

For anyone on the US east coast, best of luck and hope to see you sometime next week.

Is noblenomads.com your blog? You just got a new reader, if it is

I plead the fifth! Oh, and there might not be many updates until later in the week, depending on circumstances beyond my control...

[CurbsideProphet]

Buying a few hundred $200 GLD puts when they're pennies should have the potential to make millionaires, probably by year-end. Not bad for a few thousand dollar risk. Do so only if you understand options trading and have the discipline to mind your stops!

GLD is trading at $177.  How do you buy in the money puts for "pennies?"

[cypherdoc]

according to FOFOA the banks should be dumping their bailout cash as fast as possible.  whats up?

edit:  FOFOA (hyperinflationist) insists that deflation will be resisted by banks b/c the asset side of their balance sheet will collapse.  but wouldn't that be balanced by a skyrocketing USD value of their excess reserves?

[cypherdoc]

FRB total assets=$2.8T

Ben is going to print another $52 T to cover private/public debt like real soon?  when does this exactly happen after Fridays announcement?

[cypherdoc]

isn't money velocity of M2 supposed to be accelerating if hyperinflation is supposed to be taking root?

[cypherdoc]

i'm reviewing FOFOA's post on Deflation vs Hyperinflation.  he only came to his views in 2008?  that by itself doesn't mean he's wrong mind you.

[cypherdoc]

FOFOA: "A super inflationary stance by the Fed means that even unemployed workers can buy a house and pay for it!"

FOFOA later in article: "How close to the business end of the printing press are these millions of North Americans? You guys seem to assume that, during hyperinflation, millions of American mortgage payers will have access to this river of cash early enough to benefit overall. By the time they get their hands on it they may be struggling to meet other skyrocketing expense like property taxes and, uh, food. Wages won't keep up. Most people simply won't be able to keep up.

FOA:  "Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

ME: Where is this happening?  we are on the cusp of a Greek/PIG default and the ECB is orders of magnitude behind in this supposed monetization.  so is the Fed as outlined above. Germany is saying no more. to my mind, they will never be able to monetize all the bad debt.

FOFOA: This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours.

ME: so again, how does this shortage of cash lead to unemployed workers buying a house as he said above?  how does the avg unemployed worker come to the gold table causing the final parabolic blowoff to the charts?

i must admit, to my simple mind, there are too many twists, turns, and exceptions to FOFOA's logic.  paraphrasing: yes RE will go up, but down in gold terms so therefore its not a good investment.  yes the Dow will stay the same or go up but again down in gold terms so therefore it is not a good investment.  yes, there will be  a shortage of USD's with everyone scrambling for them but in your face hyperinflation and devaluation.  no, debtors do not have to pay off their debts, they can be socialized (never says anything about how gov'ts can default which we're about to see).  yes, we can have deflation in certain assets yet crushing HI in gold.

to my simple mind we've had USD devaluation, i.e. debt accumulation, for 100 yrs with rising asset prices across the board in stocks, bonds, commodities, and now gold.  we've now hit the ceiling and everything will go into reverse, i.e., rising USD value as assets across the board default and go into reverse, including gold; down.  

[cypherdoc]

miscreanity:

you need to STOP recommending FOFOA's blog.  when you sift thru all the twists, turns, and exceptions he ultimately is just guessing what the Fed/gov't will do as are you and I and he doesn't even include any hard core statistics. human behavior can be totally unpredictable and i would be careful to presume Ben is an insensitive human being to all the criticism as well as being a linear thinker.

if you insist on recommending a blog to read, You Sir, should recommend, wait for it.....Noble Nomads.  now that guy has way more insight into investing and the gold markets than FOFOA IMO.  he even convinced me to hold onto my last 2 dozen Krands.  he writes well and has more clear, altho somewhat verbose, arguments that i at least can relate to altho i might not totally agree with.  AND he agrees with me on Bitcoins so he can't be all that bad!  so take that FOFOA and shove it up your arse.

[MatthewLM]

isn't money velocity of M2 supposed to be accelerating if hyperinflation is supposed to be taking root?

Wouldn't the unlent excess reserves be pushing the velocity down most recently?

Also gold has been going up as the velocity as shown on the graph has been going down. Did you think about that?

In fact you should be worried about the decrease slowing down and perhaps reversing. Central banks may have wiped clear a lot of the losses and debts but will banks start flowing this credit around as they used to again? Central banks are enabling it to happen.

to my simple mind we've had USD devaluation, i.e. debt accumulation, for 100 yrs with rising asset prices across the board in stocks, bonds, commodities, and now gold.  we've now hit the ceiling and everything will go into reverse, i.e., rising USD value as assets across the board default and go into reverse, including gold; down.  

You can't say this without saying why. It's a worthless statement.

Even if the banking system collapses and takes most of the credit system down with it, I still see gold going up as it is safety from the collapsing system even with deflation and the like. Also this wont happen, such a circumstance has been diverted when governments and central banks subsidised banks. Now governments and central banks will continue to throw money at the problem until their own systems collapse.

I should mention that there are several definitions for hyperinflation. All I will say is that I think there will be inflation to come rather than deflation in the foreseeable future.

[cypherdoc]

Wouldn't the unlent excess reserves be pushing the velocity down most recently?

yes, i think so.

Also gold has been going up as the velocity as shown on the graph has been going down. Did you think about that?
In fact you should be worried about the decrease slowing down and perhaps reversing. Central banks may have wiped clear a lot of the losses and debts but will banks start flowing this credit around as they used to again? Central banks are enabling it to happen.

how could i not after the last 2d's reversal?  I just see signs in the technicals and even in the fundamentals that might indicate a reversal.  i'm the one assuming the difficult role here trying to buck a multiyear strong trend b/c it still doesn't make sense to me that the Fed would destroy itself.  

You can't say this without saying why. It's a worthless statement.

Even if the banking system collapses and takes most of the credit system down with it, I still see gold going up as it is safety from the collapsing system even with deflation and the like. Also this wont happen, such a circumstance has been diverted when governments and central banks subsidised banks. Now governments and central banks will continue to throw money at the problem until their own systems collapse.

I should mention that there are several definitions for hyperinflation. All I will say is that I think there will be inflation to come rather than deflation in the foreseeable future.

this whole thread is filled with my rationales as to why i think the USD can rise and gold go down from here so i won't bother to repeat.  as long as Ben has the power to screw all gold holders by squelching liquidity i remain cautious.  you truly have to believe in armageddon if you think that no matter what, deflation or inflation, gold MUST go up.