Gold: I smell a trap

[cypherdoc]

What about European HI and American deflation?

i don't think so b/c the correlations are so tight.  US banks have alot invested in Euro debt.  also look at the carnage in european stock mkts.

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[kjj]

i sure hope you're not saying my pt was silly. i think we're saying the same thing.  think about it, if you feel HI is right around the corner, the best thing to do is to go out and take out the largest most leveraged loan you could get, typically a mortgage (most favored tax haven), and buy as many houses as possible.  the banks got seriously hurt in the 1970's by giving out too many easy RE loans which got inflated away.  this is one of my critical pts; they aren't going to repeat this mistake by leveraging up and spraying USD's all over the economy.  and if you don't get HI, how is gold going to go to the moon?

Yup, that would be the most rational thing to do if you were sure that inflation was coming.  Not even hyperinflation.  Just regular old steady inflation of more than about 4 or 5% would be enough to make that a profitable play.

My point was that even if Jesus himself showed up in person to tell everyone that hyperinflation would be starting in a month, housing would not be the place that most people would go to, because they are still smarting from the hard spanking they just got.

Because of that, the chart of real estate loans can't really be considered evidence that people don't expect inflation.  I have a habit of picking on bad arguments, particularly ones that are made in support of a view that I favor.

but this is a major pt in favor of deflation.  there was no greater amt of leverage poured into an asset class of the system by the plebes than residential RE.  those 69% of Americans (peak housing participation rate) that bought anywhere btwn 1999 or so and 2007 are screwed into the biggest debt instrument of their lives.  they won't be coming to the gold or HI party.

The government has been spending like mad, and the Fed has been monetizing everything in sight to offset the credit collapse.  I see both of these are as being more dangerous than consumer or commercial credit.

Consumers and businesses have at least some notion of their own limited creditworthiness.  They feel some restraint, while government has barely any.

Hyperinflation won't be kicked off by private borrowing.  When everyone is borrowing, the flood of new money creates inflation, but it also prevents the lack of faith in the system that is the fundamental difference between inflation and hyperinflation.

And I see a lot of low level civil unrest around the country.  From the protests in Wisconsin a while back, to the occupy X movements.  But I mostly see them as people that are unwilling to take on more debt personally, but still want the benefits of free money, so they want government to acquire the debt for them.

And government borrowing sure can cause hyperinflation.  Just not today.

Edit, 2011-10-06 14:01 CDT: are -> as

[netrin]

i don't think so b/c the correlations are so tight.  US banks have alot invested in Euro debt.  also look at the carnage in european stock mkts.

Relatively speaking do you see EURUSD continuing down into 2013? ...and the rate accelerating? Or, why not?

[cypherdoc]

i don't think so b/c the correlations are so tight.  US banks have alot invested in Euro debt.  also look at the carnage in european stock mkts.

Relatively speaking do you see EURUSD continuing down into 2013? ...and the rate accelerating? Or, why not?

my cycle work forced me to take profits on my pm shorts this am.  i think we get a relatively large stock bounce here with the pm's. 

answer no, not right now.

[MatthewLM]

If the banks default on people's money, BANG goes the trust in the USD and banking sector. People will want trustworthy real assets and no more derivatives. No, I don't think people will stuff paper notes under their bed.

[cypherdoc]

If the banks default on people's money, BANG goes the trust in the USD and banking sector. People will want trustworthy real assets and no more derivatives. No, I don't think people will stuff paper notes under their bed.

we may be in for a multi month run up before the final fall.  this is golds last chance to clear its previous highs.  lets see if it can get there.

[miscreanity]

where is the evidence that they're being forced to monetize on a large scale that anyway resembles the magnitude of the outstanding bad debt worldwide?  Ben has only pumped a mere $2T.  add up the $54T in private debt plus the quadrillion or so of derivatives overhang?  they haven't, they aren't, and they won't.

You've already made the deflation case. That's more than enough evidence. As to the monetization, is USD$8 billion per day not a good enough start?

speculation on your part.  right; the avg Joe is about to explode his debt overhang by going out to borrow to open a trading acct?  are you dreaming?  proprietary desks are NOT all the rage. they have been cut back severely and their trading profits as evidenced in the primary dealers quarterly reports have been hurt badly.  why do you think they're having to finally cut bonuses and fire employees just now?  right; just kick leverage higher.  they can't.

Why the rising incidence of advertisement for trading platforms, then? Ads are cut when they don't garner interest. That's a simple fact of supply and demand.

Many of the human traders may have been let go, but the algo systems have been growing.

From the link in my first rebuttal above, bonds are being purchased on the cheap and resold for a tidy profit. That squeezes the remaining wealth from the end buyers, allowing the banks to expand their investment activity.

i told you this thread is moving away from speculation as to what you think the Fed/gov't is going to do.  what are they doing.

My apologies, dictator. (As I monitor my own megalomaniacal tendencies...)

take look at this from the FRBNY's summary report.  look at bottom right chart.  see just how little fiscal support is coming into the economy.  in fact its gone negative:

Those are charts of relative percentage changes, not absolute capital flows. If we chart the percentage deltas, this emerges:



It's now much easier to see that government expenditures have merely slowed, yet PCE is even higher than it was before 2008. Gov't expenditures are also above levels prior to the first QE. You are correct in pointing out that expenditure has been slowing.

For giggles, a comparison including S&P 500:



Both business investment and the S&P have crested and deflationary forces are threatening to drag them down. To recap, that deflationary force is the evidence necessary for the Fed to take action in order to prevent another wave of uncontrolled defaults.

don't you have any imagination as to where that upward spike may be headed?

Dictator just said not to speculate.

i told you this thread is moving away from speculation as to what you think the Fed/gov't is going to do.  what are they doing.

Operation Twist. A maneuver designed to keep debt payments low, but it locks in a longer range of debt, putting the problem off yet again (hopefully).

is money moving thru the economy normally?  or is all of it going to magically go into gold?

It must be kept in mind that the gold market is tiny compared to most others. Bonds, currencies and equities all dwarf the gold cap. Thus only a very small amount of flow needs to find its way to gold in order for major price moves to occur. There is also an entire world outside the borders of the US.

2007:  "the lines of ppl around every new home model tract waiting to put down a deposit to secure a home scheduled for delivery 6 mo from now is a sure sign that home prices will continue up.  God only made so much land you know."

Your argument is a fallacy, and repeating it does not make it true.

Gold is money, not real estate. The participation rate in gold is still marginal as compared to its market size as a whole. This is the opposite of a saturated market as real estate was in the mid-2000s.

A penny stock (e.g. CYPW ~$0.30) rising by 50% is not the same as another that is orders of magnitude greater (e.g. AAPL ~$380.00) rising by 50%.

here is a 10 yr gold chart with a hook at the end.  now i ask you, how much different is this price graph than the economic data graphs i just showed you?  gold is just a reflection of whats going on in the economy with speculation added in i submit.

Pay attention to the increasing volume at the bottom of the chart. Either HFT has progressively gone haywire, or rising amounts of capital are flowing into the sector. I will point out again that a $300 drop from $1,000/oz to $700/oz in 2008 was a 30% correction while the same $300 drop from $1,900/oz to $1,600/oz last month was only a 15% correction.

glad you brought this up.  a more sophisticated analysis of the volume show an increasing volume on the days of selloffs.  this means there are more interested sellers.

I'm sure you won't mind sharing the methodology for this "more sophisticated" analysis.

Perhaps there was a misunderstanding as to what I mean by declining volume. The following two charts are for gold and silver. Data is from Kitco for the PM London price fix; open interest and volume numbers are from CME Group's data. Percentage differences in movement were calculated from each day versus the prior day's numbers. It is evident that the volume for the selected duration peaked on 09/23 for silver and 09/26 for gold. Since then, daily volume has been falling with price remaining range-bound. The spike on 10/04 was the near-$100 and $2.50 hit gold and silver took.



The red lines for open interest are of particular interest. They should've declined sharply along with the prices, but didn't. Instead, they have only continued a gradual descent - in silver's case, it has even begun to rise again.



The arrow shows the declining volume with the price drop. Remember that all data points are relative to the origin, not absolutes.

you've got to stop dissing the "price".  after all, how do you measure your wins vs losses?  certainly not by volume.  this is a classic excuse when fighting the tape.  its for amateurs.  i believe the price action is setting up for the next leg DOWN.  silver 2nd leg down recently is telling you what gold is going to do very soon.

Ok, gangsta dictator.

I'm pointing out that reliance on price charts and the patterns formed from them alone is folly. Bear trap setups in gold and silver are in place and their trigger is imminent. Refusal to incorporate data beyond the price is akin to judging a book by its cover.

The tenuous connections being applied to market sectors are misinterpreting the interplay between volume, open interest and price. This dynamic is critical to grasp, in combination with supply and demand in the precious metals industry itself. Things are not so complex as the financial wizards have made them seem, even though their deceit and trickery are.

you also need to read Nicole Foss's post completely where she explains bubble dynamics which you completely ignore:

It was addressed elsewhere and not worth a direct reply. See below.

As the supply/demand fundamental line rises, capital becomes increasingly attracted to it. The price swings will revolve around that [fundamental] line, growing more violent the more capital flows in.

Price can only diverge so far from the fundamental before it completely decouples into its own abstract exchange, the financial instrument related to the underlying component only being associated by name - not function (i.e. the "price" of gold fell to $1,535, but the actual item couldn't be bought for less than $1,650 - take that to extremes; an official price of $1,000 - dealer sale price to you of $10,000 or more).

why do you think i call you misreality?

Because name-calling is juvenile and avoids engaging in actual discussion; I assumed you to be a 40-year old virgin with a lot of financial knowledge and an inferiority complex.

You asked.

Occam's Razor

Deflation will trigger additional defaults. Assuming there will be nothing done, it is reasonable to expect increasing social turmoil and a self-reinforcing downward spiral of declining business activity. That outcome is bad for everyone. Government's entire purpose is to protect its constituents. If government does nothing, it receives the brunt of backlash.

The chances of inactivity are negligible. Reductio ad absurdum. Pain avoidance is the simplest path, except for masochists.

When it came to the price charts, there was no real explanation for why the price action in gold and silver are occurring aside from deriving meaning from the price actions themselves. Circular reasoning is a fallacy.

you can't ignore price.  thats called denial.

I'm pointing out that reliance on price charts and the patterns formed from them alone is folly. Bear trap setups in gold and silver are in place and their trigger is imminent. Refusal to incorporate data beyond the price is akin to claiming the dollar is a glittering jewel.

Deja vu?

and yet you throw up a series of price charts to prove a point?

I see the point was lost in the imagery. Alright, a written explanation:

By posting and examining only price charts among various industries, completely different conclusions might be drawn as to where the economy is headed. Looking at lumber, there is fear. With AT&T, stability. In Genesco, it would be easy to assume nothing is wrong and the world is doing fine.

This is the danger of looking only at the price charts. Assuming that all of the information is present in price movement is no different from presuming that all Asians know Karate or Kung-Fu just because they look like they fit a stereotype.

i have commented on the first two which i think are bearish and i keep track of warehouse inventories which is supportive of dwindling supply.  i don't keep track of the other categories largely b/c i think they're irrelevant b/c they are so opaque. but i know that on the face of it they're suportive of tight supply.  i'm not arguing that they are not supportive of your argument but i see enough other data to think we've topped and close to beginning the next leg down in the metals.  we could get a small bounce here but its looking pretty weak, esp silver, and i suspect we get another plunge very soon.

The first two are open to interpretation, so disagreement is fine. On the other hand, the CoT and especially the delivery reports suggest high demand. Since you agree that supply is tight, where will sufficient supply come from to alleviate the rising demand?

How does this equation not apply?
(Decreasing Supply) + (Rising Demand) == (Rising Prices)

What data other than price chart patterns implies a continued decline in the precious metals? Not to exclude the possibility of another sharp drop, but there hasn't been anything else offered which points to gold and silver going down for the count. Instead, there's ample evidence that the PMs are due to rise very powerfully.

this means that these markets are not based on fundamentals but purely on speculation of further liquidity injections (criminality) from the world's central banks.  in other words, these f*ckers allowing you to be raped.  as a result of this i actually think that price means everything.  in other words the techinicals trump the fundamentals in this particular situation.  you almost cannnot reason what the markets will do.  you have to follow what they are doing.  otherwise, you will get raped.  and what they are doing is going down.  

In the short-term, you've got it right. I don't play the short game because of the fact that it's where you will get raped; your initial capital wiped out because of leverage. Buy-and-hold isn't dead: it's the best way to sustain and prosper through this crisis, so long as you either pick the right sector and/or diversify properly.

If you can make the short-game work, wonderful. The big issue is that most of the ideas put forth have been based on price charts and patterns without much solid explanation behind the analysis. My position is such that the remaining days of summer in the northern hemisphere are meant to be spent outside rather than running numbers.

those 69% of Americans (peak housing participation rate) that bought anywhere btwn 1999 or so and 2007 are screwed into the biggest debt instrument of their lives.  they won't be coming to the gold or HI party.

And that precludes upward gold revaluation how?

my cycle work forced me to take profits on my pm shorts this am.  i think we get a relatively large stock bounce here with the pm's. 

we may be in for a multi month run up before the final fall.  this is golds last chance to clear its previous highs.  lets see if it can get there.

Ok... why?

[cypherdoc]

Operation Twist. A maneuver designed to keep debt payments low, but it locks in a longer range of debt, putting the problem off yet again (hopefully).

i'm interested in your thoughts on yesterdays UST sale by Ben.  was this part of OpTw since he was selling short term bonds the proceeds of which will be invested in longer term UST's?  what perverse effects on the markets do you think this will have? 

Gold is money, not real estate. The participation rate in gold is still marginal as compared to its market size as a whole. This is the opposite of a saturated market as real estate was in the mid-2000s.

you've said its money, an asset, and a real asset over the life of this thread.  i see differences in each of those categories which i've said all along is the cornerstone problem with how you look at gold.  which is it?

glad you brought this up.  a more sophisticated analysis of the volume show an increasing volume on the days of selloffs.  this means there are more interested sellers.

I'm sure you won't mind sharing the methodology for this "more sophisticated" analysis.

no more sophisticated than yours.  go back and check out both daily gold and silver charts.  on the down days the volume spikes are higher than on up days.  that means more sellers than buyers in aggregate helping to drive the price down.

Perhaps there was a misunderstanding as to what I mean by declining volume. The following two charts are for gold and silver. Data is from Kitco for the PM London price fix; open interest and volume numbers are from CME Group's data. Percentage differences in movement were calculated from each day versus the prior day's numbers. It is evident that the volume for the selected duration peaked on 09/23 for silver and 09/26 for gold. Since then, daily volume has been falling with price remaining range-bound. The spike on 10/04 was the near-$100 and $2.50 hit gold and silver took.



The red lines for open interest are of particular interest. They should've declined sharply along with the prices, but didn't. Instead, they have only continued a gradual descent - in silver's case, it has even begun to rise again.



The arrow shows the declining volume with the price drop. Remember that all data points are relative to the origin, not absolutes.

those are helpful graphs.  just another way to look at the price charts i use that have volume and OI at the bottom.  yours have a bit more interesting info that is useful.

you've got to stop dissing the "price".  after all, how do you measure your wins vs losses?  certainly not by volume.  this is a classic excuse when fighting the tape.  its for amateurs.  i believe the price action is setting up for the next leg DOWN.  silver 2nd leg down recently is telling you what gold is going to do very soon.

Ok, gangsta dictator.

I'm pointing out that reliance on price charts and the patterns formed from them alone is folly. Bear trap setups in gold and silver are in place and their trigger is imminent. Refusal to incorporate data beyond the price is akin to judging a book by its cover.

The tenuous connections being applied to market sectors are misinterpreting the interplay between volume, open interest and price. This dynamic is critical to grasp, in combination with supply and demand in the precious metals industry itself. Things are not so complex as the financial wizards have made them seem, even though their deceit and trickery are.

i never said "only" look at price.  other pieces of info are helpful of course but i still think price is paramount.  as an example:  the entire stock mkt rally from 3/09 ws a low volume rally with higher volume spikes on selloff days.  if you were short and refused to follow price vs volume, you got killed.  this was the greatest rally since 1932; a doubling in price for massive gains.  i've learned over the years not to fight the tape as long as several confirmatory factors line up as you're suggesting.  real investing means taking all available info into acct both technical and fundamental.

Deflation will trigger additional defaults. Assuming there will be nothing done, it is reasonable to expect increasing social turmoil and a self-reinforcing downward spiral of declining business activity. That outcome is bad for everyone. Government's entire purpose is to protect its constituents. If government does nothing, it receives the brunt of backlash.

The chances of inactivity are negligible. Reductio ad absurdum. Pain avoidance is the simplest path, except for masochists.

i've always said this is possible.

How does this equation not apply?
(Decreasing Supply) + (Rising Demand) == (Rising Prices)

just be sure to take into acct Ponzi Dynamics.  Foss is right; theres no way a price chart can crash so quickly in so short a time unless these dynamics are in place.

What data other than price chart patterns implies a continued decline in the precious metals? Not to exclude the possibility of another sharp drop, but there hasn't been anything else offered which points to gold and silver going down for the count. Instead, there's ample evidence that the PMs are due to rise very powerfully.

this is where data can't help you.  sure the data looks good and lines up for your case and this is where i think my housing analogy of lines of buyers can be helpful.  at some point you have to resort to your underlying thesis:  is gold money or just another asset, ie, tail of the USD dog?  what is the role of Bitcoin here longterm?  this is where we can agree to disagree.

The big issue is that most of the ideas put forth have been based on price charts and patterns without much solid explanation behind the analysis. My position is such that the remaining days of summer in the northern hemisphere are meant to be spent outside rather than running numbers.

come on now.  all you've put forward is a slew of Comex data backed by tomes of bullish interpretation.  i could argue you have tunnel vision in regards to the gold data w/o a worldwide view.  the price charts are important and i've backed my interpretation up with a slew of general economic data into which gold interplays.

those 69% of Americans (peak housing participation rate) that bought anywhere btwn 1999 or so and 2007 are screwed into the biggest debt instrument of their lives.  they won't be coming to the gold or HI party.

And that precludes upward gold revaluation how?

didn't you say several times that the once the avg Joe comes to the party the price will skyrocket?

my cycle work forced me to take profits on my pm shorts this am.  i think we get a relatively large stock bounce here with the pm's. 

we may be in for a multi month run up before the final fall.  this is golds last chance to clear its previous highs.  lets see if it can get there.

Ok... why?

b/c Iseree said so. 

[miscreanity]

i'm interested in your thoughts on yesterdays UST sale by Ben.  was this part of OpTw since he was selling short term bonds the proceeds of which will be invested in longer term UST's?  what perverse effects on the markets do you think this will have? 

I have to say, bonds aren't my main focus. As financial asset class, government bonds especially didn't make the grade for me. With that said, here's my view:

It certainly seems to fit the OT purpose. With selling pressure on the short end, rates will rise there. Sure, the long end rates will be kept low, but is that worth the increasing outlay requirements that have simply been pushed ahead? The Fed holding long-term bonds reduces the institution's maneuverability if prices decline. What is the exit strategy, if there is one?

Keeping long end rates depressed is causing structural stress, not just distortions - how many more deals will be entered under the assumption of low rates which will blow up instantly if those rates ever rise? Instead of a manageable crisis when the rates can no longer be held down, the Fed is further restricting its ability to handle the situation - even with unlimited QE as an option. It's a lose-lose situation.

you've said its money, an asset, and a real asset over the life of this thread.  i see differences in each of those categories which i've said all along is the cornerstone problem with how you look at gold.  which is it?

Any asset can function as money when better or more convenient options have been exhausted. Gold is a real/physical asset whose primary function serves as money.

When I call gold an asset, it can be assumed that I mean: a real, tangible, effectively indestructible, counterparty-less, turn it around in your hand and see it for yourself, value imbued throughout history, closest thing to abstract representation of money in the physical world, absolute best physical option for use as both store of wealth and metric of value, won't kill you or disappear in a puff of smoke, consistent asset.

Real estate requires maintenance, paper burns in flame, wheat can be eaten, oil is highly toxic, rocks are very common and manufactured tools don't have the same value for everyone. Maybe gold could be called a real derivative? Productivity and wealth created by the use of other assets and labor flow into it, yet it's still a physical object with decentralized control and ownership; the original Bitcoin.

I'm going to quote this next time.

glad you brought this up.  a more sophisticated analysis of the volume show an increasing volume on the days of selloffs.  this means there are more interested sellers.

I'm sure you won't mind sharing the methodology for this "more sophisticated" analysis.

no more sophisticated than yours.  go back and check out both daily gold and silver charts.  on the down days the volume spikes are higher than on up days.  that means more sellers than buyers in aggregate helping to drive the price down.

Huh? More sophisticated than what was presented, but not more sophisticated? Either there's an apparent contradiction, or I'm reading all of that wrong. Not important. Here's what is:

Since September 26th, volume has been declining overall. The 144-day MA was breached on an intraday basis (not really important in regard to volume, just pointing it out as a landmark). It was retested on the 29th. The volume on the 29th was low compared to the two strong down days that week - the 26th and 28th. Volume remained low for the next two days as gold rose from about $1,600 to almost $1,680.

Then on October 4th, the volume was higher than during the past three up days, yet the close (the only price that matters for market players that matter) wasn't able to breach even the prior day's close. In other words: volume on the down days may have spiked higher than on the up days, but the price remained higher than the previous down day - the opposite of what increasing volume on a decline should do if the decline weren't exhausted; also indicative of strong buyers being active instead of momentum followers.

The price has continued to drift higher even as overall volume resumed its descent. With very little volume and price continuing to move higher, increasing volume will be necessary to reduce price the higher it rises.



For the week ending today, October 7th, looking only at the price gives a heavy picture. It's reasonable to expect further gold price drops in the immediate future. Combining price with volume, the direction is less certain, throwing almost a 50/50 chance. This is where open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison.

As discussed yesterday, the open interest has been declining gradually - almost no forced or panic liquidation since the end of last month, and even that wasn't very significant in size. That measured decline is normal, whereas a sharp drop would be leveraged players being squeezed out or underwater longs cutting losses. What this means is that it's virtually a certainty the remaining contracts are what form a normal baseline for the market, like hitting bedrock while digging through topsoil. Further liquidation of size is therefore simply not in the cards.

From analysis above, it's easy to see that price is important, but it is only one metric. It's a representation of capital flow. Volume is necessary to determine the overall strength of capital movement. Open interest provides a measure of how much movement is left. It's entirely possible to use only the latter two as trading guides (V & OI), but then you wouldn't have any way to know how much you gained or lost when closing a trade.

In the middle of a move, it's possible to use the above three factors to gauge how far the shift can go in either direction. When at extremes, they show the buying and selling ranges. I prefer certainty over just getting the "feel" of a market. The way I see it, advanced price chart analysis in the form of Elliott waves and such (beyond trendlines and Fibonacci levels) are attempts at extrapolating the interplay of volume and open interest from the price itself. That makes sense for equities and other asset classes, but why bother with divination when those values are readily available for commodity markets?

SLV from the GGR:



The price was decimated, yes. The volume during the knock-down was much less than it was during the hit in May. If taking into consideration when the price drops occurred that caused the gaps, a bevy of questions arise. Looking from the opposite side, again there wasn't much buying at all needed to stop and partially reverse the selling pressure.

I haven't bothered looking into direct numbers or proxies to open interest for GLD or SLV. Again, it's a situation where the data is available for the actual asset so why complicate and confuse matters by calculating all manner of indicators from the ETF?

i never said "only" look at price.  other pieces of info are helpful of course but i still think price is paramount.  as an example:  the entire stock mkt rally from 3/09 ws a low volume rally with higher volume spikes on selloff days.  if you were short and refused to follow price vs volume, you got killed.  this was the greatest rally since 1932; a doubling in price for massive gains.  i've learned over the years not to fight the tape as long as several confirmatory factors line up as you're suggesting.  real investing means taking all available info into acct both technical and fundamental.

Overwhelming reliance upon price movement for explanation spoke loudly. It's good to see other elements of your analysis being clarified upon.

So does the relatively low recent volume suggest shorting the market? Personally, whether the markets go up or down doesn't matter - strong, dividend-paying (preferably international) companies being held for the long-term won't go belly up just because of a market rout.

just be sure to take into acct Ponzi Dynamics.  Foss is right; theres no way a price chart can crash so quickly in so short a time unless these dynamics are in place.

I will if you can explain how gold itself is a Ponzi scheme when it promises nothing nor returns anything. What is the dollar, if not a Ponzi scheme - a promise that pieces of paper have exchangeable value even though the material itself has no unique physical properties?

Here's a rough estimate of Ponzi math:
(Artificially Decreasing Supply) + (Rising Incentivized Demand) == (Rising Prices)

The artificial aspect is an intentially forced restriction or flooding of supply (think diamonds). Incentive can be the promise of xyz% gains or that an item of greater value can be redeemed in its stead.

Gold is being produced, refined and distributed as fast as possible around the world. Its demand is being driven not by a desire for the metal itself, but exposure of the fraudulent nature in the existing monetary system.

this is where data can't help you.  sure the data looks good and lines up for your case and this is where i think my housing analogy of lines of buyers can be helpful.  at some point you have to resort to your underlying thesis:  is gold money or just another asset, ie, tail of the USD dog?  what is the role of Bitcoin here longterm?  this is where we can agree to disagree.

Wait... are you advocating faith? Where are these lines of buyers for gold? You're right that the decision comes down to the individual. This entire thread has been an excellent opportunity to test theories, assess assumptions and reaffirm conclusions; not to mention it's been entertaining as well. Thanks!

come on now.  all you've put forward is a slew of Comex data backed by tomes of bullish interpretation.  i could argue you have tunnel vision in regards to the gold data w/o a worldwide view.  the price charts are important and i've backed my interpretation up with a slew of general economic data into which gold interplays.

Really? Does the archivist need to kick into gear and post several examples of US-centric perspective against numerous links showing global gold demand?

The latest information posted was good... and it was all US Fed and US-based exchange information. Where is the worldwide view? Wait, I think there was one chart on China.

I'd written this before getting down this far in your reply:

"... open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison."

COMEX data is representative of 24-hour, global trading. It is a proxy, like SLV is a price proxy for silver - not perfect, but a good start; some of the information is also unavailable elsewhere, and is still largely transparent by comparison to other sources and methods. In the same manner, the US Fed data is a good start for getting a handle. It's important to look at the whole pie, of which the US holds a decreasing share. Thus its broad relevance, as well as that of its data (both US Fed and COMEX), are declining.

The rest of the world still needs to eat and have functioning economies. As everyone else catches up to a stagnating western world, the top 1% will have to expend much of their 75-80% of overall wealth in order to keep from falling all the way down. Socialism has nothing on wealth redistribution by capitalism in action on grand scales. Except for the pain, death and destruction parts - socialism (or centralized government by any other name) takes the cake on those, but I digress.

I welcome questions and efforts at finding holes in my arguments (which were built by learning from some of the greats, not entirely due to a miraculous lone exploration). At least offer a stronger assessment than "what does this look like". If you can trade the short-term using cycle analysis, keep doing that. Just don't get rid of your physical metal - accumulate more.

didn't you say several times that the once the avg Joe comes to the party the price will skyrocket?

Yes. Where is he? Busy working, unemployed, going back to school instead of reading all about gold and finance?

You have to keep things in perspective: we are in the thick of things, on the front-lines of financial warfare. We're discussing topics that even a lot of traders might have difficulty grasping. How many people actually are where we are? Why are there so many who willingly pay for advice and explanations like ours? Where are all the other traders whom have made a tidy profit? We're part of a very small segment of the total population.

Step into another's shoes and it becomes easy to understand the rationale, if not the emotional resistance to comprehension. Joe Sixpack has probably heard the rumblings by now, but he still has barely an idea what's really wrong or why.

Imagine him at the beach, when the water suddenly starts rapidly receding way further than normal. Being tsunami experts instead of financial gurus in this scenario, we'd be speeding away from the shore while the average fellow remains, probably even after being warned of what's coming. Whether he stays because of curiosity, normalcy bias or any other reason, he will only recognize what's happening when it's too late. Even highly educated people are susceptible to this if they don't have the wherewithal to fathom these titanic shifts in such an abstract concept as finance (or blinding themselves based on erroneous assumptions as Bear Stearns and Lehman "geniuses" did).

b/c Iseree said so. 

LOL - well, that changes everything.

Enjoy the weekend!

[cypherdoc]

i'm interested in your thoughts on yesterdays UST sale by Ben.  was this part of OpTw since he was selling short term bonds the proceeds of which will be invested in longer term UST's?  what perverse effects on the markets do you think this will have?  

i think there is a bigger story unfolding here.  personally, i think TLT has topped.  i believe in symmetry and patterns.  note the small double top with the right top just higher than the left top?  where have we seen this before?  oh yeah; gold!  my TBT short has been doing well the past several days and i'm into that big.  i think this was a sell the news event much like late last year when Ben announced QE2.  this could be a big winner in the biggest bond bubble of all time.

Any asset can function as money when better or more convenient options have been exhausted. Gold is a real/physical asset whose primary function serves as money.

When I call gold an asset, it can be assumed that I mean: a real, tangible, effectively indestructible, counterparty-less, turn it around in your hand and see it for yourself, value imbued throughout history, closest thing to abstract representation of money in the physical world, absolute best physical option for use as both store of wealth and metric of value, won't kill you or disappear in a puff of smoke, consistent asset.

Real estate requires maintenance, paper burns in flame, wheat can be eaten, oil is highly toxic, rocks are very common and manufactured tools don't have the same value for everyone. Maybe gold could be called a real derivative? Productivity and wealth created by the use of other assets and labor flow into it, yet it's still a physical object with decentralized control and ownership; the original Bitcoin.

I'm going to quote this next time.

its a good quote.  

For the week ending today, October 7th, looking only at the price gives a heavy picture. It's reasonable to expect further gold price drops in the immediate future. Combining price with volume, the direction is less certain, throwing almost a 50/50 chance. This is where open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison.

As discussed yesterday, the open interest has been declining gradually - almost no forced or panic liquidation since the end of last month, and even that wasn't very significant in size. That measured decline is normal, whereas a sharp drop would be leveraged players being squeezed out or underwater longs cutting losses. What this means is that it's virtually a certainty the remaining contracts are what form a normal baseline for the market, like hitting bedrock while digging through topsoil. Further liquidation of size is therefore simply not in the cards.

From analysis above, it's easy to see that price is important, but it is only one metric. It's a representation of capital flow. Volume is necessary to determine the overall strength of capital movement. Open interest provides a measure of how much movement is left. It's entirely possible to use only the latter two as trading guides (V & OI), but then you wouldn't have any way to know how much you gained or lost when closing a trade.

In the middle of a move, it's possible to use the above three factors to gauge how far the shift can go in either direction. When at extremes, they show the buying and selling ranges. I prefer certainty over just getting the "feel" of a market. The way I see it, advanced price chart analysis in the form of Elliott waves and such (beyond trendlines and Fibonacci levels) are attempts at extrapolating the interplay of volume and open interest from the price itself. That makes sense for equities and other asset classes, but why bother with divination when those values are readily available for commodity markets?

this is all good info.  we all use our own tools.  i agree the pm charts look heavy.  my interpretation however completely disagrees with yours.  no surprise.  i interpret the decreasing volume along with slowly rising price as a warning; a divergence as i've drawn on the chart below.  todays action was very bearish to my eye and we could soon rollover again.  you can even see a crossover on the stochs and a rollover of the RSI

I will if you can explain how gold itself is a Ponzi scheme when it promises nothing nor returns anything. What is the dollar, if not a Ponzi scheme - a promise that pieces of paper have exchangeable value even though the material itself has no unique physical properties?

you're right.  i've used the same argument for Bitcoin.

Wait... are you advocating faith? Where are these lines of buyers for gold? You're right that the decision comes down to the individual. This entire thread has been an excellent opportunity to test theories, assess assumptions and reaffirm conclusions; not to mention it's been entertaining as well. Thanks!

no, thank you!

didn't you say several times that the once the avg Joe comes to the party the price will skyrocket?

Yes. Where is he? Busy working, unemployed, going back to school instead of reading all about gold and finance?

precisely why i don't think he's coming to the gold party.  i still think we've topped in gold and silver.  the silver chart break just looks too ugly to me with 2 sharp breakdowns.  silver and the stocks lead gold as well.

b/c Iseree said so.  

LOL - well, that changes everything.

Enjoy the weekend!

i didn't mean to be dismissive here but my rationale is based on just what you hate most; technical analysis.

i think the pm's have topped as i said above.  they still represent a good short.  i think TLT may have topped as well in a long term double top.  i own TBT in a big way as a short.

and here's the kicker; i agree with Iseree in that i think stocks rally from here based on the following chart divergences and volume analysis  as i've drawn and my cycle analysis which shows a confluence of different cycles bottoming right here.  i know it sounds crazy and impossible and i may be wrong but i think we get one more bounce in stocks for a few months and then we get the big down leg where everything gets in gear to the downside with the $DXY skyrocketing.  if stocks rally then the $DXY may come back down to test the consolidation channel from where it broke out.  next week will be big in that if stocks do a nosedive down out of the bear flag then everything i just said is wrong and we go straight to hell from here.

if you need a reason stocks might rally then think about where the money coming out of gold and UST's needs to go.  i don't think it just goes to USD cash just right now.  i think it goes to stocks which are oversold at this point and at a prime cycle point to turn up.  despite all the bad news. but after this rally armageddon begins.

[cypherdoc]

from Gary Shillings (one of the greatest UST bond investors of all time) last letter:

"Nevertheless, we've never, never, never owned Treasury bonds for their yield. We couldn't care less what it is as long as it's going down since we're after appreciation, the same goal pursued by most stock investors. And that appreciation has been powerful for three decades. Chart 50 shows the results of investing $100 in a 25-year zero-coupon bond at its price bottom in October 1981 and rolling it into another 25-year zero each year to maintain that maturity. The $100 compounded at a 19.1% annual rate to $18,700 in August. In contrast, $100 invested in the S&P 500, bought at its trough in July 1981, compounded at an 11.5% annual rate on a total return basis to reach $2,418. The bonds gained 8.0 times as much as stocks since the early 1980s!"

the question is where it goes from here?

[MatthewLM]

Do you see gold and silver as a miscellaneous asset on this?

[cypherdoc]

legging into gold shorts.  sorry; no parabolic blowoff top to bullion and no spike down.  just a slow grinding slide down the slope of hope. 

[Iseree22]

Any chance you could post a graph with volume?? I wanna see what the vol for the last 6 hours.

[cypherdoc]

20d hourly chart of /GC
note the high volume spikes on selloffs
rising wedge as well.
we're gonna get a stepoff somewhere along here:

Any chance you could post a graph with volume?? I wanna see what the vol for the last 6 hours.

[Iseree22]

Thanks

Yea there seems to be a divergence between price and volume.

It is interesting looking closely, there seems to be a sell off every 24 hours, then shortly after the volume disappears.

[cypherdoc]

Thanks

Yea there seems to be a divergence between price and volume.

It is interesting looking closely, there seems to be a sell off every 24 hours, then shortly after the volume disappears.

huge ramp in my TBT.  the UST selloff is real.  this changes everything.

[MatthewLM]

Thanks

Yea there seems to be a divergence between price and volume.

It is interesting looking closely, there seems to be a sell off every 24 hours, then shortly after the volume disappears.

Manipulators need volumes to do their work.

[cypherdoc]

i think its coming; very, very soon.

[S3052]

i think its coming; very, very soon.

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