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Charting Gold

Thu, 02 May 2013 22:34:56 +0000

Few investment/finance topics spark as many strong emotions as gold, for its adherents and detractors are equally committed to their views, and equally unlikely to switch camps.

Adherents view gold as the only real money in a world of constant currency debasements, while detractors don’t see gold as an investment, as it lacks a yield and price-earnings ratio.

The recent -$220 decline and subsequent +$150 recovery in the price of gold unleashed a torrent of speculation about the causes of the sharp drop, as well as an outpouring of emotions ranging from schadenfreude in the anti-gold crowd (who took pleasure in the sufferings of the gold adherents) to an understandable angst in the pro-gold camp.

If the market for gold is as manipulated as every other market—and as Matt Taibbi recently explained, everything is indeed rigged (“There’s no price the banks can’t fix”)—what does that mean for individual investors?

Gold Investing vs. Trading

Since I have been following the gold market for enough years to accrue accusations of being a gold bug, it seems to me those with an interest in owning gold (or gold-based securities such as the GLD exchange-traded fund or the stocks of gold mining companies) tend to fall into three often-overlapping groups:

1. Those who own gold as insurance against a systemic financial meltdown. Since gold acts as an insurance policy, the price doesn’t matter much. If it rises, that makes the owner feel wealthier, but the purpose for owning gold doesn’t really change whether the price is $1,000 or $2,000 an ounce.

2. Those who own gold as a speculation that it will rise considerably in a hyper-inflationary environment. Since there are only two ways to erase unpayable debts and promises – default or high inflation – there is a good chance The Powers That Be (TPTB) will select inflation as the lesser of two evils, and a massive debasement of paper currencies has typically led to correspondingly high gold valuations.

In the aftermath of the collapse of the fiat regime, owners of gold will be sitting very prettily, as everything else will be cheap when priced in gold.

For those in this category, the price of gold does not change the reason for owning gold, and so the market churn is either a parlor game or an opportunity to add to one’s position in gold if it appears to be “on sale” when priced in fiat currencies.

3. Those who maintain a trading position in gold and its related investment vehicles, buying when gold/gold-based stock is relatively cheap and selling it or shorting it when it tops out. Those trading the fluctuations up and down have a short-term perspective, typically a year or two at most, and sometimes as little as a few days.

The fluctuations in the price of gold and gold-mining stocks only matter to those in this third category: traders playing these markets for short-term gains.

The difference between an adherent of one fundamental camp or the other and a trader can be illuminated by this question: Does taking the other side of your fundamental position feel like betrayal?

For example, if a gold bug takes a short position against gold, does it feel like betrayal?

In general, adherents of one camp or the other look for price to confirm their fundamental position; the fundamentals are “supposed” to cause the price to move in the expected direction.

In this frame of reference, betting against one’s fundamental position typically feels like betrayal.

A trader, on the other hand, looks at fundamentals for context but isn’t committed emotionally to one view or another. The trader is aware of trend, reversal of trend, or trendless markets; he/she lets price dictate the eventual outcome.

The trader knows every market is manipulated for one reason or another by those in a position to influence the market, and that is simply another fundamental context to keep an eye on.

For traders, ascertaining what a market “should” do is a fruitless exercise; possibilities are mapped out based on past patterns and various indicators, but what eventually transpires is viewed probabilistically. The odds may favor this trend, but other data points might suggest the trend could break down.

The trader is alive to the various possibilities but waits for price to confirm.

There’s an old investment maxim: Marry your spouse, not your stock. In other words, don’t get emotionally committed to a stock or position.

A detached trader doesn’t just avoid marrying a position; he doesn’t even date them.

The odds are against those of us outside the circle of power, and so the trader has to develop not just detachment but an edge of some sort. Since there are tens of thousands of smart people using tens of thousands of computers to identify an edge, finding an edge that lasts long enough to be useful is difficult.

It’s often said that what everyone knows has no value, as it cannot possibly offer any edge.

On the other hand, sometimes what’s “obvious” has value simply because it is so well known that it has been fully discounted.

With this in mind, let’s go back to gold. The only possible interest in the price for those holding gold for insurance or long-term speculation is whether gold is “on sale” or if it might get even cheaper in fiat currency; i.e., even more on sale. This would offer an opportunity to add to long-term holdings.

The trader, on the other hand, is interested in identifying tradable trends over the medium and short-term, not just in gold but in the stocks of gold miners. He/she will try to gain from the trend, regardless of whether it is up or down.

The Two Standard Fundamentals: Central Bank Easing and the Dollar

Let’s start our analysis with a look at the two fundamentals most often mentioned as causal factors influencing the price of gold: central bank policy (quantitative easing, a.k.a. QE) and the U.S. dollar.

The theory being batted about is that gold has plummeted into a bear market because the global economy is improving and central banks will soon lighten up on quantitative easing. Reducing the flow of “free money” is presumed to make gold less attractive.

The other assumption is that the U.S. dollar and gold are on a see-saw: when the dollar rises, gold falls, and vice versa. Now that the dollar is strengthening, gold is falling.

Let’s look at a few simple charts to see if there is any evidence for these ideas. The first chart is of GLD, the gold ETF that serves as a handy proxy for gold.

At just a quick glance, challenges to these assumptions quickly jump out at us. For instance, if gold rises and falls in correlation with central-bank quantitative easing, then why did gold rise from 2002 to 2008, when there was no quantitative easing?

So gold rises when there is no quantitative easing and also when there is quantitative easing. And it should fall when QE is ended. But the chart above seems to show that it rises with no QE under certain conditions and then with QE under other conditions...

This line of thinking makes no sense if we look at a simple chart of price.

As for the dollar, compare the chart of the DXY Dollar Index with the above chart. Is there any correlation that doesn’t require tortuous caveats and other conditions?

If there is a causal see-saw relationship between gold and the DXY, it’s certainly well hidden.

As for the trend, it’s clear “something happened” that caused gold to break through longstanding support and for the 20-week moving average to fall below the 50-week moving average in a “death cross,” a bearish signal.

It’s obvious that gold has broken its long uptrend. Those declaring that the gold bull market is over have strong evidence for this conclusion.

But perhaps more interestingly, “something happened” in a similar fashion back in 2008, when gold broke through support and a “death cross” in the moving averages occurred. After dropping about 30% from its previous high, gold bottomed and eventually exceeded the previous high about a year later, and it never looked back.

What does this tell us? Simply this: It’s too soon to conclude the bull market is over or if “something happened” that presages another global financial meltdown that eventually benefits gold.

In Part II: A Technical Analysis of Where the Gold Price Is Likely to Go Next, we apply classical technical analysis to the charts for gold, to learn what they are telling us about the likely further price direction for the metal. Is further rally higher more probable, or a retracement back to (or below) the recent lows?

Click here to access Part II of this report (free executive summary, enrollment required for full access).

Charles Hugh Smith
PeakProsperity.com

Unintended Consequences Are Increasing World Demand for Gold

Thu, 18 Apr 2013 16:37:01 +0000

With the financial experts claiming, some gleefully, that gold has "lost its safe haven status" in the aftermath of its biggest tumble in 30 years, many commentators thought (hoped?) that the dramatic price drop would steer people away from gold ownership. To my eyes, the past week has all the earmarks of a high-gloss propaganda campaign complete with well-placed anti-gold stories in the media and the careful use of language aimed at sowing doubt about gold's ability to be a store of wealth.

But for those who consider gold a store of value, the recent gold slam is a gift: an invitation to purchase more sound money with fewer units of paper currency. In other words, a sweet deal. Gold and silver on sale and the world is taking advantage.

As predicted last Friday, I wrote, "[k]nowing the lower prices will only exacerbate this West-to-East flow [of gold], I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further."

Well, by all accounts, the flow of gold from West to East is now accelerating.

Gold Rout Heralds ‘Hot’ Indian Wedding Jewelry Season

Apr 16, 2013

Bullion tumbled 9.1 percent yesterday, the biggest loss since 1983, and that may make the precious metal more affordable to Indians, said Mehul Choksi, chief executive officer of Gitanjali, the nation’s biggest retailer of jewelry and diamonds by sales. The plunge has already revived interest among retail buyers, said Rajesh Mehta, chairman of Rajesh Exports Ltd.

“The season is very hot for buying” with weddings and other auspicious dates coming up, Choksi said. “The decline will be positive for jewelry as there will be a pick-up in demand because affordability will increase. Volumes will increase.”

“We rushed to buy as soon as we saw prices fall so much and decided to buy jewelry early for our daughter’s wedding in January,” said Blossom D’souza, while browsing through a selection of bangles in a jewelry store in Mumbai’s Chira Bazaar area. “Now we can buy more gold within our budget.”

Doh! Unintended consequences are piling up already, as people in India gleefully accumulate more gold at lower prices.

And this, regarding Australia:

The Perth Mint reports that retail customers are increasing purchases at a record rate even as gold slumps to a 21 month low. As the experts were proclaiming the "Death of Gold", the Perth Mint website recorded the highest activity of the year and one of the best days of the past year.

Bargain prices on gold and silver have greatly increased the demand for physical gold and silver by the public. Demand for gold coins have [sic] skyrocketed with sales of Australian gold bullion coins increasing by 48% in the first quarter over the comparable prior year period.

(Source)

A couple of mainstream media reports linked the gold slam to increased selling by Japanese investors, those ideas turned out to be either speculative, premature, or both:

As global price slumps, "Abenomics" risks drive Japan gold bugs

Apr 16, 2013

(Reuters) - When he woke up to news of a collapse in gold prices, Yujiro Yamashita, 63, made his way to Tokyo's posh Ginza district to buy the precious metal for the first time in 20 years.

Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives.

A week ago, as the yen-denominated price neared a new peak, jewelry stores and gold merchants across Japan saw long lines of mostly older Japanese looking to cash in on unwanted jewelry and other items that they had held for years.

But on Tuesday, buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction.

Nearby at Ginza SGC, a gold merchant, buyers had taken about 6 kg (13 lbs) of gold home by early afternoon on Tuesday. In one case, a 60-year-old man, who asked not to be identified, walked out of the store with 500 grams of gold for about 2.2 million yen ($22,500).

Meanwhile, the Chinese and Thai, too, are rushing to buy gold as a consequence of the new, lower gold prices, with high sales volumes and shortages being widely reported.

So this is a fairly large story that can be summarized in basic Econ 101 terms: Supply, demand, and prices are all interrelated. Drop prices and demand increases, which then lowers supply.

In the U.S., all of the dealers I talk to are reporting huge demand and brisk buying. Silver in any form is quite hard to come by unless you want to pay premiums of 20%+ per ounce above spot price. Delivery times are 5 to 6 weeks out now – that's an unusual situation. If this recent slam was designed to scare people away from gold, it did not have that desired outcome; in fact, just the opposite.

To Make Matters Worse

There were numerous oddities in the timing of the gold and silver slam of the past week, and among them were two notable developments in the supply chain. Recall that the gold and silver carnage began on a Friday morning (4/12/13).

The Wednesday prior to that fateful Friday morning, one wall of the Bingham Canyon mine began to shift more rapidly. So they took personnel safety precautions, moved construction equipment out of the way, and prepared for a major ground slide event. At 9:30 PM on Wednesday, that wall gave way, sloughing tens of millions of cubic meters of earth into the operating pit:

Bingham Canyon produces some 400,000 ounces of gold and nearly 3 million ounces of silver on a yearly basis as byproducts of copper mining. It will be several years before the mine is back up to full operating capacity.

Normally, the news of a major mine being taken off line is a bullish sign for the associated commodity, but not in this case. On that same Wednesday gold and silver both went down in price. So the market completely discounted the news.

Coincidentally, also on Wednesday (4/10/13), the Chilean supreme court suspended Barrick Gold's Pascua Lama mine over a variety of environmental and social concerns, and that project got relegated to years of litigation. This is a huge mine project with probable reserves of over 18 million ounces of gold and 700 million ounces of silver. It is now completely halted and will remain so as lawyers battle things out in a process that most think will be several years long.

So current and future production of gold and silver took hits last week right before the big price drops. Perhaps this is just a very strange set of related events, but the incongruity and timing cause me to lean towards what Robert Di Niro said in the spy thriller Ronin: There is no such thing as coincidence.

At any rate, whatever the case may be coincidence or not, future supply of gold and silver will be lower than we thought as recently as Tuesday of last week.

Something Is Burning

There has been a lot of speculation about why gold was hit so hard. The theories range from it being "just one of those things" (i.e., normal market behavior) to an orchestrated attack to drive down the price of bullion. I happen to fall into that latter camp and summarized my thinking in why gold is being attacked in yesterday's report, This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks.

An important question to ask in the face of such attacks is Qui bono? Who benefits from dropping the price so dramatically and breaking faith in the precious metals as a safe haven?

The Internet is swirling these days with rumors of a near inventory failure at the LBMA (London Bullion Market Association), a 'too big to fail bank' of a large sovereign country in Europe that's teetering, that needed protection against its derivative exposure. One of these could be true – perhaps all of them might be; I honestly don't know yet. We have imperfect vision into markets these days, and these are each developments that the central powers would be doing their utmost to shield from our view.

But there's certainly a lot of smoke in the air surrounding the precious metals, and as the adage goes, where there's smoke, there's fire.

In Part II: Why There May Be a Lot Less Gold Than We Realize, we explore a particularly interesting possible reason for the suppression of the precious metals. A recent report issued by Sprott Asset Management calculates that the U.S. has silently exported a massive amount of its gold reserves over the past two decades.

If accurate, it puts the long-term manipulation of the gold and silver markets into context. And it gives a reason for why breaking faith in the precious metals at this time would be an important objective.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

Chris Martenson
PeakProsperity.com

QE & Gold Revaluation

Wed, 20 Feb 2013 00:20:59 +0000

Staring all day long at the supposed “super top” head and shoulders pattern in place on the HUI index is a good way to create fear, but I doubt it will create any lasting wealth. It certainly won’t build any gold mines.
Markets are ruled by fundamentals, not charts. The largest institutional liquidity flows occur when key fundamental reports are released.
Fundamentally, gold stock investors need to focus on the history of quantitative easing.
As the year 1933 began, the great depression was reaching its point of maximum intensity. To view that intensity, please click here now.
Although official unemployment was approaching 25% then, the central bank of the United States was growing increasingly reluctant (much like the situation today) to accelerate quantitative easing, despite pressure from the US government.
In a 1933 nutshell, the bank wanted to print less money, and the US government wanted more.
By November of 1933, a frustrated central bank brought quantitative easing to a complete halt. How did the US government respond to that?
8. The answer is that just two months later, on January 30, 1934, it passed the Gold Reserve Act. The US government revalued gold about 70% higher, and then continued purchasing it aggressively at that price, using printed money.
The QE baton was thereby passed from the government T-bond “runner”, to gold bullion!
In the mainstream media, a similar halt to quantitative easing is being widely discussed now. You should probably view quantitative easing, targeted at corporate & government debt instruments, as the ultimate central bank conventional weapon.
In contrast, gold revaluation and money printing are the nuclear weapons arsenal held by government treasury departments.
In a showdown between central banks and governments, governments win. They won in the 1930s depression, and they will win in this super-crisis.
The days of Ben Bernanke demanding that President Obama “get the government’s financial house in order” before he ramps up QE more, are coming to a quick ending. The only question is, will it be a painful ending for Chairman Bernanke?
His counterpart in Japan, Governor Masaaki Shirakawa, learned the power of government, the hard way. He resigns on March 19. Shinzo Abe essentially slapped the Governor’s face publicly, and is now demanding “performance” from the Bank of Japan.
The bank is now claiming it’s not sure what new measures it could take, to expand the balance sheet. I assure you that Shinzo Abe is fully aware of the power he has, to order the Bank of Japan to begin significant purchases of gold with printed money.
Gold is going higher, much higher. It’s going higher because government treasury departments are moving away from quantitative easing involving bonds, and towards QE involving gold. The gold bears will be destroyed, and everything they made you afraid of will seem ridiculous, in hindsight. There will be no currency war, but there will be co-ordinated devaluation of all G20 currencies against gold, just like there was in the 1930s.
Gold won’t be confiscated in this crisis, for two reasons. First, the average person doesn’t own any gold, so there’s nothing to confiscate. Second, the crisis hasn’t produced the kind of breadlines that occurred in the 1930s, because OTC derivatives were marked to model in October of 2008. If they were marked to market, the system would soon close down, and massive breadlines would form very quickly.
I consider the idea that the gold bull market is over to be “beyond ridiculous”. I would argue that for all practical government intents and purposes, it’s barely started.
Ben Bernanke will soon have a hard decision to make. He can either accelerate QE, or he can pout in a corner, while President Obama dons a gold revaluation mask. Ben just watched Shinzo Abe dispose of Masaaki Shirakawa, like a child disposes of a broken tinker toy. Ben also knows what President Roosevelt did in the great depression, when the central bank played “tough guy” with government. He knows his history very well.
Ben Bernanke is pushing his luck with President Barack “the O Man” Obama, and tomorrow’s ultra-important Fed minutes report is going to tell you whether he has pushed just a little too hard, or if he’s ready to follow the orders of the President of the United States.
I would argue that Chairman Bernanke is pushing President Obama deliberately, because he wants the Treasury to take QE to the next level, but he can’t say so publicly.
Please click here now. You are looking at the daily chart of the T-bond. Note the beautiful bullish wedge that continues to form. My unique 14,7,7 Stochastics oscillator is rising nicely. The action of the bond suggests that Chairman Bernanke will not confront President Obama tomorrow. If bonds move higher, gold is very likely to follow.
Silver fans can click here now. Investors should key off the gold chart for buy & sell signals, but there is no question that the 14,7,7 Stochastics oscillator suggests silver is poised to begin a nice move higher.
Please click here now. That’s the daily gold chart. After about 3 weeks of descending, my Stochastics oscillator has reached oversold status. Oscillator enthusiasts can buy some gold and related items in the vicinity of HSR (horizontal support & resistance) at the round number of $1600. The immediate target zone is $1625, but I’m looking for gold to rally $75 higher before the Stochastics becomes overbought. There are probably two more cycles of the oscillator required, going from oversold to overbought and back again, before gold charges at $1800, and successfully breaks into what I call… the green zone!

Thanks!
Cheers
St

Stewart Thomson
Graceland Updates

Feb 20, 2013

Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.

www.gracelandupdates.com
stewart@gracelandupdates.com

Mail to:
Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially.

The bottom line:

Are You Prepared?

Will Buying by Beijing in 2013 Reverse the Decline of Gold?

Fri, 15 Feb 2013 23:18:19 +0000

While gold has been falling since October, China has been establishing itself as the major player in the world market for The Yellow Metal. The heavy buying from the People’s Republic is taking place at both the macro- and micro-level. The People’s Bank of China has been buying very aggressively in what appears to be a hedging maneuver for its monetary policy positions in The Yellow Metal and US Dollar instruments. Is this continues, the price of gold could rally this year.

This buying of The Yellow Metal by the People’s Bank of China is coupled with the large production of gold in the country. What China produces in The Yellow Metal within its borders goes directly to the underground vaults of the federal government. Imports through Hong Kong are also rising. According to the Hong Kong Census and Statistics Department, the People’s Republic imported 834.5 metric tons of gold in 2012. That is almost twice the amount for 2011 of 431.2 metric tons.

The largest consumer for The Yellow Metal has been Beijing, which is continuing for 2013. With such intensive buying from the world’s largest economy in terms of purchasing power, it would seem that the Yellow Metal should be in line for a rebound. Bullionvault recently tweeted: “Miserable Eurozone data and new #gold demand stats see gold-price rally. Japanese net buyers for 1st time since '05”

But as the chart below reveals, the primary support line for gold (dashed blue line) has collapsed.

As China has demonstrated before in commodities markets for copper, corn, and cotton, it has both the desire and means to manipulate the prices for financial gains. With Beijing building up its stockpiles of gold through both internal production and external purchases, there is every reason to suspect that the mother of all short squeezes could be coming for gold as happened with copper back in late 2011.

Further evidence of this is demonstrated by the People’s Republic stepping back from US Dollar assets. China now owns about $1.17 trillion in US Treasuries. Two years ago, China owned $1.16 trillion in US Treasuries. In two years, the People’s Bank of China has increased its gold holdings while doing very little to expand its portfolio of US Treasuries. This was a trend for other central bankers in 2012 as the most gold was purchased in almost 50 years by the governments of the world.

This is a prudent measure for long term gains as when gold rises, the US Dollar traditionally falls in value. That means that China’s accumulation of gold is hedging its massive horde of US Dollar assets from declining further in value. As the Renminbi has risen in value 33% against the US Dollar since 2005, that reinforces the economic justification for China moving to increase in gold holdings, too. This allows for Beijing to have a currency and gold position that protects against the currency manipulation of the Federal Reserve in the form of its quantitative easing policies.

As Federal Reserve Chairman Ben Bernanke has committed the United States to quantitative easing in the amount of around $1 trillion annually for an unspecified time period, it is likely that Beijing will continue to accumulate gold as a hedge against the Greenback falling in value. This demand from the People’s Republic could reverse the downward price direction of The Yellow Metal in 2013.

Marcus Holland
FinancialTrading.com

Is Silver the Best Way to Profit from Chinese Economic Growth?

Wed, 30 Jan 2013 21:53:00 +0000

Silver is an appealing way to benefit from growth in China. Due to the concerns about corporate governance in China, a cottage industry has developed for research firms that ferret out fraud in publicly traded Chinese companies, establish a short position, and then release reports detailing the reasons for the action. What these firms such as Glaucus Research and Muddy Waters do is legal, highly profitable in many cases, and provides an invaluable service to investors and the global financial community, as the less fraud in financial markets, the better. An appealing way to deal with this issue yet still gain from growth in China is in commodity positions that will move higher along with demand from the People’s Republic.

This is due to when these reports are released or related events take place like the recent Securities and Exchange Commission accusation that the Chinese affiliates of the “Big Four” US accounting firms were breaking the law by not producing certain documents, the share prices for Chinese firms will fall as investors fear the stocks are overvalued. There is even concern now that all Chinese stocks will be delisted due to the concerns about the reporting requirements.

Too Much Value in Chinese Stocks to Overlook

That is obviously not going to happen. As a matter of fact, the share prices of publicly traded stocks such as China Mobile (NYSE: CHL) have increased since the SEC threat. In addition, Canada just approved the takeover of Nexen by CNOOC, the Chinese oil firm. There is no profit to be made in overreacting to fraud concerns in China. There is even less gain to be realized in ignoring the world’s largest economy by purchasing power and the world’s leading trade partner. But there is much to be gained from trading the iShares Silver Trust (NYSE: SLV) to profit in Chinese economic growth.

As the chart below shows, the SLV moves in a positive correlation with the main exchange traded fund for China, the FTSE 25 (NYSE: FXI).

There are many reasons for the correlation between silver and the Chinese economy, both due to speculators and investors.

Speculators have bought commodities due to the recession in Europe, anemic economic growth in the United States, and Japan entering the 23^rd year of its “Lost Decade.” The economic stimulus measures initiated by central bankers in each of these countries has weakened the currency units, in addition to highlighting weakness in the economies. As a result, with 7.9% economic growth for the most recent quarter, China becomes very attractive.

Along with China, commodities like silver become very appealing, too. Weak paper currencies naturally make silver and other commodities more attractive. Silver has an appeal over gold or copper to speculators as it goes for both industrial and non-commercial applications.

For investors, silver rises with Chinese economic growth due to the voracious demand in the People’s Republic for some many items that use it. China is the biggest market in the world for mobile phones, which require silver. This industrial demand from China leads to silver rising in price.

With its appeal to both speculators and investors, silver is an attractive way to gain exposure to China. It will never suffer when bouts of fraud occur, as has been demonstrated by its trading pattern. If anything, it should gain as it cannot be faked: the industrial demand is real, along with its role as safe haven asset. The SLV is an attractive investment vehicle for rising with economic growth in China without suffering from the misdeeds of corporate criminals.

Marcus Holland
FinancialTrading.com

Fed Balance Sheet Breakout!

Tue, 29 Jan 2013 19:58:09 +0000

India's central bank just chopped interest rates, in the face of the worst economic growth in 10 years. “The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional 180 billion rupees into the banking system.” – CNBC news, Jan 29, 2013.
Quantitative easing and “rates to zero” policy is spreading to every major economy around the world. Horrifically, despite these enormous “fire hoses of liquidity”, gold stocks continue their unending slide.
By this point in the gold “super bull” market, most gold stock investors believed they would be wearing a crown of solid gold. Please click here now.
The market never ceases being a fight, and in a super-crisis, the fight becomes a “clash of the titans”. Gold stock investors have never faced a greater challenge than they face right now, but neither have the bears.
To view gold stocks from the eye of a titanic bear, please click here now. In a boxing ring, you can’t run or hide from your opponent. Victory is all that matters, but if you fail to respect the abilities of your opponent, you will lose.
Every gold stock investor remembers the carnage of 2008. I bought gold stock into the lows of that carnage. I’d buy into the lows of an even worse gold stock wipeout, if it happened. If you are afraid, buy put options on GDX and GDXJ.
If you are a gambling bear, buy put options on NUGT, the triple-leveraged version of GDX.
I’ve showed you the bears’ greatest weapon, which is that head and shoulders pattern on the HUI weekly chart. I’ve told you how to handle fear, if you have it. Now, I’ll show you the weapons of the bulls.
Please click here now. You are looking at the 14,7,7 series of the Stochastics indicator, on that same HUI weekly chart.
I use the 14,3,3 series for the gold bullion weekly chart, but stocks are more volatile. I want only the “cream of the signals crop”, and the 14,7,7 series passes that test, with flying gold stock colours!
If you look at the 2005 and 2008 bottoms, you can see that the first buy signal generated by the Stochastics oscillator ushered in a big rally, but then there was a final “washout” decline.
From there, a 2^nd Stochastics buy signal occurred, and gold stocks staged gargantuan moves higher in each case.
You can’t know exactly how the current Stochastics set-up will play out, but it’s clear that in this price area, some buy-side risk capital should be applied to gold stocks.
The biggest weapon held by gold stock bulls, is the central bank of the United States, and over the next two days, the bank’s open market committee engages in key policy discussions. The meeting culminates with the release of a statement to the public, at 2:15PM, New York time, on Wednesday.
To understand why the central bank is the greatest ally of gold stock investors, please click here now. For all practical intents and purposes, you are looking at the primary driver of the gold price. It is the balance sheet of the central bank of the United States.
When that balance sheet stops growing, the price of gold bullion stops growing. Gold enters a trading range, and gold stocks crash.
Please click here now. That’s another look at the HUI chart. You can see that stocks topped out, as the Fed balance sheet stopped rising.
Note the recent “breakout” on the Fed balance sheet chart. I highlighted that with a gold arrow. For some reason, I like that colour, “gold”!
The balance sheet is starting to grow again, which means it is highly likely that the gold price starts “growing” again, too!
Please click here now. That’s the daily chart for gold. I predicted a hard sell-off would occur from $1700, likely forming the right shoulder of a bullish h&s bottom pattern. That sell-off did occur, primarily because George Soros made statements in Davos that bonds could fall later this year.
I don’t agree with his statements, but I think it gave those who shorted gold at $1700 a way to cover their positions at a profit.
The current Stochastics positioning on the daily gold chart suggests that gold could move in either direction from here, but note how orderly this supposed “panic sell-off” has been, from the $1800 area.
While Ben Bernanke could surprise gold investors, temporarily, by saying something negative about future QE, tin a practical sense, can the Fed really stop growing the balance sheet at this point in the crisis? Please click here now. That’s the daily chart of the March T-bond. A rally seems imminent, which is good news for gold.
I think the Fed plans to grow the balance sheet to well over $3 trillion in the intermediate term, which would create a new intermediate bull leg in the gold price!

Thanks!
Cheers
St

Stewart Thomson
Graceland Updates

Jan 29, 2013

Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.

www.gracelandupdates.com
stewart@gracelandupdates.com

Mail to:
Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

The bottom line:

Are You Prepared?

Gold's Tactical Assault On $1800

Tue, 22 Jan 2013 19:34:39 +0000

A number of Western central bankers are issuing strong statements now, highlighting their concerns about actions just taken by the Bank of Japan (BOJ).
The BOJ doubled their inflation target, to 2%, and announced they would begin open-ended QE in 2014. Of even greater importance, they announced the bank would begin a new era of coordinating policy with the Japanese government.
Jens Weidmann, head of the German central bank, sounds particularly vocal, in condemning that cooperation. He believes the BOJ is risking a global fiat currency war, which is great news for gold investors!
Some fund managers expressed disappointment that the BOJ didn’t announce an immediate expansion of QE.
I don’t see that as an issue, because BOJ chief Masaaki Shirakawa’s term ends in April. There are strong rumours that Japan’s prime minister, Shinzo Abe, wants to replace Shirakawa with a “super-dove”.
If a super-dove assumes command of the BOJ in April, he may announce an earlier state date to “QE to infinity”. I expect he will announce stunning yen-negative and gold-positive monetary policy, soon after his appointment is finalized.
The April timeframe is becoming a key one for gold investors. It could mark the “official start” of a worldwide fiat currency war.
Please click here now. “Queen” gold has arrived at significant minor trend HSR (horizontal support & resistance) in the $1700 area.
The 14,7,7 Stochastics series I use on the daily chart is a little bit “up there” now. I’m a buyer at $1678 and $1665, and a seller at $1700, $1707, and $1725.
A potential h&s bottom is in play now. A sharp sell-off soon could be just what the chart doctor ordered, to complete the right shoulder.
Once inflation replaces deflation as the main financial theme, bond prices should fall hard, while gold soars. Unfortunately, until that inflation theme comes into play, gold will likely move higher when bond prices move higher, and lower when bonds fall.
Please click here now. You are looking at a short term chart of the US T-bond. A small top pattern has formed. Gold is tracking the bond. While the bond could slip a little here, that would simply strengthen the technical position of gold, by helping create the right shoulder.
I think a huge rally in bonds is coming soon, and it will be the fuel that gold needs, to challenge the strong HSR zone at $1800, and burst through it.
The catalyst is likely to be a collapse in the stock market, or a horrible jobs report. The public is surging into the market now, eager to get all the free money that supposedly awaits them there, at much higher prices. Unfortunately, I don’t think their stock market “expedition” is going end very well.
Many technicians have highlighted topping action on the weekly bond chart, and I agree that it’s there. The market is a fight, and there are usually powerful players on both sides of the trade.
To view the weekly bond chart, please click here now. There is a h&s top pattern in play, and bonds have melted down, into HSR in the 142-143 area.
Note the black HSR line I’ve highlighted at 136.44. If bonds were to decline further, I think the decline would stop there, and do so in the key April timeframe.
I use the 14,3,3 series of Stochastics on weekly currency charts, to identify the start of bullish intermediate trend moves. This indicator tells me that bonds and gold are unlikely to decline much further from here.I don’t think bonds or gold are going to decline much further, from here. I use the 14,3,3 series of Stochastics on weekly currency charts, to identify the start of bullish intermediate trend moves.
I view both bonds and gold as de facto currencies. Currency trends tend to be longer than commodity or stock market trends.
As a result, trend channels and oscillator crossovers tend to be more reliable, when they occur in these huge currency markets.
Please click here now. That’s the same weekly chart of the bond, and all the crossover buy signals of the key 14,3,3 Stochastics oscillator are highlighted.
The only false signals occurred at the stock market lows of 2009, and a huge buy signal is in play, right now!
Please click here now. That’s the same weekly chart for gold. Gold is the ultimate currency, with the longest trends, so there are much fewer false signals generated by oscillator buy signals.
You can see that after every buy signal generated by the 14,3,3 weekly chart Stochastics indicator, gold staged an enormous rally, and one such buy signal is in play right now. There may be a little backing and filling here, but the bottom line is that gold appears to be preparing to “head and shoulder” its way through the $1800 Maginot line in the sand!

Thanks!
Cheers
St

Stewart Thomson
Graceland Updates

Jan 22, 2013

Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.

www.gracelandupdates.com
stewart@gracelandupdates.com

Mail to:
Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

The bottom line:

Are You Prepared?

Metals Thoughts: Ho Ho Higher (?) Edition

Tue, 18 Dec 2012 19:30:00 +0000

Metals traders have apparently thrown up their hands for the most part and resolved to get to the end of the year (or at least option expiry next week) at something resembling UNCH. As Friday’s tragedy dominated the headlines domestically, there has been little else to stoke volumes or volatility and we still haven’t even gone a week since the Fed increased their monthly purchases and announced the start of QE^(x+1) when Operation Twist expires at year-end. They are apparently calling it QE4, but like many participants and, I believe the broad market, I have QE-fatigue. Monetary policy, especially with most every major Central Bank utilizing ZIRP, is NOT the problem. As I and many others have said before, low interest rates recycled among and between the banks doesn’t solve a fiscal and solvency issue and certainly doesn’t really inspire corporate Cap-Ex and consumer spending.

The Fed’s balance sheet growth has effectively stagnated for all of 2012 and these measures aim to resume the growth. The other interesting proclamation from the FOMC is that they will maintain ZIRP and QE until we reach 6.5% unemployment or 2.5% inflation (by their measure, notably). For the math nerds out there, that is $85 Billion per month in Treasury and debt security purchases every single month ($1.02T per year). I suppose that is what you do when you are trying to get the attention of a market bored by a standing $2.86T balance sheet. Again, all of this is great, but it doesn’t solve the issue of declining labor participation rates and the automation of labor.

Trading from the announcement was predictably volatile. A very quick uptick was met with prolonged selling and we have basically drifted sideways ever since. The dollar has declined against all trade parties, even the Yen, which is a bit surprising given that they just re-elected Shinzo Abe and the Liberal Democratic Party on a platform of basically promising to lower rates. The EUR/USD broke through some recent ranges and as of writing, is trading 1.319. On the option expiry note: 1675 Au and 30 Ag being key levels with most O.I.

Gold And Japanese Reflation

Tue, 18 Dec 2012 18:57:12 +0000

The election of the new Prime Minister of Japan, Shinzo Abe, may be a “watershed” event. His powerful commitment to unlimited quantitative easing could fundamentally jumpstart the next leg of the gold bull market.
Please click here now. You are looking at EWJ-nyse, an iShares ETF. It is a proxy for Japan’s key Nikkei index. Japanese stocks have been in a bear market for more than 20 years, but this chart suggests that Shinzo Abe’s policy changes should not be taken lightly.
3. EWJ just burst above F3, which is the 3^rd fan line drawn from the $11.28 area high. When the price of an asset rises above the 3^rd fan line, it usually signals the beginning of a significant move to the upside.
EWJ is also close to breaking above HSR (horizontal support & resistance) near $9.50. Against the backdrop of the election of Shinzo Abe, the technical action of the Japanese stock market is very bullish.
5. Japan is the world’s largest creditor nation, and the 3^rd largest economy. If Abe is successful in forcing the Bank of Japan to embrace much more aggressive QE, it could spark what some major bank economists are already calling, “The Great Reflation”.
6. Most QE watchers had written off gold recently, because they focused only on the QE4 unveiled by Ben Bernanke in America. The election of Abe is forcing them to re-think their analysis, as it should.
7. Please click here now. That’s the daily chart for gold. I call the area above $1800 the “green zone”, because it potentially represents a new floor for the price of gold. If the Japanese stock market starts surging, it could create an institutional “risk-on” buying frenzy.
8. When the price was above $1800 in 2011, institutions were already getting interested in gold and gold stocks. If Japan becomes a global inflationary force, rather than a deflationary one, they could become much more interested!
9. Rightly or wrongly, large institutional investors view gold as a key risk-on asset, and a rise just to $1707 would likely usher in substantial momentum-based buying.
Please click here now. You are looking at the weekly FXY chart. It is a proxy for the Yen. There is a massive head and shoulders top pattern in play, and the neckline has been penetrated.
Abe is committed to knocking down the value of his country’s fiat currency, the Yen. His election probably ushers in an acceleration of the global fiat currency wars, and that’s more good news for gold investors.
Gold stocks may benefit even more than gold does, as Japan prepares to take on the role of global “QE leader”. Please click here now. That’s the GDX daily chart, and I’ve highlighted the 15,9 series of the TRIX indicator.
I refer to the TRIX as the “King Daddy” of technical indicators, because the moves that follow crossover signals tend to be enormous.
When Ben Bernanke’s QE4 was greeted as the end of the road for American QE, I was a little worried that rather than flashing a crossover buy signal, the TRIX was starting to “flat line”.
I’m not worried now. Shinzo Abe’s election is probably the fundamental catalyst that creates a powerful technical buy signal, for gold stocks.
It’s hard to envision a “Great Global Reflation” without the participation of financial stocks. Please click here now.
After falling about 90% in 2008, this IYG iShares fund of global financial services stocks rallied into HSR in the $54 area. From there, IYG “stalled”, and began an enormous consolidation.
Now, an upside breakout has occurred, and I think it will rise to $80, and then to a new high above $125.
It’s important to understand that the Japanese stock market is down about 75% from its 1989 highs. If a “Great Global Reflation” theme takes hold around the world, a new bull market in Japan could pull other global markets much higher, too.
Japanese retail investors could also become very keen to own gold and gold stocks, if they believe that their Prime Minister is about to embark on an extremely aggressive QE program.
What about junior gold stocks? Some have recently “popped 100% higher”, like the first pieces of popcorn in a popping machine.
Some analysts have argued that a lot of mining companies have run out of money, and few investors are willing to finance them. That’s true, but if inflation replaces deflation as the global theme of institutional investors, the situation could reverse itself, very quickly.
Please click here now. You are looking at the daily chart of GDXJ. Note the action of both the 10,9 and 15,9 TRIX indicators. They are exhibiting powerful buy signals. At this point in time, hedge funds that have shorted junior gold stocks are probably rethinking their strategy.
I’ve argued that surprise is the theme of any super-crisis. The actions of Shinzo Abe may soon bring great surprise to most deflationists, and nice profits to gold stock investors!

Thanks!
Cheers
St

Stewart Thomson
Graceland Updates

Dec 18, 2012

Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.

www.gracelandupdates.com
stewart@gracelandupdates.com

Mail to:
Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

The bottom line:

Are You Prepared?

Metals Thoughts: Talking Heads Edition

Tue, 11 Dec 2012 23:06:36 +0000

After a fairly coordinated sell-off among risk assets Wednesday and Thursday, metals have staged a bit of recovery only to begin giving it back this morning. Crude continues to drag the entire commodities complex lower and Brent is now down about 16% on the year. Economists tend to view lower energy prices as a tax cut for the broad economy and as generally stimulative. With accommodative policy from nearly every central bank in the world, significantly lower unit labor costs and now lower fuel prices, economic growth (and corporate profits) can really only blame The Fiscal Cliff Slope and the Euro crisis.

On the Euro crisis. As always, there are many potential developments this week and yet, nothing concrete:

EU leaders are gathering in Brussels this week with the likely outcome that the ECB will become the single, lead supervisor of banks within the union.
Still no progress on getting Spain to ask for the bailout so that the ECB can commence Open Market Operations and buy their bonds. They are now blaming Italy (?)
Discussion of a British exit from the European Union has intensified and PM David Cameron has promised the growing row that they will have a referendum in the coming months. The Economist has a good article on the subject matter. And, yes, the name for it is the Brexit.
Mario Monti has resigned as Prime Minister of Italy, after former PM Berlusconi’s party withdrew their support for the technocrat. More instability

Despite all of this relatively negative news flow and lack of progress, the EUR/USD continues to hang around the 1.30 mark. Seems relatively range bound between the Nov lows of 1.27 and the now triple top around 1.316 that seems to bring in a lot of sellers. I will be paying very close attention to see if the correlation between metals and the EUR finds footing again after two weeks or so of nearly opposite trading.

In the US, last week’s payrolls data smoked estimates (146k gain v. 85k est.) and the jobless rate fell to 7.7%, but I still have some concerns on the participation rate continuing to fall (63.6% in Nov from 63.8% in Oct). Extended unemployment benefits as part of the original stimulus bill are due to expire soon as well . 2-day Fed meeting begins today. Not much is expected other than a forecast.

A few things specifically on gold: world gold production is up 7% Y/Y according to Reuters. See chart below for more. It is also sitting precariously on a few of the significant DMA levels. From a long term perspective, we might get a rebound in physical jewelry demand from Asia next year with a marked increase in the number of auspicious days on the Hindu calendar. For the layman (myself very much included), this means a higher number of fortuitous days to get married. Anecdotally, wedding gifts are a significant source of the buying abroad, though I am yet to see any hard numbers around this.

The Only Chart That Matters: World gold production up strong again in 2012 to 12.37MMoz from 11.52MMoz last year (Reuters). There has been a 28% rise since 2008. This will provide some downward pressure on prices.

The Other Chart that also matters: Gold sitting directly on 100, 200 and 365 day moving averages (orange blue and middle green lines) and also seems to be forming a wedge (blue lines). As I’ve mentioned previously, I don’t necessarily believe in divining price action from a chart, but it is noticeable how much we have been restricted to range bound trading for the last couple of months. If ETF buying so much as stumbles, things could get ugly on the futures side.

GTMH: Euro trading near the higher end of the range, year-end seems likely to contribute more liquidation than demand and the Fed/Global central banks are low on ammo or markets are at least QE-fatigued. Lower.

Call the desk with trades. Bowl season is almost upon us and the last few weeks of trading can bring some significant volatility. Stay tuned.

- Brad

__________________

Bradley S. Yates

Bullion Desk- Senior Trader

NTR Bullion Group, LLC