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Saturday, July 9, 2011

18,000 NEW NAILS IN THE COFFIN

As many of you know I believe that we have begun the topping process of this cyclical bull market. In a healthy market an intermediate decline is a profit-taking event after a significant leg up. It should hold well above the prior intermediate bottom. The decline into the June low was not a profit-taking event. The market had not rallied long enough or far enough to warrant an intermediate correction and certainly not one that would test the March lows. The decline in May and June was the first shot over the bow that something is wrong with the fundamentals driving this market.


Now let me be clear because I think many people got the wrong idea from my last article. I don't recommend anyone sell short the market. All I'm saying is it is too late to have retirement funds positioned long at this time. Asset appreciation is the Feds stated third mandate. Bernanke is going to fight the bear tooth and nail. There will be continued interventions into the markets. The rules will be changed as we go. Anything and everything will be tried to keep stock and bond markets levitated. That is not the kind of environment conducive to making consistent gains on the short side. That is the kind of environment that can and will whipsaw traders to death.


Even in a market free of intervention the topping process is always volatile and dangerous. But in a market that is being actively managed it is especially dangerous on the short side. Case in point. The June bottom was way too early for a final intermediate bottom. As I said in my previous articles we should have seen a counter trend bounce to relieve sentiment extremes followed by another leg down into a more lasting bottom. Unfortunately that was not allowed to happen. The powers that be manufactured an explosive rally on the low volume preholiday week in the attempt to create a massive momentum move ahead of the end of QE2 that would be hard to turn around. Needless to say Bernanke didn't want a repeat of last year when QE1 ended.


The Fed can temporarily turn the markets higher but what they can't do is reverse the economy. I said when QE1 began that no amount of printing or stimulus would stop the underlying cancer in the economy. All it would do would be to create a brief reprieve which would be followed by an even deeper and more severe recession once the sugar high wore off.


The simple fact is that we cannot cure a problem of too much borrowing and too much spending with more borrowing and more spending. We tried this in the 30's and it caused a 15 year depression. Japan tried it and it led to two lost decades.


The cure is to bite the bullet and allow the deleveraging process to run its course. Yes it will be painful. We've put this off for so long that it isn't just going to be painful it's going to be catastrophic. But the longer we kick the can down the road the worse the endgame becomes.The only ray of sunshine I can offer is that if we let the markets work they will complete the deleveraging process fairly quickly. Within 2 to 3 years the world can be back on a sustainable path of growth. Continue to fight this and we could be stuck in an on-again off-again recession for another 20 years with the final end game collapse so devastating that it will make the Great Depression look like a picnic.


The last two employment reports are clearly showing that the economy is slipping back into recession. I suspect by August the employment report could, and probably will, turn negative. All the manufactured rallies in the world cannot prop up the stock market if the economy is rolling over into another recession. They can postpone the inevitable only so long and ultimately it will just make the bear that much more severe.

The Fed's efforts have only extended the topping process they haven't stopped it.

194 comments:

  1. Gary, are you not afraid the dollar could strengthen and crush gold?

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  2. A rising dollar would likely moderate the intermediate cycle but it won't stop it. Not to mention that the dollar will be moving into the timing band for a move down into its intermediate low soon.

    The fact that the dollars second daily cycle was unable to make a higher high is not a good sign ...for the dollar that is.

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  3. Gary, so if you knew the dollar index would move up to 80 or so in the next 2 months you are still content to buy gold now? Just a hypothetical question, as I'm not convinced the dollar will stay here and move south

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  4. Sure if the dollar moves up to 80 it means the euro is collapsing and Europeans will be buying gold hand over fist. Demand will still be there it will just come from a different source.

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  5. Here's the Gold chart I posted last week for those who were interested. Tends to confirm the intermediate low is in. One point of note is we didn't print a lower low as we did at previous bottoms. No point looking a gift horse in the mouth tho.

    gold chart

    .

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  6. Gary, you state "powers that be manufactured an explosive rally". Could you describe how you know this and how this was executed, approximately?

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  7. Of course there is no way to know for sure. But the rally was unlike any other rally out of an intermediate low. Every day that week massive volume came in between the open and 10 o'clock in what looked like a blatant attempt to create a trend day.

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  8. This comment has been removed by the author.

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  9. Gary, ok, thank you. It certainly was a strange rally. So far as I am aware nothing really changed to drive it. In fact, it seems things are getting worse if the employment report is an indicator of the economy. So it is peculiar to me, at least.
    Assuming the employment report begins to show negative jobs growth, about approximately how many of these negative reports will be allowed before Mr Bernanke feels compelled to print again? Three?

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  10. I doubt it will be called QE3. Since the problem is employment I suspect we will see some kind of work stimulus program, which will of course be paid for with the printing press.

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  11. Gary, thank you. Interesting times ahead

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  12. QE3 ?

    http://www.bloomberg.com/news/2011-07-08/jobs-data-fuels-calls-on-obama-to-include-economic-stimulus-in-debt-deal.html

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  13. $821,000,000,000 spent for
    2,400,000 jobs
    Equals
    $324,000 per job

    What a deal!

    http://www.sacbee.com/2011/07/01/3742160/wh-stimulus-responsible-for-24.html

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  14. Gary

    The downside to all your great work is the money I have to mail to Washington for Capital gains. I'd feel a little better if they didn't piss it away...

    Oh well, keep up the good work !

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  15. I grit my teeth every time I have to write that check too.

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  16. Gary
    We have a lot of gaps to fill on gdx,gdxj,gld...
    Any time frame or trigger/up coming news event when these might get filled?

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  17. Gary, Uncle Sam will be sending you a special letter of appreciation after this cycle run.

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  18. I know your crystal ball is in the shop, but historically, any estimation?

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  19. Gary - you mention "is it is too late to have retirement funds positioned long at this time". I currently am holding Fidelity Select Gold in my 401K, which is my only long position (the rest in cash). I guess this is the only exception to your statement above?

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  20. DD,
    Correct gold is in a secular bull market and appears to have made an intermediate bottom.

    My comments were aimed more at the average Joe's 401(k) retirement funds, not astute traders.

    A skilled trader could certainly still trade the market from the long side and avoid a bear market.

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  21. Giants fan,
    I will post any changes in the portfolio in real time.

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  22. Gary, are you leaning toward the situation that the gold abcd waves are out the window, and we now have a system of daily and intermediate cycles? Possibly due to the indirect Fed intervention in markets ?

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  23. Marc Faber is expecting further modest strength into late July early August but no new stock market highs. Thereafter renewed weakness will likely follow, which could take down the S&P in the fall toward 1,100.

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  24. I'm not really in the camp of an endless series of intermediate rallies. At some point bullish fever should send gold into the familiar C-wave parabolic top. That should then trigger a D-wave profit-taking event.

    I think D-waves are critical to clear bullish sentiment and keep Joe Sixpack off the bull as long as possible.

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  25. Gary,
    Thanks for the link to the Forbes interview. I'm going to read Greenblatt's book.

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  26. Gary,

    I asked this question in an earlier forum, but it probably got lost...

    Are you now of the opinion that we still have the D wave ahead of us this fall?

    Thank you.

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  27. See my comment just above.

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  28. Okay, I didn't realize it was meant for the current situation. I thought perhaps it was intended for the final C wave.

    Thank you.

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  29. http://goldtent.org/wp-content/uploads/2011/07/scCA0304WK.png

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  30. Nike Boy2008,
    To answer this morning's question about ITM timeframe, I usually go 3-4 months away even if I am 100% sure that the price will move in the expected direction the next second.
    Because you never know...

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  31. Wav ridah,

    An absolutely fantastic HUI/SPX chart you linked to there...many thanks!

    I had forgotten how long and how many tries it took the HUI to break through 500 and stay there.

    Three weeks ago it backtested 500 (former resistance looks to be support) and of course it's rallied above 500 for the last two weeks. It sure looks like it's ready to blast off to the "next level."

    750, anyone? Do I hear 800?

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  32. Silverhound, very interesting use of MACD/trendlines.It does seem to confirm IT low is in.

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  33. King dollar article.

    http://likesmoney.dojispace.com/

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  34. Thank you very much.

    I went to the option website that you had posted to look at the delta values. Thank you for that.

    The site also gives me a "theoretical" option price based on what I enter.
    When I go look at the actual option prices, they are much higher. How do I go about knowing what price to pay for an option? How do you do it?

    Thank you.

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  35. Silverhound,

    Excellent chart. I've never really seen an MACD with 5,25,5, but it sure brings out the intermediate bottoms on that thing.

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  36. NB2008,
    I don't concern myself with that portion because I only fill in the first 3 inputs. The options prices that you will see on the bid/ask are the ones you are going to pay. No negotiating like a T-shirt vendor on a beach in Acapulco.

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  37. Gary Nothing on Crude Oil in your report :( i now you can follow it all my guess is you dont like that either .

    jerky boy aka Jake

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  38. This comment has been removed by the author.

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  39. MrMiyagi, you said that you go 3-4 months out with your options. Is this with GLD? Have you ever been caught out even with this time frame? And finally, do you go DITM, ATM, or OTM? Thanks....

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  40. Eamonn,
    I have had longer timeframes when I expect something may happen in 3-4 months but has a possibility of sooner. I have been on the wrong end of options, just like the wrong end of shares. The longest out I have had is 7 months and normally I will go in the 80-85 delta range, occasionally lower but rarely higher.
    Once or twice I have been known to have a handful of "lottery" options but no more than a 1000$ worth; I know that most will be losers, some will be even and some will be gains. Mostly it's a wash so far but a low motivation endeavor.

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  41. Sometimes though some months have pathetically low volume options so I will go to the next month never prior month.

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  42. MrMiyagi, thank you. Are you a believer that the gold low is in? I'm kinda worried that the dollar might appreciate

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  43. http://www.bloomberg.com/news/2011-07-08/buffett-bets-very-heavily-against-second-recession-even-after-jobs-data.html

    "Buffett Bets ‘Very Heavily’ Against Second Recession Even After Jobs Data"

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  44. I'll put on my tin-foil hat for a moment .. rather, I'll dust it off;

    I think the Obama administration made the job #'s look extra extra bad, so from now on, until (re)election in November 2012, the job #'s will be improving.

    We are far enough from the election that these horrid #'s won't mean a thing (Mitt Romney) as long as they start improving from here.

    And I think they (magically) will.

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  45. Thanks for the charts, wavridah and Silverhound.


    Eamonn, by focusing on the dollar you've taken you're eye off the ball. You assume dollar direction has immediate predictive value, but have seen them move higher together all last week. No need to complicate things, especially when you cannot be sure what gold will do if the dollar continues higher.

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  46. Jake,
    In the cycles count link I noted that I think oil has probably put in a shortened intermediate cycle bottom also.

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  47. Those BLS numbers are a joke and are nothing more than a political tool to push their agenda. Like CPI and every other government release, these numbers are “massaged” so that the administration can shape public opinion. This month, the government decided that a bad number was necessary, so they had a seasonal adjustment of negative 358K.
    Non-seasonally adjusted payrolls actually grew by 376K in June and not the 18k headline number that was given. The only question is what was the motive for the bad number? Was it so that the democrats could have some negotiating leverage in their weekend debt ceiling talks and justify fewer cuts to spending? Is the employment report going to be used to justify another payroll tax extension? Or, is the administration already building its case for the need to maintain additional stimulus in the economy?

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  48. Unless I'm reading the data wrong 322000 jobs were added with the birth death model, not subtracted. If we are heading into recession then that data is a mirage and the report is actually much much worse than it looks.

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  49. Since April the number of unemployed has been steadily increasing. Whether or not you believe the numbers the trend has been going in the wrong direction.

    I'm not sure what reason the government would have for trying to manufacture a negative trend.

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  50. Gary,
    Don't get me wrong, the underlying numbers are absolutely terrible. The birth death adjustment added back a bunch of jobs this month (I think it was around 130k in June). My point is that month-after-month, they adjust the data using things like the birth death, seasonal adjustments, etc to present the number that supports their agenda. Your absolutely correct though that regardless of what they present, there is no mistaking the deterioration in the labor market. Like Bruce said earlier though, we will likely see numbers (via adjustments) that show things improving when the administration sees fit.

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  51. I tend to believe that the jobs report is mostly free of government adjustment other than the flawed birth death model. If the government was going to rig the numbers they would've done so during the last recession. They would have also made the numbers look much better coming out of this recession to support their agenda.

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  52. That`s simple; so they can build a bigger case for more porkulus/QEwhatever. Statistically fall in the 3rd year of the presidential cycle is always a winner. But I was just wondering if they had started to manufacture the july 4th rally too early. Probably don`t want to let it get headed too far down the hill for fear they could never get it turned around.

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  53. i was watching a old movie last night called Fail Safe staring Henrey Fonda. It was a cold war movie where we sent our bombers, loaded with nukes, to russia and could not turn them back.
    Well in the cold war we had a foe we could idetitfiy. Now the enemy is within and we can clearly see the puppets, but not the enemy.
    I guess the enemy is a false phylosophy from within.
    3 years ago i reconized something was very wrong and saw gold going up. ( i know this all started much sooner than that, but if you are in the middle of the heard of sheeple its hard to see)
    So im trying to do the gold bull.
    Thankyou Gary
    for the help

    Even now i have not come face to face with one soul who is a gold bull. At best they clearly know many things are wrong, but dont have any idea what to do. i dont know either but to try to make enough money to get debt free and maybe get somewhere to be self sustaining.. ( still would like a 1968 GTO, but i think if i could rent one for a couple of weeks, i could squash the nagging feeling. if i did get one though i could end up like road warrior. Note to self, get a GTO with a blower )
    and the bull takes another twist

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  54. Given that they have the flexibility to "adjust" numbers on a seasonal basis, this gives them the ability to smooth out the data over time.
    I would argue that they have made things look better coming out of the last recession. Does anyone really believe that the economy has created over 1 million new jobs since this recession "ended"? Is anyone buying that the unemployment rate really improved to 8.9%? I agree that the birth death adjustment is their main tool but they also obscure the truth via changes to the labor force participation rate, seasonal adjustments, prior revisions of monthly data, etc.
    In terms of motive, I listed 3 potential reasons in my prior post, but again it’s nothing more than speculation. My overall point is that these releases are nothing more than noise, and are usually presented to support whatever their agenda happens to be at that time. I think we can all agree though that the job market is clearly getting worse and that going forward the administration will likely present the data in the best light possible entering the campaigning season.

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  55. Joel Greenblatt provided the outside seed money for Dr. Michael Burry. When Dr. Burry made his huge bet on mortgage cds, Greenblatt tried to pull all his money out of Burry's Scion Capital. Read The Big Short by Michael Lewis.

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  56. My GLD option strategy

    http://arum-geld-gold.blogspot.com/2011/07/gld-trading-plan.html

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  57. Here are some interesting factoids on our favored Bull, plus some more perspective;

    http://www.sunshineprofits.com/commentary/08-jul

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  58. Gary,
    It is curious to me when you state comments like this "powers that be manufactured an explosive rally". So you admit that there is market manipulation going on, yet you call people "conspiracy theory nuts" who call out JPM and the Feds banks for having huge short positions in gold and silver. If manipulation happens in one market, why do you call some who see it in other markets "nuts"?

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  59. Bruce,
    That Buffett article says nothing, in fact he says he "would" bet, not is betting.
    After he hires back another 17000 people, we'll see.

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  60. Shalom Bernanke, thank you for your comment RE dollar. I'm afraid of it!

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  61. gold lion,
    The Fed has clearly stated that they want asset price inflation. So I'm going to take them at their word.

    However I see no reason for the Fed or the government to give a damn about the price of gold. It's just a shiny yellow metal and has no bearing whatsoever on the money supply. The Fed is free to print as much money as they please, gold is irrelevant.

    As long as that remains the case then I don't buy the conspiracy nonsense one little bit.

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  62. Gold Lion

    I mean really, just consider the source when you think he is calling you nuts. The man is destroying his body with continuous excessive weight lifts and getting cheap thrills by hanging off cliffs.

    He is simply the best I've seen at market analysis and cycles.

    The man is harmless. On top of that he seems to have a heart of gold.

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  63. Gary
    It's not just a shiny metal to them. I would say they do care about the price because it embarrasses them. I think it shines a light on the fact that all paper is losing value.

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  64. Gold is the ONLY real competition that the USD has. Of course central bankers think the price of it is important, not only because huge chunks of their reserves are tied up in it, but also because it's the only real indicator of the debasement of paper currencies. Gold is the only real money, everything else is just debt.

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  65. Hell oil does that in a much more damaging fashion.

    I can think of no sane reason why the government would throw money away trying to fight a bull market in something that is completely meaningless to the economy.

    I think the recent run in silver pretty much puts to rest any notion of manipulation. And I suspect the coming run in gold will do the same thing.

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  66. Oil isn't money and never will be.

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  67. Gold hasn't been money in decades. And I have news for you, it's never going to be money again. There just isn't enough of it in the world for it to be used as a convenient medium of exchange ever again.

    What gold is is a commodity and a store of wealth. And that's all it's ever going to be.

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  68. All this government jobs talk cracks me up as I am a recent finance graduate and got lucky with an internship at a government organization at the municipal level. I had the internship for just under a year and recently got hired on full time with a starting salary in the low 70s. While I consider myself extremely lucky to be making this much at my age, I have always been hard working and the strict 9-5 just isnt enough for me (limited opportunities for overtime where I work). Anyone have any investment ideas for a young male with a steady flow of disposable income as well as free evenings and weekends?

    Currently im just saving most of what I make and investing in commodities. While investing in the markets is nothing new to me, I would like to expand my horizons in terms of potential income. I have looked into purchasing a website but that would be a huge commitment in terms of learning as I know little about programming. Another option I looked into is purchasing an unattended coin laundromat however I only have about $40K saved up from investing and I want to keep investing in PMs so until I save up more thats not really an option. Thanks for any responses!

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  69. Of course there's enough gold to be money. It's infinitely divisible. It's money presently, why do you think the nation states and the super wealthy use it as reserve? It's the ultimate money, has been for thousands of years, and will continue to be.

    It has the best characteristics to serve as money, nothing has changed in that regard. It's just that people sometimes get duped into believing otherwise, usually because they don't want to be considered "crazy".

    All the worlds sheep believe as you do Gary, but the "crazy ones" (worlds central banks, sovereigns, wealthiest individuals and institutions) know better.

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  70. Sometimes I wonder why the original "oil crisis" occurred immediately after Nixon took the WORLD off the gold standard.

    I think it's because the Saudis refused payment in paper debt instruments for something so vital as oil.

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  71. Gary,

    If gold rallies approximately 24% during this cycle, do you think silver will also rally 20%+, into the low 40s? Will silver be pulled higher by gold?

    Thank you.

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  72. high,
    Take a gold coin down to your local mall and see what you can buy with it. Unless the clerk happens to know what the price of gold is (highly unlikely) you can't buy anything with your gold coin.

    You would first have to exchange your coin for paper currency in order to use it as a medium of exchange a.k.a. money.

    Like I said gold is a store of value but it is never going to be used as money again. Like it or not we will be stuck with paper money probably till the end of time.

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  73. Elaine,
    yes I think silver will be pulled higher by gold but the fact remains it is a broken parabola and the risk of a sudden and severe decline at any time is too great for me to play with silver anymore.

    I will be ready to buy silver again only after it has consolidated for at least one to three years.

    This is a common human tendency to return to what treated you well in the past. I saw tech investors do it from 2002 to 2007 and I saw energy investors do it from 2009 the 2011.

    I have no intention of making that mistake with silver.

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  74. Gary

    Let me note a contradiction on your part, not as a "gotcha" but more as a window into reality.

    A few posts ago you said that gold hasn't been money for decades. I'm paraphrasing.

    I take it that you are referring to the period before Nixon changed the deal.

    Then you say "Take a gold coin down to your local mall and see what you can buy with it. Unless the clerk happens to know what the price of gold is (highly unlikely) you can't buy anything with your gold coin."

    Yes, and the same was true in 1969 when we were on the gold standard. In other words, it's not necessary to use actual physical gold for every transaction to be on a gold standard or a system where it's legal to require gold/gold certificates as payment of debt.

    You see, as long as the pieces of paper can be exchanged for set amounts of gold, guaranteed, you are using gold as medium of exchange and unit of value as well as for store of wealth. Only these three comprise the definition of money.

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  75. I probably should have said centuries not decades.

    A gold standard does not mean that gold is used as currency. A gold standard means that you can exchange your currency for gold.

    Virtually any commodity can be exchanged for currency and then used as money.

    If we ever start minting gold and silver coins and use those coins in everyday exchange then yes gold and silver will become money again. But as long as one has to exchange their gold or silver for paper currency in order to facilitate exchange gold will remain a store of value not money.

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  76. On top of that, why do you think people, with at least half a brain, would willingly continue to trust irredeemable paper currencies after the USD collapses, as you have many times said it would.

    I think after losing everything folks will wise up and insist on storing their wealth in something other than unbacked paper that can, and just has been, infinitely debased. Only a fool would do otherwise.

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  77. "I probably should have said centuries not decades."

    The reason you said decades is because we were discussing gold as money, not currency or medium of exchange.

    "A gold standard does not mean that gold is used as currency. A gold standard means that you can exchange your currency for gold."

    It also means that gold is money and that central bankers, smart ones, care about how many USD it takes to exchange.

    "Virtually any commodity can be exchanged for currency and then used as money."

    Not true, if you mean to say that any commodity would or could rival gold as money. Gold is money for thousands of years of reasons. It has withstood the test of time and come out the world champion for many reasons. Study it if you're at all interested.

    "If we ever start minting gold and silver coins and use those coins in everyday exchange then yes gold and silver will become money again. But as long as one has to exchange their gold or silver for paper currency in order to facilitate exchange gold will remain a store of value not money."

    Let's stick to gold. It doesn't require minting to be used as money, only as medium of exchange for small transactions. Even then one could use gold certificates.

    What do you think will replace irredeemable paper as medium of exchange? Or do you actually believe people will continue to trust it after losing all their savings?

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  78. Blogger oa92000 said...

    alex,
    if you look at daily chart, exk has to come back to re-test 20 or 50 dma ??

    July 9, 2011 2:34 PM

    sorry I didnt answer sooner, I'm in and out this wkend,

    yes, I see 2 gaps below current price and I tend to watch the 10 & 20sma. One gap near $9ish and the other at the 20 sma around $8.40. I would think that only that higher gap fills.

    Sidenote : In a good run, prices can often dip down and come back up intra day for a couple of days ( basically going sideways )and the moving avg.s continue to rise and meet current prices. In that case, I just enter at the moving avg price.

    I currently own NG, EXK, AG, AAU

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  79. LOL gold certificates? Now you're back to paper money.

    Your definition of money is something that holds its value against paper money. Almost all commodities fit this definition.

    My definition of money is something that is used in everyday transactions as a medium of exchange.

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  80. Throughout history people have lost their savings in paper money as all fiat currencies eventually become worthless. Yet throughout history people have continued to use paper money as a medium of exchange.

    This need to believe that gold is money is what will trap you at the top of the the bull market. At that time it will seem impossible for gold to lose value and paper money to gain value. But that is exactly what will happen.

    Then the large cycles will reverse, gold will enter a bear market, and paper assets will enter a bull market.

    This is how my markets work, and have worked since beginning of time.

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  81. "LOL gold certificates? Now you're back to paper money."

    No, I'm back to gold as money and redeemable paper as representatives of that money.

    "Your definition of money is something that holds its value against paper money. Almost all commodities fit this definition."

    Now you're putting words in my mouth and arguing against them. A straw man argument. I don't believe gold is and will be money because it holds its value against paper. ROFLMAO.

    "My definition of money is something that is used in everyday transactions as a medium of exchange."

    Then I suggest you wiki the definition of money my friend. If you take the time you will realize that gold is money and what you speak of is currency.

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  82. Throughout history people have lost their savings in paper money as all fiat currencies eventually become worthless. Yet throughout history people have continued to use paper money as a medium of exchange.

    Just one example of where you are dead wrong is after WWII, the world went to a gold standard. Look up Bretton Woods Agreement.

    The people of the world demanded gold as money after the destruction of iredeemable paper currencies before and during the wars.

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  83. Let me repost with quotes so it's clear. Gary said:

    "Throughout history people have lost their savings in paper money as all fiat currencies eventually become worthless. Yet throughout history people have continued to use paper money as a medium of exchange."

    Just one example of where you are dead wrong is after WWII, the world went to a gold standard. Look up Bretton Woods Agreement.

    The people of the world demanded gold as money after the destruction of iredeemable paper currencies before and during the wars.

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  84. The world was on a gold standard before the war. Did it prevent destruction of currencies? No I did not.

    Never in history has a gold standard or gold and silver as money prevented politicians from debasing currency.

    The Bretton Woods agreement lasted less than three decades. Now here we are again back with purely fiat currencies.

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  85. History is crystal clear, politicians will debase currencies no matter how many restrictions you put on them.

    During the last bull market in gold paper currencies survived and just like I said eventually entered a bull market and gold entered a 20 year bear market.

    The same thing will happen this time. At some point gold will become ridiculously overvalued and paper assets will become ridiculously undervalued to the point where the large cycles will reverse and we will enter a new secular bull market for paper assets and a bear market for commodities and gold.

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  86. The world has been on and off gold standards many times and in many fashions. It goes in cycles and I'm surprised you don't realize it.

    I never said gold as money prevented currency debasements, again another straw man. I believe people will demand a gold standard, of some kind, again and, as before, the worlds money systems will be imperfect.

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  87. The last gold bull market started just after Nixon changed the deal.

    The USD won the confidence game then due to the fact that the worlds governments backed the dollar and the dollar had a great future.

    I agree that politicians will always debase currencies.

    What is now happening is that the pendulum has neared the other extreme and people will lose confidence in unbacked paper once again. The cycle repeats and gold will have it's day in the sun. Nobody can know how long it will last.

    I do think it's possible though that people will eventually wise up and demand a system that allows gold in payment of any debts.

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  88. "This need to believe that gold is money is what will trap you at the top of the the bull market. At that time it will seem impossible for gold to lose value and paper money to gain value. But that is exactly what will happen."

    What you are missing is that this debate started off by you insisting there's no way gold can ever be money again.

    "Then the large cycles will reverse, gold will enter a bear market, and paper assets will enter a bull market."

    Part of the cycle includes gold becoming accepted, no required, as money again. Not only by individuals but by sovereign governments, much like the Bretton Woods Agreement.

    You are missing that piece of the puzzle. Under Bretton Woods governments didn't require "gold coins" for payment. They accepted paper because it could be exchanged for gold bullion.

    It will happen again after all these countries get raped by the US Treasury and realize that they hold tons of worthless paper as reserve wealth. Do you think China will readily accept unbacked paper debt instruments after the USD goes to near zero? Of course not.

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  89. I'll bet you a burrito that we never see a gold standard again.

    Unless we can somehow change the political system there's no way that politicians will tie themselves to a gold standard.

    And what we want is meaningless. We saw that when politicians sold us out for Tarp even though the vast majority of their constituents disagreed.

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  90. I'll take that bet as long as it's not a burrito from Taco Hell.

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  91. Gary,
    How can gold be a store of wealth and, at the same time, NOT be money?

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  92. Oil is a store of wealth. A great many speculators buy it as protection against debasement of the currency.

    Do you consider oil money?

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  93. "This need to believe that gold is money is what will trap you at the top of the the bull market. At that time it will seem impossible for gold to lose value and paper money to gain value. But that is exactly what will happen."

    Not necessarily. The last gold bull was at a different period of the cycle than the current situation. Then, the US had just come off the gold standard. Now, the US is close to defaulting on its debt.

    For the sake of argument imagine that you sell your gold related investments when the POG is $5,000 (actually any amount will suffice sense it only boils down to how many USD will be created).

    Shortly thereafter the usd goes into hyperinflation and becomes worth zero. Also, any paper related gold investments become worth zero.

    At that time you will be hard pressed to afford a burrito. Why chance it?

    You know, even during the last gold bull you would have been better off buying real estate than paper with your gold. There was a huge inflationary period after the bull. As a matter of fact you'd have been even better off to have borrowed paper to the max in order to buy R.E.. The loans of that time were paid off quickly through inflation.

    These will be strange times, of that we can be sure.

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  94. Oil isn't money and it's definitely not a store of wealth. Unless you own it in the ground. If so it's not liquid, so to speak.

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  95. You are assuming that we are going to default on our debt by inflating the money supply infinitely. While I tend to agree, this whole line of reasoning collapses if we by chance get a Congress and president in office who decide to take the other route and default on our debt honestly.

    If that happens the gold bull market will end and the value of paper currency will soar.

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  96. Gary,

    I'll bet you a burrito or three that 'they' will try to restore the gold standard at some point in the future of planet earth.

    However, I doubt either of us will be around (in our current incarnation) for that event.

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  97. But it won't last last, and they'll go back to paper or plastic money.

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  98. That's a good one. What are the odds?

    IMO politicians will never allow that to happen. It's much easier to keep kicking the can down the road. When the road ends they figure someone else will be begging for votes and they will be laying on the beach in Cuba.

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  99. Oil is not a store of wealth, I'm sorry to inform you, for about 99.99% of the people on this planet.
    Oil is a source of energy and a base ingredient for many products like plastics.
    PHYSICAL gold bullion is the only form of physical money recognized as money worldwide. Just ask anyone in Asia, Russia, India, Brazil, Botswana, etc. American's will soon join that rest of the world in seeing gold as money.
    Gold has been money ever since the concept of money was created. As long as we have this thing called money, gold will be money.

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  100. Sure oil as a store of value. A barrel of oil or more properly 16 barrels of oil will purchase 1 ounce of gold. That ratio fluctuates from time to time but basically remains the same throughout most of recent history.

    One could simply store 15 barrels of oil and trade them for an ounce of gold at any time they so desired. Or they could trade those 16 barrels of oil for paper currency at the going rate.

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  101. Bruce,
    I agree that a form of the gold standard will return, but likely it will return as a means of settlement between central banks.

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  102. No gold is recognized as a store of value around the world.

    No matter where you go you will have to trade your gold for paper currency in order to transact business.

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  103. "One could simply store 15 barrels of oil..."

    Really? Simply? LOL.

    I think you'll find an oz of gold infinitely easier to store, transport, and trade.

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  104. "No gold is recognized as a store of value around the world.

    No matter where you go you will have to trade your gold for paper currency in order to transact business. "

    And yet you consider oil to be a store of value? Get real now.

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  105. No way in hell a gold standard returns without a revolution.

    The masses are too ignorant and the propaganda to ingrained for the world to ever go back on a gold standard.

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  106. No one is questioning whether it's easier to store gold than oil.

    I'm just stating that both are a store of value. And in order to use either as a medium of exchange it has to be converted back into paper currency.

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  107. Ignorant masses and propaganda were at their apex during WWII and yet we ended up with BWA.

    Now, with the internet revolution multiples of times more powerful than gutenberg's press, I think it's much more likely people will have full understanding of the fraud that fiat currency is.

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  108. "No one is questioning whether it's easier to store gold than oil.

    I'm just stating that both are a store of value. And in order to use either as a medium of exchange it has to be converted back into paper currency. "

    Oh, my mistake. I thought you said that "No gold is recognized around the world as a store of value."

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  109. There just isn't enough gold in the world today to go back on a gold standard. Productive capacity has far exceeded the value of all the gold ever mined and will continue to do so.

    The price of gold would have to be mandatorily raised to 20, 30 or $40,000 an ounce. And it would have to be routinely raised as the productive capacity of the world increased.

    Knowing human nature, and politicians in general, there is no way they are ever going to limit themselves to the restrictions of the gold standard.

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  110. Sorry left out the comma after no.

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  111. @ wall of worry

    "I agree that a form of the gold standard will return, but likely it will return as a means of settlement between central banks."

    It is presently. Check out the Bank of International Settlements (BIS). Huge amounts of gold being exchanged daily (mostly on paper though).

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  112. Wall stated that gold was recognized as money around the world.

    I replied; No, gold is recognized as a store of value around the world.

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  113. "There just isn't enough gold in the world today to go back on a gold standard. Productive capacity has far exceeded the value of all the gold ever mined and will continue to do so."

    People make the mistake of thinking that all the worlds productive capacity and accumulated wealth would need to be contained within gold bullion. That's just not the way it works.

    Most of the worlds wealth is probably contained in real estate. Then comes productive assets, etc.. If you can imagine the USD being the worlds reserve monetary system (tons of paper and ink) why cannot you see gold in that position? Is the propaganda that ingrained?

    It's like walking along a rock trail and thinking the dead air past cliff edges will support your weight better than the rock itself.

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  114. High 5,
    The propaganda and conditioning IS that engrained withing the majority of the boomer generation and pretty much all of the following generations.

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  115. W O W

    The boomer generation revolted against the idiotic propaganda that spewed out of DC during the Vietnam conflict. The internet generation is probably the least homogenous generation of any sense time began.

    The reason we are seeing the North African and M.E. people revolt is mainly the web.

    The WWII generation was probably the most homogenous of all time. Robots, most all of them. Why do you think millions died from violence, because they were enlightened?

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  116. The end of the world, sky is falling posts are boring and non-productive. We are in a bull market unless technical/fundamental analysis proves we are not. We should expect a pullback after the two week uptick we just had, that's just common sense.

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  117. http://arum-geld-gold.blogspot.com/2011/07/aem-next-long-setup.html

    AEM

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  118. Gary
    How is sentiment derived ? Who or what is being measured ?

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  119. Gary, $40k gold I can live with:)

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  120. Veronica, what's your system saying on gold right now, if you don't mind me asking?

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  121. Gary, have you ever thought of using growth hormone? My brother has a dr that just prescribed it for him and his physical changes are remarkable after only 4 weeks. He also says it has made a huge difference in his cognitive abilities.I always thought it was cost prohibitive but he says it's about $150.00/week.

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  122. Eammon,it's long right now with a stop established.My weekly system is close to going long and a pivot system is close too.I use these 2 systems as confirmation for my trading system.I am expecting some type of correction shortly so I can add but who knows?

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  123. Veronica, thanks. What's the stop?

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  124. It's a little lower than Gary's but should start moving up soon. I will post when it becomes relevant.

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  125. VERONICA, I am listening ,too. Thank you on your system. I have more to deploy. :)

    Thanks you ALL for sharing some very fine charts.

    Hot in Vegas GARY?? Steamy summer here, early morning and late PM to be active :)

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  126. You rock Veronica. Thanks for sharing.

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  127. Reading the discussion earlier in the day, it is interesting that any time the topic comes up Gary is inevitably the sole voice of reason and there are a multitude of other opinions that "Gold is Money"

    We are all here to ride the Gold Bull. I just have to add support to just take a little weight off of Gary (although he can obviously lift a large amount of weight by himself)

    I used to have a strong belief that "Gold is Money" It makes sense and there is this historical basis that it has been used for thousands of years. But the problem with that thinking is gold becomes something more than money: it becomes almost all powerful and it really is not.

    Think about the statment "Gold has been used as money throughout history" and actually be critical. If gold has been used as money, why was there a need for silver, bronze, and other coins. Answer: there was never enough gold and there will never be enough gold available for it to be used as money. Sure because of its unique properties, it would be the ideal common currency of the world. But the reality is it never has been used as money. It has always been as Gary states a store of wealth.

    In a biblical historical reference, consider that King Solomon who controlled more gold than perhaps anyone in the history of the history of the world paid for a group of Arabian Horses using several thousand shekels of silver. Wouldn't it have been easier for him to exhange gold for the horses rather than silver? Since the owner of the horses obviously preferred silver as payment, a person having only gold would have had to exchange the gold for silver, just like we have to exchange our gold for dollars before making most purchases.

    Sure there have been and always will be gold coins, but it may not be true that these gold coins thousands of years ago were thought of any differently by humanity than they are today. They are simply an easy way to store wealth. Gold coins are by no means a common currency. If Gold becomes part of a new world monetary system, it may be priced higher than it is today, but it will never be money.

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  128. Fossil fuels are getting harder to find. It is more expensive to get them out of the ground. Therefore, in order for society to continuously increase productive capacity, technology has to continuously improve efficiency at a faster rate than the cost of finding fossil fuels increases. But, if energy costs are increasing, more resources are being diverted towards maintaining societies current infrastructure, and more resources are continuously being diverted away from technological R&D. In order for a society to have a smooth transition away from fossil fuels they would need to prepare 10 years in advance, while there is spare capacity to use towards new infrastructure. Or at this moment, they would have to consciously gut certain parts of society, now that peak oil was in 2005, to free up the resources to build new infrastructure.

    Productive capacity has already flat lined. Life expectancy is on the verge of going down. Energy consumption drives productive capacity, not the other way around. 1 gallon of gas is equal to 500 man hours of work. We burned through millions of years of stored solar energy (oil) in a hundred years. We burned through our million dollar trust fund, and now we have to live on our Burger King wages.

    The blue line is our best hope Just like in the economy, the longer we try to prop this unsustainable system up, the bigger the crash is going to be.

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  129. looks like that was a bad website service.

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  130. Eamonn, I have the DX contract at 75.76 right now.

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  131. Harry, look: http://www.bloomberg.com/apps/quote?ticker=DXY:IND

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  132. A friend of mine has a 20k savings trust for his daughter who is 13 years old. she receives the cash when shes 18, in 5 years. Hes realised that it would be a better investment and a more interesting proposal to give her lumps of physical gold and silver

    hes asking me what ratio % should he buy her purely to maximise returns, so nothing to do with how pretty it looks

    i find this a tricky one, im tempted to say all silver as the time frame exceeds gary "1-3 year broken parabola" for silver and think it has a greater upside potential with this longer term view, but for balance i would say 60/40 in favour of silver

    any thoughts appreciated

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  133. Wow! Gold is so strong! Ignoring everything else, all time highs in Euros

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  134. $USD up / Gold up / Silver flat / equities spanked

    but the day is young

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  135. Bets are on..will the dollar break through 76? Three rejections so far at that level on 5/16, 6/16 and 6/27

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  136. The dollar has already broken out of the triangle consolidation. The odds are now high that May did in fact mark the three-year cycle low.

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  137. My god I'm swooning, the dollar is giving me VERTIGO

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  138. Maybe nothing, maybe that gold will just grind higher slowly instead of the parabolic rocket thrust.

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  139. Gary, 4% in one week isnt exactly a grind :)

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  140. With the markets down and possibly rolling into a bear market, one must question the risk assoicated with buying into the miners.
    This morning is another great example of how the safe haven play is gold bullion and not the miners. Gold is a hop away from all time high's and the miners are barely in the green.

    I'm switching back to what worked the past few cycles, long leveraged gold.

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  141. Poly,

    Curious what your using to leverage the gold price....futures, options, dgp?

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  142. So Gary, what makes you think it's different this time?
    Higher dollar will not put pressure on Gold.

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  143. What do you mean different this time?

    Gold and the dollar rose together last summer also.

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  144. So we wait to see if the Dollar closes in the triangle ?

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  145. I agree with Poly. Miners got crushed in 2008 when stocks did. Why trade a "maybe" when there is a relatively "sure thing?" I sold my EUO and switched into DGP. EUO is up, but it was not clear to me what the dollar was going to do. Gold sentiment shows tons and tons of bears. That's for me!

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  146. I am also long TZA, BTW, but not much.

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  147. 3/10 oscillator is rolling over; Keltner channel upper bound is within day or two move, so one can expect some pull-back for GLD.

    Still waiting to start to buying positions in gold.

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  148. gold sure seems like the place to be in

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  149. Gary

    FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma.

    Anyone interested in money and cycles should read this:

    http://fofoa.blogspot.com/2010/07/debtors-and-savers.html

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  150. Gary,

    We're talking about the potential of a 3 year cycle low on the dollar. The same argument that you've been making for the past 2 months. If dollar did make a 3 year cycle low, why would Gold not be pressured on the downside this time?
    Did the dollar make a 3 year cycle low last summer too? Didn't know that you can make 3 year cycle lows every year. :)

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  151. So far this IT cycle, GDX seems to be outperforming the juniors.

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  152. Gary, good time to add GLD or wait for pullback?

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  153. There seems to be a misunderstanding. A dollar rally is a headwind for gold, nothing more, and gold can rally into a headwind. If the dollar rises because Europe is going broke a TON of money will go into gold. Trade gold, not the dollar. With the level of bearishness in gold right now it WILL rally. Don't worry about how much or how fast.

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  154. "The odds are now high that May did in fact mark the three-year cycle low."

    You have always believe that Gold cannot make any big sustainable move up with a strong rising dollar. Maybe I've interpreted this wrong over the years. But a rally out of a 3 year cycle low is pretty substantial for the dollar.

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  155. Poly,

    You mentioned the other day that you were expecting the miners to put in a base to spring off of through the 200sma, you really think the stock market declining will now bring down miners with it?

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  156. Gary,
    If the 3 year cycle low for the dollar was indeed put in May, does this change your outlook on gold for the remainder of the year?

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  157. Wow, miners getting killed once again.

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  158. Charles Nenner Research morning comments:
    Sector
    Gold and Silver are on a risky buy signal
    We still have an upside price target of 1608 for Gold, but it can also be reached in the next up cycle
    Silver projects a short term high around JUL 18
    Keep a Silver sell stop around 34.50 (close)
    The sell stop for Gold is around 1527 (close)

    Euro
    In our cycle chart, we show the triangle formation
    Based on cycles that bottom around JUL 14, we expect an upside breakout
    We did not go long the Euro
    Why? We only expected an upside spike, since cycles still had to bottom
    Now, we want to go long on a close above 143.30 EUR/USD

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  159. Long GDXJ 75%+, EUO 14%
    Cash 11%

    +increased position

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  160. Best Currency Forecasters Say Dollar Slump Over
    bloomberg

    tweet3
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    Garth Theunissen and Allison Bennett, On Monday July 11, 2011, 1:56 am EDT

    The best currency forecasters say the dollar’s 13 percent slide over the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency.

    Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.

    While Moody’s Investors Service added to Europe’s woes last week by lowering Portugal’s credit ranking to junk, the dollar is regaining its status as a haven after the worst performance over the past year among 10 developed-market currencies based on Bloomberg Correlation-Weighted Indexes. The dollar is up 5.3 percent from a 17-month low on May 4 against the euro.

    “There’s not a lot of room left for it to weaken beyond $1.50 to the euro, and we still see it recovering to about $1.40 by year-end,” said Stephen Gallo, head of market analysis at Schneider in London, who had an average margin of error of 5.05 percent across all currency pairs. “The risk of a disorderly default is, for now, much higher in Europe than in the U.S.”

    http://yhoo.it/ohPdAw

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  161. Everyone was following the symmetrical triangle, and it broke the opposite way. Looks like dollar/UUP to the 200DMA on Italy then backtest, gold backtest to 50DMA then new highs, SPY to 20DMA/129 area then new highs, GDX to 20DMA/54 area then new highs.

    Long miners on Gary's call last week, looking to add on pullback/swing, long SLV puts from 5/25 up 11%, will close on SLV swing/gap fill.

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  162. Gary's call on GLD vs SLV beautiful...

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  163. 1545 is gold key resistance. Got about 2 weeks left for it to smash it. I'd like to see gold challenge the 1577 mark again.

    Time to accumulate SPX again..

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  164. Eric,
    The dollar made a yearly cycle low last year. The three-year cycle low only comes, as its name would imply, every three years (actually every three years and three months on average).

    Gold can and has rallied in the face of a rising dollar. I think a rising dollar will probably moderate gold rally but not stop it.

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  165. E,
    I will post any portfolio changes to the website.

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  166. Gap from 34 to right above 32...don't think it will fill, but probably dip a tail down into it before GLD, SLV, GDX, GDXJ begin the next upswing. Might not even get down there at all.

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  167. William - 1520 is support in my opinion. 1545 is resistance.

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  168. Edwin,

    I meant 1545 is acting as support now. I dont see it being resistance in anyway, we cut through it today easily, resistance came at the underside of the intermediate trendline.

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  169. Maybe I'm simply being too cautious here but if we're not going to get a D wave decline on the dollar, what do you think will propel Gold into a C wave top? A crisis in EUR? In 2008 (the last 3 year cycle low on USD), Gold entered a D wave decline that bottomed in Nov/Dec in 08 with the EUR. Might want to take a double look at the time frame again.."Nov/Dec in 08".

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  170. Cory,
    Your confidence is supporting my thoughts today... Thanks!

    I cannot wait to add; I'm trying my best to just sit on my hands and be patient here.

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  171. Tried to get NUGT at $30.50 - not quite. Maybe later today.

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  172. Eamonn: I posted this morning that I was short stocks. I would not be short and buy at the same time---I'd cover my shorts first.

    Sold all my miners and am switching to DGP

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  173. DG,

    Your switching to DGP now, or are you going to wait until we get a regression to the mean, 10sma?

    ReplyDelete
  174. Gold and silver popped last week and trapped all the shorts, dollar doing the same thing today for dollar shorts/index longs...

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