Deep Thoughts, with GM Jenkins


So another election is over. Voting in these things is of course irrational to the point of insanity. And yet ... there appear to be a hundred million Americans who did indeed vote. Perhaps it's more a question of innumeracy than insanity. But if we compare voters to scratch-off lottery players--those textbook examples of innumeracy--the sad thing is, the scratch-off lottery players are infinitely more rational. Of course, that would be the case even if the outcome of these massive federal circuses mattered -- even if (say) you stood to be tortured to death if your candidate lost. In fact, were it actually the case that I'd be tortured to death if my candidate lost (Jill Stein, by the way, on account of her good looks, even unadjusted for age), I'd probably go ahead and hit the polls just to get in a little mental revenge at the stupidity of it all before they broke me on the wheel--by voting for the other guy, the candidate I hated most. 

No, anyone who votes in these elections thereby forsakes his right to laugh at a grown man who leaves cookies under the chimney for Santa Claus or puts his broken teeth under the pillow after losing a bar fight. In fact, the only thing more disturbing than the mental and physical energy so many otherwise intelligent people waste on voting* is the perfunctory response I get whenever (owing to my kind and generous nature) I attempt to disabuse them of their irrationality. "What if everybody acted that way?" goes the invariable response, not without some misplaced indignation, by which an alarming inability to understand a dynamic system (or, less charitably, reality itself) is betrayed. Obviously, if I felt there was even a tiny chance that a hundred million people, somehow cured of their innumeracy and/or addiction to moral masturbation, would stay home on Election Day, I'd be the first at the voting booth, if only to do my part to ensure we saw more of Jill Stein's comely face and less of Obama's insufferably haughty demeanor, his sickening faux-concern for the middle class, and his grating, pseudo-folksy nasal plosions

If the world ever becomes nobler and wiser, the denizens of that better world will surely look upon the irrationality of one hundred million American voters with astonishment, perhaps also with a condescending smile, the way we look at a Yanomami tribe performing a rain dance. 

Except their condescension would be as justified as ours is not, seeing as the Yanomami are having the time of their lives, high off their asses on Ayahuasca, watching sexy girls shake their rainmakers, while we suffocate amongst irritable, self-important fools in long lines which probably smell of farts. 




That said, I do follow the results of elections, if only to pick up on trends that will help me profit. For example, this chart is as valuable as a crystal ball. My friends, you can take this to the bank (ideally, one too big to fail): from here on out, the American population will become more balkanized, atomistic and serf-like, while the State grows bigger, stronger and more tyrannical at an exponential rate. 

Which is why I laugh when I see headlines like this one on Marketwatch today:


Got that? Inflationary worries in Japan and Indian demand are gold positive, but our "fiscal cliff" is gold negative. Who writes this crap, and how much are they getting paid? Of course, everything under the sun is "plagued by uncertainties," but to single out gold in a headline article on account of the structural problem that has necessitated the very debt monetization that has driven its ascent in the first place? No, something tells me that the denizens of my nobler, wiser world (who, come to think of it, will probably never arrive, barring another Ice Age) will look with even greater wonder at the otherwise intelligent investors who, victims of some psychological weakness or hubristic vanity, never bought any gold.

As our friend Victor never fails to point out, in the long term, gold is not a commodity. But go ahead, bet against this chart, in which gold is compared to other tangible assets with intrinsic value, and put your net worth into paper and magic beans.



And while we're looking at the $GOLD:$CRB chart, check out the parallel action between the Fibonacci retracement lines from the 2005 low (yellow) and the 2011 low (purple dotted). I think we're approaching the next big "step" higher.



Indeed, I've started looking more closely at the Fibonacci retracements on ratio charts lately, and they appear to be unexpectedly predictive. For example, look at the perfect 38.2% then 50% retracement from the 2001 low of the $GOLD:$CCI ratio, before it broke through in 2010-11.


The $GOLD:$SILVER shows a similar retracement to the 50% mark. A lot of anti-silver talk on this blog lately, but this chart continues to look good to me.


Also bullish for silver, the Kagi chart from my post two weeks ago. As expected, another bar was added at the end of October, which will only be "retracted" if silver exceeds $35.45 this month. If the corrective pattern on this chart is to repeat (see green dotted lines), and repeat as quickly as possible, then it might be more bullish if silver doesn't exceed $35.45 this month (recall that Kagi charts are measured in reversals, not time -- and for all assets in general, a certain number of reversals seem to be necessary before important consolidations end). Let's imagine that by the end of the year, silver hasn't made a new relative high or low (i.e. it also hasn't fallen below $30.66 at any point), and that it touches at least $31.27 sometime in December. Not too much to ask for. Then, the left side of the sixth (and, if the trend is to continue, final) corrective bar will be formed. Let me therefore make a prediction, which no-one will remember unless it's right and I remind you:  Silver will keep going up, past $35.45 during the first quarter of 2013 (making the sixth bar a bullish black bar) followed by a corrective month (basically, a moderately "down" month in which a new high isn't made) which will initiate the right side of the final corrective black bar, completed over a few months (the bar will remain black because I don't expect silver to drop below $30.66 during that correction). Then, I think silver will attack $50 again, perhaps in two large Kagi steps, which may take most of 2013 to occur.

And here are a couple of standard long-term silver charts, the daily linear and the weekly log. On the daily, I think it is more probable than not that silver stays above the purple line over the next several months, making the horizontal red/green band a potentially good buy zone.

On the weekly, a not unexpected bounce off of the 55-day MA. 
On my 9-year gold chart, the dotted trend line I speculatively added a while back is looking good.

As a general rule, I'm more aggressive (short and long) when price hits "natural" boundaries (e.g. moving averages and upper/lower moving average envelopes) versus more arbitrary trend lines. For example, the space between the 300-day moving averages of daily highs and daily lows (black and red solid lines, respectively) seems like a safe point to go long, having been broken on only two occasions in the past 12 years. Worth noting on this chart is how limited the downside action was last April; many pure chartists were expecting a drop to the $1300's or even the $1000's. (The dotted lines on this chart are upper limits, which I'll explain if we get there, since they're all above $2000.)


The long term trend line on my weekly euro chart broke down two weeks ago (although the breakdown wasn't confirmed). As I mentioned a short while back, I went long $USD on the premise that the euro gold weekly chart would not break down, but that gold wasn't ready to pop either. Well, consider that a good move for a bad reason. (Sometimes I think the only usefulness of all this charting is to keep you from making emotional decisions, i.e. any guiding rule is better than going on tilt.) Anyway, I consider the rather improbable V-shaped reversal somewhat more probable now, especially with the daily euro chart in mind. Recall I pointed out how inexplicable the sudden unprecedented plummeting of the RSI was. Who the hell was selling?! Well, after bouncing off the bottom of the channel, gold is right back there around all-time highs, as might have been expected, since Europe is in deep doo-doo.



*anyone who dies in a car accident on the way to the polling booth should win a Darwin Award.

26 comments:

duggo said...

There must be some deep psychological "need" deep down in people who use charts. Is it the fear of the future and not being able to make a decision until the great Witch Doctor of the many graphs has been appeased by the worshiper producing as many as possible as an offering?
If a graph could actually tell you what was going to happen in the next five minutes we would all be millionaires. It only tells you where you have been. Please don't even mention "trends". The trend is always your friend until it is not.
BrotherJohnF always uses charts to prove that he doesn't know what will happen next.
His recent offering Tax and Spend is hilarious because he takes a graph and dismisses the parts he doesn't like as lies and uses the parts that back-up his argument and calls them the truth.

p.s Did Mr. Fibonacci die a billionaire?

Don't get me wrong. I love Screwtape Files but graphs.........naah!

GM Jenkins said...

I dunno duggo. You could be right, insofar as charting is for the most part painfully unscientific, e.g. "overfitting" data points/ mining for patterns with disregard for "multiple testing" (i.e. if you look long enough for patterns, you're guaranteed to find something just by chance, especially if you allow for a lot off slack in those patterns and introduce enough criteria). But then, shit, I say if something's working, keep at it until it stops working. Corollary: profit now, seek explanations to why you're profiting later. To give one example, the chart above with the high/low 300 day moving average definitely helped me stay long during the December 2011 sell-off, since I was aware amidst the panic that it wasn't broken. Once it was broken in April (when I did take a decent loss), the chart (among others) influenced my strategy to sell rallies and buy dips over the summer until it was cleared to the upside again, which has marked another profitable leg up. Can you really say my decision to hold on in December, or to sell in April, or not to get overly bullish and buy during the pulses up last spring/summer (which only hit the red line, didn't clear it), and finally to buy and hold after September (a little late, I confess) would've been as easy without using this one chart (much less the many others, such as RSI, which encouraged me to take profits during the latest local max?) I say there may be more in heaven and on earth than is dreamt of in your philosophy, duggo.

duggo said...

Dear GM.
I know how you feel. There was time in my distant past when I couldn't take a piss until I'd done a chart. I finally kicked the habit when I discovered I could alter the parameters to make it say what I wanted to hear. I started my "graph life" with success and I thought I had the "secret". Then one day it deserted me like a fair-weather friend and I realised Lady Luck had found someone new. Perhaps you?
The best system I have ever found was to study as much as possible and then that little voice "the sub-conciouse" would tell me what to do. If I ever went against my little voice (which was more intelligent than me) then invariably I got it wrong.

duggo said...

p.s. My "little voice" has been telling me to read Screwtape Files and FOFOA lately. It that's any help to anyone out there.

Lord Sidcup said...

This is how I see it; TA is used to confirm whatever bias the reader brings to the graph (consciously, or unconsciously).

I assume that GM Jenkins is overall bullish on gold, and the chart in December 2011 helped him rationalise to himself (and his starving wife and kids) that he should stay long, which is exactly what he was inclined to do anyway.

Prechter and Gordon seem somewhat intelligent so I suggest they have done okay in spite of using the Elliot Wave (not because of it).

I am generally a pessimistic person; in the 90's my investment record was fairly disastrous, however, since the mid-00s I have astounded friends and family with my acumen and prescience.




Edwardo said...

Voting, like some other ballyhooed human endeavors, is a triumph of hope over experience. And while I can only speak for myself, I have a notion that a considerable number of folks stood in line at the polls not to vote for tweedledee over tweedledum (or vice versa)but to vote on referendum questions.

In the meantime, if I may make a bold conjecture, a number of the cohort that voted for The Shrub in '99, and subsequently, and very ungraciously, relentlessly taunted the other side with "Sore Loserman" signs, now want to pick up their marbles and leave the rest of the lower forty eight what with all the secessionist talk. The truth, I suspect, is that it's a certain demographic of (mostly, again, I suspect, beef eating southerners, a smattering of mid-westerners and south-westerners aged approximately 38 to 55) of angry white males that want to form their own perfect union of gun toting, HMS loving, god fearing, self styled patriots.

milamber said...

Another nice post warren.

While I thought PJ Orourke's book was very shallow, I loved the Title,

"Don't Vote It Just Encourages the Bastards"

http://www.amazon.com/Dont-Vote-Just-Encourages-Bastards/dp/0802145434

I do agree with Edwardo on the referendum stuff. I vote and try and get my local neighbors to vote, but mostly in the local elections where we have a little more direct influence over our local politicos.

Milamber

S Roche said...

When Yossarian was asked "What if everyone acted that way?" he replied then he'd be a damn fool to act any other way.

I think the wheels have fallen off.

Slow Loris Larry said...

Since I may be the principal referent for GM's remark about 'A lot of anti-silver talk on this blog lately,...', I would like to deny that scurrilous characterisation, if it was indeed aimed at me.

If what I have posted about the 4:1 ratio (by above-ground weight) of existing silver versus gold stocks was intended to be 'anti-silver', I wouldn't have bothered.

I was just trying to clear the air (presuming that the 'silverogosphere' actually has an atmosphere) of the pervasive fantasy that, compared to gold, there is only a miniscule amount of 'available' silver, and that therefore the growing shortage of the metal will inevitably drive its price 'to the moon if not the stars'.

I think that there may be far more genuine and salient reasons to expect the price of silver to appreciate significantly in the near to medium term, perhaps even more so than gold.

But believing in fairy stories doesn't help one make rational decisions.

By the way, I love GM's graphs, whatever they may signify.

SLL

GM Jenkins said...

A lot of good points here, including anti-TA arguments and importance of voting in more local matters. I also liked the quip about how voting "encourages the bastards" in Washington -- that was one of my points I had in mind but I forgot to mention. Anyone who has spent time in DC knows how lame the people there are, how unattractive in every sense of the word, bordering on sociopathic, and how important they think they are. Voting is their Academy Awards, it's the gravediggers banquet.

On the other hand, there are some genuinely good candidates, like the unassuming Ron Paul (nobody's perfect, but he gets it, he understands what the term "public servant" means and consequently the only sustainable way to run a government that actually serves the common interest and not its own interests).

GM Jenkins said...

Hey SLL - glad you like the charts, indeed whatever they may signify ;) Credit goes to my insomnia - staring at charts till you see a pattern or go to sleep is like ambien without side effects. I like to think it's more lucrative than counting sheep, although judging from the response here I might be deluded.

BTw I wasn't referring to you at all with the "anti-silver" point, as I didn't think your post was anti-silver at all (exactly as you've explained). I probably had in mind the general impression I got from some of the FOFOA comments, e.g. Victor's prediction of the ratio going to 1000:1 or whatever, and all the stuff that got BrotherJohnF worked up.

GM Jenkins said...

To continue my point about DC as the rock under which lame sociopaths crawl about, narcissists who detract from civilization to the extent they think they raise it -- I read that Paula Broadwell would go to law firms in DC and challenge people to push-up contests and arm wrestling contests (all for some "good cause," always some "good cause"). And this was considered normal. You know this country is headed off a cliff when a bug-eyed whore and human growth hormone abuser who would've been a syphilitic camp follower in a previous life isn't immediately escorted out by security.

criswa said...

If it is true that past behaviour predicts future behaviour, as I believe, then perhaps TA is useful. We can all point to occasions when the unpredicted occurs, but without some basis for decision making we are stabbing in the dark. I also value intuition, which I think is another way of saying that I pay attention to what my unconscious mind makes of the information and feelings it absorbs. So, thanks for the charts and the trends you infer GM. I shall continue being deluded into believing they help.

Marvin Sparkledust said...

As far as the election goes...

http://www.youtube.com/watch?v=qk12ALX9fz8&feature=related

Marv.

duggo said...

Dear GM Jenkins

Can you tell me how the size of the Comex compares to the LBMA?

As an expert on graphs can you explain where the second by second prices are coming from that you see on every precious metals site?

I've asked my fellow Gold bugs on FOFOA but never got a reply. They either thought it was too simplistic and stupid to be answered or they were too busy counting the Angels on a pin-head.

Warren James said...

@duggo, Slow Loris Larry did a good investigation into that exact question (no supernatural forces involved as far as I know):

The Relative Sizes of the LBMA OTC Market and the COMEX/GLOBEX Futures

duggo said...

@ Warren James

Thanks for the info which is very interesting and does make all of the talk of "smack-downs" by dastardly moustache-twiddling villains on the Comex seem like a fairy-tale.

I'm still interested to know the exact source of the second by second PM metals pricing that everyone seems to use. Whether you are buying a Gold "brick" a coin or just using graphs the "prices" that are being used and standardised come from whom and where? I don't just mean a company supplying the figures but the actual source.
Is this a stupid question?

Warren James said...

@duggo, no problem. No question is ever stupid.

Your question is a good one - the best I can answer right @ the minute is that there are always multiple prices - depending on what you want to buy. For example, London markets will do a fix, a mint will give you a different quote on bars factoring in delivery, ebay will price a coin differently to your local bullion dealer who may have specials on, the stock market will price ETF allocated (and unallocated) .. and so on!

Generally though, I think what you're after is the spot price - a general expression of many of these factors, and if someone is quoting that figure, it actually depends on their sources, etc. My knowledge ends there, but hopefully some of the other guys reading will have better intel.

Personally I like 'http://goldprice.org', but Nick Laird at Sharelynx probably has some answers too.

duggo said...

Dear GM
Ah, the plot thickens. So all of this "Conspiracy at the Comex" could very well be a Red-Herring. With the Comex being the tail of the dog or maybe even it's dangly bits the likelihood that prices are being set there is slim. So all of the pundits looking at the Comex and saying "there's been a smack-down" are actually looking at prices that most probably have been set somewhere else.
So all of the people demanding that the CFTC should "do something" are probably looking in the wrong cupboard and asking the wrong people.
Now if I was the person manipulating the price of Gold and Silver (if there is such a thing) would be happy to see all of this attention directed at the wrong target.

Warren James said...

@duggo, just my two cents on that stream - it's my understanding the COMEX is dominated by futures contracts pricing - greatly influenced by them and that when the blogs are talking cartel smackdowns then this is the arena.

A few times in the past I hurried onto the bullion dealer's website after a large 'smackdown' to pick up a steal, only to find that the local bullion price had not moved by the same magnitude - and that's the point you start to realize the same metal has many different expressions of price. I like your out-of-the-box thinking; in theory the market sorts out these imbalances, but if you make the market then a lot of fun can be had. [EOM]

victorthecleaner said...

duggo,

Now if I was the person manipulating the price of Gold and Silver (if there is such a thing) would be happy to see all of this attention directed at the wrong target.

You are so right. I was already thinking that GATA might be the front of some Treasure Department public relations project, trying to distract from the true issue at hand.

The true issue is that
* the dollar will fall out of use as an international reserve, and the rest of the world has long chosen gold to be the successor,
* the U.S. desperately needs a higher gold price, but without collapsing the London market,
* the rest of the world wants less inflation and has been p*ssed off about all the inflation originating from the U.S. for decades

The cover-up story is that
* _all_ central banks want gold low and they want high inflation
* therefore you should own silver because the central banks don't have any in order to suppress its price

But then, Never attribute to malice that which is adequately explained by stupidity.

Victor

Lord Sidcup said...

Victor wrote

"the U.S. desperately needs a higher gold price, but without collapsing the London market"

I understand your contention that the US needs a higher oil-price, but why a higher gold price?

Doesn't a rising gold price signal (loud and shrill) the death of the USD?

Unless the USG actually realises the jig is up and want to bring on a rest asap (seems unlikely).

And how would a higher PoG collapse the London market?

Bron Suchecki said...

duggo,

Re where the spot price comes from, see

http://goldchat.blogspot.com.au/2008/06/investment-timeframes-part-ii.html

and also

http://goldchat.blogspot.com.au/2008/07/gold-value-chain-part-iv-trading-prices.html

Jeanne d'Arc said...

@VtC - I like your quote at the end of your comment so much, that I think it deserves a few days as Screwtape's by-line. Ta.

JdA

victorthecleaner said...


JdA,

it's not mine. See here:

http://en.wikipedia.org/wiki/Hanlon%27s_razor

Victor

Warren James said...

[ update for links ] FOFOA also gave a good answer to @duggo's question about pricing link, which helps highlight how the bullion dealer operates in respect to pricing. :)

Sometimes I wish I had the time to index all this great material, especially Bron's stuff which still reads fresh. FWIW i think all this gold information would be great as a graphic novel or series of infographics (Comics is an art form with huge bandwidth). One day!