Sunday pre-game, 11/24/2013

Hello friends,

No new conclusions, but an update is due.

Gold and silver continue to look awful, as I predicted. The weekly three-line break charts that I've been using to gauge bull vs. bear cycles in gold ($INDU:GDXJ) and silver (GLD:GDXJ) continue to add weekly bars, also as expected.

I had a thought the other day that gold and silver may continue to fall even as the present bearishness increases, because most of the PM-bearishness that pervades the finance world seems to be of the short term variety. Everyone and his mother seems to be expecting (or at least not ruling out) a blast off in the long term. Perhaps the bull market won't recover until the long term bulls (like me, for example) start to change their tune. It'll take much lower prices, though, (and protractedly lower prices, I should add) for me to lose my confidence in gold's fundamentals. I liked costata's comment from my last post:


If the sovereign bond fails, a "forty story building" of derivatives collapses. Stick gold at much higher prices under it and the building holds up.
Seems like gold at new highs is the long term path of least resistance for the financial elite to maintain their position at the top of the food chain. Not an ideal path for them (or the central banks would already be manipulating prices higher), so it will be drawn out, maybe on the order of a decade, but will we end up with some kind of financial "reset", with gold playing some kind of vital role? I still think so.

On the topic of sovereign bonds, weeks ago I noted the breakout from the bullish pennant in the 10-year yield vs. silver ratio. It's been up over 10% from my last post and looks to keep rising ...




... and rising, perhaps until the ratio hits the green dotted wedge, which has uncannily coincided with lows in gold:

Here are some more charts from the past few months updated. My target for the gold to S&P500 ratio looks like a good call so far. It really tanked hard this week.


On the daily chart, the major moving averages are nowhere in sight. The all-important 144-day MA is at $1336 now. The 200-day MA is under $1400 for the first time since the August 2011 fireworks. The lower part of the blue channel, by the way, is at around $1150 now.


 If the major blue trend line below is broken on the weekly chart, watch out: I doubt the dotted red line will hold, as it's so close to that major trend line (which is a main reason why I've been saying if the summer's weekly closing low doesn't hold, $1000 will be tested, despite what looks like some solid bands of support before that level)


23 comments:

Jeanne d'Arc said...

GM - an entirely sincere question (and perhaps a good title for your next Screwtape post): why are you still attached to gold?

No offence meant at all - and not least because most of our readers who come here are indeed 'attached' in this way to gold. But the parameters (not necessarily yours, of course) keep changing: first a moonshot following the ten-year bull run; then a moonshot following the dollar's loss of AAA status; then a moonshot following too much negative sentiment 'meaning the shorts are about to be washed out'; and now a world-wide financial reset in a 'decade'.

Really. Bollocks aside. What is it that is so special about this lump of metal? There are so many other alternatives. I know you're not a free-golder, so why gold? Instead of bitcoins or the Dow or housing or mattresses or acorns?

And any response starting with 'gold has been a store of value for 3,000 years' can be instantly discounted... :-)

JdA

GM Jenkins said...

JdA, I don't think the plethora of different angles supportive of the hypothesis that gold will go to the moon (only a few of which you mention) is necessarily an argument against the possibility that gold will indeed one day take off to the moon. On the contrary.

Another angle: fiat currencies have always gone to zero while gold has remained (relatively) steady in purchasing power, and this time is not different.

I think gold is a good bet on global monetary/financial/political disorder. I look at world around me and see stupid clowns and really smart sociopaths steering a sinking ship of gibbering fuckheads. I'm betting on global monetary/financial/political disorder. What's a better bet? Bitcoin?? Maybe fine art and diamonds and stuff.

Warren James said...

Worthy question Jda! (If I may add) I agree with GM ... Gold still represents the best 'short on the current system', the common thread sentiment at the heart of all gold commentary (even @ Zero Hedge).

Right at the minute; gold holders with that view are being squeezed like herbalife shorts but the 2008-GFC showed us exactly how stable global finance was and it is clear things won't ever go back to 'how it used to be'.

It is also true that any freegolder would have got their 50x already if they had rented a room at the Bitcoin All Inn around the same time. Not a fair comparison by any means, but a worthwhile fact to keep everyone honest. The exploration of personal risk levels, priorities, timeframes and situation is always going to be a progressive story. The failure of different theories from the last 5 years of metals blogosphere shows the weakness of those models against reality, but searching for the right model gives hope.

costata said...

In one of his newsletters Michael Pettis observed that analysts who were pointing out the unsustainability of the sub-prime RE boom(s) for years in advance of the crash weren't "wrong" every year up to the year that the market happened to collapse. The market had not yet delivered its verdict on their theory. This situation with gold is analogous.

I think that tail risk is a major issue which isn't receiving enough attention. Nassim Nicholas Taleb points out that in each major financial crisis since the 1980s IMF research shows banks lost an amount equal to the estimated total profits of the whole banking system since the inception of modern banking. To put that into perspective. The losses from each financial crisis have been progressively larger and the consequent-subsequent wealth transfers have grown in lock step.

The tail risks have been growing because none of the underlying problems have been addressed - right back to the 1980s - nary a one. New flaws have simply been grafted on top of old flaws. So now we have this system which is utterly dependent on a risk-free, liquid, financial asset that can be at times none of these things. On top of that we have a gigantic pyramid of FIRE sector liabilities. (I can provide links to BIS and IMF papers discussing the extent of the problems.)

IMHO physical gold is akin to a massively out-of-the-money option with no expiry date. This is what gives gold its insurance properties.

I'm 100% in agreement with GMJ on this: I look at the world around me and see stupid clowns and really smart sociopaths steering a sinking ship of gibbering fuckheads. I'm betting on global monetary/financial/political disorder.

(My emphasis in bold. This is the insurance event that physical gold insures against.)

All of the debts denominated in US dollars, Yen etc can be made good if enough cash is issued. If enough cash is issued then it will eventually wreck the currencies. Japan is the latest field experiment and that is playing out in (non-mainstream economics) text book fashion.

Long story short, at some point there will be only two options. Soft default through currency debasement or hard default through debt restructuring. The only issue is when not if.

Gary said...

'Really smart sociopaths steering a ship of gibbering fuckheads'.

I'm reading that as the electorates in the US, Japan, and the UK are steering the ship, as ultimately the politicians can only deliver what the electorates will allow, and they do not want govt freebies to end.

The ' fuckheads ' are the central bankers in the US, Japan and the UK, who don't take a stand as they should. I recall Paul Volcker's threat to resign in 1980, the last time a US central banker did the right thing, although his back was against the wall.

So, I hold gold because the masses will vote themselves free stuff until the currency collapses.

Also because the producers of the world favour gold, and the next reserve currency ( the euro ) will reinstate gold as the fluctuating barometer and arbiter of currency managers,settling imbalances, at a much higher physical price.

Plus, finally, it's already at a cost of production price, essentially risk free over any decent time frame.

AdvocatusDiaboli said...

all good valid points, including JdA question.
I personally just hold it, because I like it and I dont know what else to buy (in case I would sell?).
Bitcoins? For morons?
Dow, housing, saving accounts? We will get "Eat-the-Rich" in the EUdSSR, just like "Back to Mesopotainia" by the BCG and the latest IMF predicted and tested in Cypruss, so I better stay away from those (or at least dont stock up on those).
I also stack up on paper cash, just enough for a life-time spending money (and I doubt a paper cash prohibition, since >80% of transaction in Germany are settled in cash).
But just as gold, I stack silver, cans, fuel, etc... and buy farmland, whenever I see a good deal on one of those ;)
IMHO the aim today is not to gain, but to avoid losses in the mid to long term future, because in total there is nothing to gain, only to loose from here.
Greets, AD

Gary said...

Good to see that AD trusts the stability of the Euro.

Sad to see he confuses the Cyprus resolution with socialism, when it is the polar opposite.

Qualitatively different AD, but it's a common mistake to make.

AdvocatusDiaboli said...

Hi Gary,
I think there is a misunderstanding. It is not on my political judgement, it is what I see will happen: The Euro will stay until the very end. Either that point will be total outright brave-new-world-fascism/socialism or a breakdown of society with outright chaos and a bodycount of IMHO 50% of the population. That's my 2 guesses.
So the point is on how to position yourself towards either scenarios?
Money is what the emperor says it is. (famous "Desperado" told me so;) and if the emperor says it € (and $), okay so shall it be and I stack needed liquidity in form of paper (and accounts <=100K€).
Regardless on how you call it: People in Cypruss would have been wise to stack/diversify in paper (even better than gold).
Personally I focus on not to care (any longer, except that's hard from time to time) and to get me my stuff I enjoy for my living.
Greets, AD

Warren James said...

Larry asked me to post the following:

"When someone can explain to me how this situation could possibly end well, I might consider selling some metal:

http://goldonomic.com/images/BASE_Max_630_378.png

SLL
------

The sentiment is echoed by Vincent Cate: http://howfiatdies.blogspot.com.au/2013/11/how-could-they-not-expect-inflation.html

Elmer Habavilo said...

I was asked a similar question last week at dinner with Friend Of Another Other. FOAO doesnt have a very good feel for the gold market I would say. [Incidentally, i would say that its not the least notable aspects of the enormous bubble economy that we are in that people QUITE high up in the financial system can actually NOT really be too tuned in to the broad economic trends. There are some very compartmentalized people out there on Wall Street--- who can say, as an unrelated example, understand options volatility really well, but not understand the agricultural commodities market hardly at all.] Anyway, so I gave FOAO my really bedrock reason for owning gold -- which is that Im long-term bearish on the USD. No, I dont expect that food will be getting cheaper in the next 5 years. No, I dont expect that gas will be getting cheaper in the next 10 years. Ditto for services that I use every day. Ditto for things like healthcare. Ditto for very many things denominated in dollars. If consumer prices got cheaper across the board over the long term, how much of a shock would that be? If life in America IMPROVED in that way for the middle class taxpayer... .... I am similarly bullish of food and land in temperate climes.. and they have the hellish dysfunctionality of the whole USD appartus working for them (though, in the case of land, if things get bad enough in a USD decline, the USA could become so unliveable because of problems like crime etc, that it could become a drag on land prices, even in a currency collapse, ... that is-- a drag on land prices in the USA compared to land prices in countries where the governments are better managed-- assuming that such countries exist at that point)... land in a currency collapse can be tricky in that way-- the trick is of course to time the re-emergence of SOME kind of solid government... i.e. to buy when "theres blood in the streets", and to add a postscript to that famous banker line-- "when u also expect the blood will stop being spilled and be cleaned up fairly soon"

Elmer Habavilo said...

Also, regarding asset bubbles, asset non-bubbles, etc... a commenter on a similar gold thread brought up the fine art market -- and how art pieces by a contemporary named Francis Bacon recently sold for a whopping $142 million at auction. Mind you, this is not like a DaVinci Codex notebook being bought for $31 million by Bill Gates. If you own something from DaVinci, you own something that will be worth a decent amount or a lot more in a couple hundred years (assuming the human race sticks around for that long). Whereas if you own something by Francis Bacon (the 20th century painter, not the 16th century philosopher), even if you paid $142 million for it, theres no telling that it will be worth anything in 20 years, let alone 200 years. I mean this one will be asset musical chairs for sure. Hold and resell quickly if you must, but for god's sake dont get caught holding the bag when the music stops on that one.

I believe the fine art market distinguishes itself by functioning simultaneously as both the ideal flight-to-safety market AND a ridiculous bubble market... depending on which art you buy. If you buy a rare precious stone or a $10 million gold coin that collectors can recognize from a ship sunk 500 years ago, you have yourself the flight-to-safety asset par excellence (is there any greater store of value in such a small 3 dimensional space?).... if you buy the $142 million Francis Bacon painting, you have the flight-from-safety asset par excellence... I believe many of these so-called pieces of art will lose value as the currency loses value, and as the culture they helped to define disappears

Desperado said...

Hi AD,

I wanted to see if my old desperado account still worked. Wie gehts?

What so many of these traders and chartists fail to get into their computers is the continuing decay of social capital that corresponds with the decay in all of societies financial balance sheet. The "benefits" of multiculti-diversity has mostly manifested itself in the decay of this social capital. The empire is crashing in a heap of corruption and the emperor is reaching ever deeper into our pockets. As so many gold bugs have said before its about return of your money, even if the current zeitgeist reminds one of Berlin in 1923.

Anyway I have a small story. After 2 months a large check which was sent to me from the US seems to be in international limbo. My Swiss banker informed me that nothing is going through (their US partner is BofA) and there is nothing they can do. Apparently the JPM international payment difficulties from a month ago were true. If so I wonder if this is just another front on the international financial wars going on, with Switzerlands private banking industry being marched to the guillotine by the IRS and DoJ.

This long but great piece by Brandon Smith discusses how China could be increasing its money supply in preparation for the final throws of the death of the dollar: http://www.alt-market.com/articles/1837-expect-devastating-global-economic-changes-in-2014 . Also the China 10-year bonds are going up sharply in interest rates which could be another indication of the war going on. The financial stress is clearly steadily increasing everywhere we look.

Meanwhile every market across the world has derivitized and politicized and everything is manipulated, except of course the gold market. The moment a Sprott, TF or McCloud starts attempting to connect the dots about the blatant gold market manipulations they end up being castrated in this comment section.

AdvocatusDiaboli said...

Hi Desperado,
so glad to hear from you, was really getting worried if something happen to good old Desperado :)

"continuing decay of social capital that corresponds with the decay in all of societies financial balance sheet"
so true, but how to quatinfy that (nominally) without any Doom&Gloomer bias, even if acknowledging the fact in itself?

Regarding international payments: Lately, at least wired transfers from Swiss to Germany worked perfectly, even very huge transfers overnight, that I can assure you personally ;)
Last time (2yrs ago, dont remember the bank) I cashed in a $-cheque it took ~1week.

About the manipulation: The german BaFin has started an investigation on the manipulation of gold, I dont know if anybody noticed in the english scene.
http://www.finanzen.net/nachricht/rohstoffe/Gold-und-Rohoel-Gold-Bafin-ermittelt-wegen-Preismanipulation-2805727
But even if they find out, what's going to happen? The government fines them and will get a cheque (to spend on socialwelfare pet projects) and the show goes on, so what?

Is it "manipulated"? I dont know, and probably you're right, why shouldnt it be? So what does it leaves us with?
Is the price of oil also manipultated to the downside? Maybe, and if, hell, I am happy about for my car! ;)
Greets, AD

Desperado said...

Unfortunately my counter-parties bank in the US refused to transfer the payment electronically, which may be another indication that something is afoot. Also all the Snowden revelations caused the EU to shutdown all the CIA taps into the Swift system so this could be a form of retaliation there. I believe JP Morgan also changed their policy on most small business accounts to disallow international transfers of more than $50K.

On gold manipulations, well what about all those recent not-for profit dumps of large quantities of gold at critical junctures like bad jobs reports? Or ABN-Amro and Rabo bank forcing allocated gold owners to cash out. There is so much proven history and ongoing evidence of manipulation and secret deals that to give any CB or BB the benefit of the doubt is grobfahrlässigkeit. And the morality aspect is another reason to be a gold bug and not a gold trader, to withdraw all financial support from this corrupt fiat/welfare state/fascist system.

Gary said...

Hey AD/Desperado,

Just wondered if you are supportive of the ECB's drive to kill off socialism in the Eurozone?

It's great to see no government bailouts (via QE), and soon we will see banks held to account, with quite a few failing. And finally, when countries like France go bust, the gravy train that is the EU will come to a sudden halt, because the money simply won't be there.

A long haul to get there, but good times lie ahead. Not so for the ROW of course.

Any thoughts?

AdvocatusDiaboli said...

"the ECB's drive to kill off socialism in the Eurozone?"

What indications do you see on that one? ESM, OMT, ELA... is what?
If I listen to Weidmann and Draghi/Asmussen, I better say it is a pathetic good cop bad cop game.
You think when push come to shove no more PIIGFS... bonds will be monetized? Really?
What intention have the lately introduced CAC? IMHO, when enough of those bonds (75%?) are gathered at the ECB, Draghi will swallow the losses at the expense of the remaining private bond holders calling it a "soft default" or whatever BS and the game starts again and again and again.
What is your take on the lately introduced eternal liquidity swap lines to infinity?

And as long as there is no hard default by rule-of-law I call it socialism, if you want, according to Mussolini fascism, you call it what?

Desperado said...

@Gary, I see the EU using the ECB to chain the smaller countries to the federal state just as Lincoln did. The only question is when will the first war of secession start, and which countries will be leaving. Besides the TBTF European banks got plenty (trillions) of bailout from the Fed.

I am Swiss anyway, so I judge the EU/ECB from the viewpoint an unwilling captive. Interesting what is going on with Ukrainian trade deals between Russia and the EU. Could Germany leave the rump and form an eastern bloc with Russia?

Here is an interesting article on the Finma (Swiss SEC) talking about how ex-UBS Mark Branson (head of Finma) has likely been acting as an agent of the Fed/Treasury trying desperately keep Finma working with the IRS to screw the private Swiss banks for having the audacity to think that as Swiss banks they only have to follow Swiss law, not ex-post-facto US law:

http://insideparadeplatz.ch/2013/11/29/finma-usa/

Gary said...

AD,
I see OMTs being repaid, merely a form of emergency liquidity, buying time for banking resolution frameworks to be put in place.

Yes, I expect to see hard defaults. No,the ECB will not buy sovereign bonds...others May, not the ECB.

Swaps...merely a way the current $Imfs is going to die in agony.

Gary said...

desperado,

I see it the other way, the ECB will shrink the EU. Is a federal set up so bad?

We will see in the years ahead?

Euro citizens seem to broadly support the Euro itself. The tide perhaps is turning, people realising goats and devaluations are the problem.

Gary said...

Not goats....govts, bloody IPad!
Goats are fine.

AdvocatusDiaboli said...

Gary,
"OMT being repaid..."
with which/whos money? Let me check, hmmmmmm ESM? Let's look at Greece hmmmmm oh, they put austerity at their people (broken promises against the working class), fine. But what about the spending of the cleptocrats and buddies? Nada, not a single change. Greece has still the biggest army worldwide (compared to GDP), but I guess that's just the way it is, as long as they buy Siemens military equipment.

"Euro citizens seem to broadly support the Euro itself."
oh really? Where do you live?
With what folks do you hang out to come to such conclusions? Ex-Maoist Mr.Barosso?
If the Euro is so popular, why arent the people allowed to vote over it?
If the EU is so popular, why arent the people allowed to vote over it?

But, I agree, I like the euro in a sense, that it will the spark to burn down all those socialist suckers and cleptocrats.
Same with Mr.Hollande. That dude is my super hero. He will finally kick the can across the cliff. Just watch the tremendous job he did so far in only such a short time.
Germans are to dumb to hang those suckers at the street poles, but history has proven, french arent. Eurogendfor is installed for such riots. I wonder what will happen when german police will be called in to march on french streets to protect the EU crooks.
Greets, AD

Gary said...

Sorry AD, I was thinking LTROS, which are being repaid of course.

OMTs...will they ever happen? Who knows.

I have read opinion polls showing 70% support for the Euro. The EU, maybe not, but it will be brought down to size in due course, thanks to the likes of your hero M. Hollande.

I booed Mr Barosso at the Ryder Cup opening ceremony in 2010, I got some strange looks from the crowd. He didn't hear, but it felt good.

Trick is to watch it all unfold calmly, and keep reading what the ECB say, and watching what they do.

AdvocatusDiaboli said...

Hi Gary,
when I read you, you sound pretty much like Jesús Huerta de Soto when talking about the euro ;)
Dont know if thats a compliment or not, you tell ;)
In that context, let's look at it like that: What was the outline, promises&treaties and design of the euro and compare that with what's going on today.

Regarding opinion polls: Dont trust a figure you havnt pulled out of your own ass by yourself (or something like that....) isnt that the quote from you famous fellow compariot leader, or was it from Goebbels, who knows anyway....
Despite the fact that regular people have no clue about "money" at all anyway, but taking just the gut feeling of the regular people IMHO the majority would vote against it, if urban legends of the Euro would be removed.
First of all: Sure, the PIIGS love the euro, a free meal is always appreciated when offered, not knowing what the longterm costs will be.
Most nothern regular folks do and did not like the €. But there is massive propaganda going on PRO euro:
1.) "Without euro there will be war" (I'd say WITH euro there will be war, look at the UdSSR, Jugoslavia, US before civil war, tentions of the latin union....).
2.) "Without euro, travelling will be so diffucult with all those confusing currencies" (I never had problems travelling outside the €-zone and before with the DM travelling was fun, because it was so cheap).
3.) "Without the Euro, we will be all unemployed because nobody will buy our goods at the strong DM." (I'd say history has proven different and I rather be unemployed than giving goods away for free, or have the appreciation of the currency being eaten up by the ClubMed)
Greets, AD