As suspected from the price action and the inability of the paper shorts to break through this support, we learned that several foreign Central Banks have been very active buyers of the metals on these breaks in price. I see nothing on the horizon that would lead me to believe that anything has changed in regards to these Central Banks and their desire to acquire gold during these periodic bouts of weakness. I repeat for the sake of emphasis - Central Banks do not CHASE GOLD PRICES HIGHER - they buy when prices drop and only when prices are moving lower. It is only the brain dead hedge fund managers who are servants to their gods, the computer algorithm, who sell gold as it moves lower hoping to profit from momentum based moves.
In many markets this strategy works relatively well for them; however, gold is not just another market. It is the currency of last resort with no liabilities attached to it and certainly no connection to the Western Powers which are presiding over their own financial downfall by their insistence on papering over their structural problems.
To force some of these newer paper shorts out, we are still going to need to see gold climb ABOVE $1680 and stay there on any dips lower. That will be the signal that there are now buyers who do not mind paying up for gold.
The gold shares, as exemplified by the HUI continue getting more and more undervalued in relation to gold itself. At some point, these shares are going to be the trade of the decade. You now have to move as far back as early 2002, a FULL DECADE AGO, to find the shares at this level of valuation against an ounce of gold. Heaven help the shorts in these shares when the tide reverses - there will be no one left to sell to as they try to cover.
Dan, quick technical question. Do you use esignal for charting? And also, how do you type in the $HUI/gold ratio in esignal? Thanks!
ReplyDeleteBernanke has demonstrated his success at managing all markets.
ReplyDeleteNo other central banker in world history has been able to print so much money and have it financed at near zero cost.
He has successfully "whipped" inflation by crushing the commodity speculators, and has used the Eurozone problems to his advantage by horsewhipping panicked speculators out of gold and into U.S. Treasuries and Muni-Bonds.
Nothing is easier or more simple than watching Bernanke hold the meatball and direct the greyhound hedge funds into "Risk Off" trades to lower the government's interest costs and drive down the CRB Index.
All I can say is that the hubris at the Fed must be off the charts, they are all knee deep in booze and hookers celebrating one of the greatest financial feats ever performed in modern history.
They are laughing at all the doom and gloomers, dollar haters, and broke speculators who bet against the U.S. Consumer.
Bernanke's "Infinite Fiat Firehose" has been directed squarely in the path of anybody investing in consumer discretionary, restaurant, hotels, shopping mall REIT, and hardware stocks.
And nobody has profited more than the "Ratio Traders" who have successfully shorted gold mining stocks into oblivion, and the Fed governors are absolutely giddy at the wild success they have achieved.
Once again, Economics professors will be talking about this financial miracle for the next 100 years in classrooms.
Books and documentaries will be written about the incredible episode and will be used as the blueprint for future central bankers around the world.
Laughing histarically Mark. Spoken premature. Counting the chickens before they hatch. Dream of victory while Rome continues to smolder, ready to ignite. Nothing is finished but more mope. Bernanke may quit but Gold and the miners await the final act with the death of some heavily short sighted hedgies.
DeleteMark - thanks for the comments.
ReplyDeleteLet's just say it will work for Bernanke and company until it just stops working. That will occur when the Dollar loses it status as the sole reserve currency and is replaced by a basket of currencies. I am unclear as to when this will occur but I have no doubt that it WILL occur.
Keep in mind that at some point the ultra low interest rate environment will have to cease - if it does not, that will imply that the US economy is permanently mired in a state of low, anemic growth which will further exacerbate the US fiscal condition (as if that could get any worse!). Once interest rates begin to rise, then the cost of servicing the gargantuan US debt will begin to eat away at the standard of living here in the nation.
The die is cast - as went ancient Rome so surely will go the US. AS much as it pains me to say it, no nation in history has ever been able to defy the effects of cumulative profligacy and mismanagment.
The FED will do what it wants to do and when and how it wants to do it, and Mark has a point that we play with their money and they get to print it and we don’t; but Dan is spot-on when he predicted "...it will work for Bernanke and company until it just stops working."
DeleteAnd stop it will.
So I am hoisting my glass of spirits and toasting success with the FED, and I advise others to purchase the slopes like smaller banks and nations.
What will ultimately control the gold market, and I hope I live to see the day, will be the consumers and not banks, and it’s happening every day in China, India, Indonesia and other third world countries...small consumers are the tail that will wag the PM dog in years to come...the Fed is marginalizing itself every day.
Mark,
ReplyDeleteI don't think Bernanke can hold a candle to Hjalmar Schacht, he brought the Weimar hyperinflation to an end and refinanced Germany with fictitious bonds. I guess I mean I hope Bernanke can't but gee, he is giving it a go. And Mark, that is not a good thing.
Operation Twist worries me, I think it is smoke as foreign buyers deserted the long bond. Bernanke, like the ECB, is financing capital flight. Thanks to OT, they are now in the departure lounge.
Dan,
ReplyDeleteEither Mark thinks that currency devaluation world wide will not drive Gold higher because...
1)Bullion Banks can short infinitely
2)Hedge Funds can short gold stocks infinitely
3)MOPE can completely fool all of the people all of the time.
4)When the American people begin to uprise due to high unemployment, rising inflation (currency devaluation), the government can control the masses through Stalag tactics while the banks both control where and how fast the money goes and churns. I certainly would not want to be in Ben's shoes when the US population starts panicking. He knows he is going to have to exit sooner rather than later. Wonder where Mr. Bernanke's international real estate holdings will take him? So this guy Mark is just another MSM MOPE manager attempting to intimidate. It shows me just how the Egotist Keynsian masters think. Textbooks and theory work real well on paper in a college textbook experiment. The only reason he has been so successful the dollar is/WAS the currency for world trade. That too, is coming to an end. When it does, it will end badly. Hmm, Roman's, tried clipping coins, Argentinians used the press, then the Germans added military control to the printing press tactics. Not textbook experiments, but rather real world explosions. So Dan, I am with you. Mark, keep living the "dream". When you awake from your dream turned nightmare, we will forgive you.
Heh, I'm not a MOPE promoter. I am a trader, and I have to accept the reality that TPTB has full, 100% control of all markets. Yes, eventually deflation will start taking hold and Bernanke will start "jawboning" commodity prices higher and that will be the time to get long commodities.
ReplyDeleteOnce the market gives us a signal, that will be the time.
But Bernanke will only let commodities rise enough to get the "Animal Spirits" going in risk assets, and after prices rise to a certain point, he will "jawbone" them down again by announcing "no QE needed".
It is an amazing "Perpetual Motion Machine" he has created, by spooking speculators into bonds and "risk off" plays, only to reverse the trend a little bit to bring stocks back to life, and then when he needs to step off the gas, he starts flapping his gums again.
Result?
Zig Zagging higher stocks prices and bond prices
Zig Zagging lower commodity prices
Just look at many coal, solar, and gold stocks, all trading at depression level lows.
And the massive hit Bernanke put on the gold and silver contract today was proof enough that commodity investors and traders are now completely terrified of Bernanke.
So, you do not consider food and gasoline prices to be commodities? No "zig-zagging lower" in those; straight up to record highs (and about to accelerate more rapidly than ever).
ReplyDeleteIf you were a trader, you would probably know that Bernanke and the Fed are fools, being taken for a ride by the PBOC and its staff, who in fact are REAL traders instead of political hacks like at the fed. What you are witnessing is the fastest, greatest transfer of wealth in human history. Geez the west is dumb! LOL