"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, December 4, 2012

Gold Bulls Attempting to Hold the Line at the 100 Day Moving Average

Today's breach of both psychological as well as technical chart support centered near the $1700 level has set the bulls on their heels while raising the spirits of the gold bears.

The market has not been able to get its feet solidly underneath it since that beating it took last Wednesday. When the overnight seller/sellers of large size managed to shove it down below the low of that last Wednesday, they found the stops that they were hoping to find and then some.

The market is now moving purely on technical momentum as there is really not a lot in the way of fundamental developments. The Dollar is actually lower today while at the same time reports indicate strong buying of gold in Asian markets. Don't forget also the surge in gold bullion coins as the public begins to finally show some signs of nervousness/unease with the general state of the US financial picture.

A large portion of this move lower is being blamed on the break down in the so-called "negotiations" over what has been dubbed the 'fiscal cliff'. I say so-called because one side shows no concern whatsoever for the enormity of the sums of indebtedness that they are heaping onto this nation's back. Be that as it may, there is about as much possibility of anything that would actually SERIOUSLY impact the long term fiscal deterioration of this country coming out of this group of politicians as there is of a snowball emerging unscathed from a journey into hell. They will continue spending us all to hell.

The fact is that the US is technically bankrupt, if one wants to use the actual definition of the word, and will be forced to borrow increasing amounts of money with which to fund its profligate manners. The Federal Reserve will buy a huge chunk of those IOU's in their mad attempt to continue pushing down longer term interest rates thereby further distorting the market signals and just compounding the damage that will be inflicted when it comes time to pay the piper.

QE4 is coming your way this month to be followed in the future by QE5, QE6 and then QE to infinity as my good friend Jim Sinclair has rightly dubbed it.

I am not sure what the trigger event will be but at some point, the VELOCITY OF MONEY, will begin to pick up. When that occurs, the Dollar will drop into the abyss and all of us will pay the price for this exercise in idiocy by the Fed as we watch our way of life descend with it. I dread the coming day when a shopper will head into the grocery store and come out with a single box of Corn Flakes costing $10.00.

Back to the Chart - Gold is trying to hold at the 100 day moving average level which is a key technical support point especially for the hedge fund computer algorithms. If this level cannot inspire an immediate bounce higher, one that takes the price back above $1720, we are going to head to $1680 to see if that will stop the bleeding. That is a big chart level of support with a significant amount of sell stops sitting below it so believe you me, some of these gold bears are salivating at the prospect of getting to those. The big question is whether or not the Asian buyers put an end to this downdraft or are willing to wait for prices to fall even further before they step in and end the bear's party.

If for some reason this market were to get to $1680 and break down, the next level of support does not surface until near $1640. One suspects that Asian Central Banks and other Central Banks around the globe are getting their order desks ready.


  1. Dan,
    Do you think there is a connection between the attack on gold and CME trying to cover?

  2. "I am not sure what the trigger event will be but at some point, the VELOCITY OF MONEY, will begin to pick up. When that occurs, the Dollar will drop into the abyss and all of us will pay the price for this exercise in idiocy by the Fed as we watch our way of life descend with it."

    This is something, the central bankers and most of the market participants do not believe. And why? Because they do not understand, that Hyperinflation is not a monetary phenomenon!
    It seems everybody (Ben included) believes, that HyI. would follow only from a high inflation.

    But this is wrong. HyI. is a PSYCHOLOGICAL PHENOMENON. It can appear overnight in the midst of a deflationary collapse. It is the moment, when the market begins to lose trust into the currency.
    This can happen in the mid of deflationary crash where, for example, the Dollar is going through the roof and treasuries explode, but at some point the market realizes, that the collapsing tax revenues and exploding costs of unemployment, will ruin the budget and therefore the currency.

    And it can happen in the midst of "normality" like we have it now, although it seems so unlikely: for example it could begin in Japan, with a failed bond auction and collapsing bond prices. Margin calls for one big japanese bank, could set the wheel of money velocity spinning.

    And what are the tools of the Central banks to calm down money velocity? To sell securities! But if the securities are falling in price, selling them doesn't work anymore. So the central banks would need to BUY the securities with fresh money, although velocity of money is already increasing. Bam! Hyperinflation.

    Afterwards everybody will look at these very simple explanations and scratch his head, why they didn't adopt to this potential outcome and why the believed in central bankers, who didn't see the Tech bubble, the housing bubble, the great depression 2...

    1. Maybe i should explain why the velocity of money could increase if margin calls happen, as MCs show a scarcity of liquidity:

      The last time this occured in 2008 velocity of money didn't increase, because everyone was fleeing the stock market and risk papers and into the bond markets. Now the money is sitting there in the biggest bubble since human history.

      But if the government bond bubble bursts, where can this money go?
      From debt (= bonds) it can't go into debt again, it can only go into real assets (precious metals, housing, stocks, commodities).
      The crack up boom as last phase of all credit based monetary systems after the unbearable debt has been transferred from the banks to the debtor of last resort, the state. After the state there comes only the abyss if the economy is staturated and overindebted too much to grow out from the debt.


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