“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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






Wednesday, April 10, 2013

Gold Chart by Request

Here's a look at the latest after today's sharp selloff in gold. Note that the metal is approaching the support zone which has held it for some time now.

You can see that the former support zone between approximately $1592 - $1588 or so, turned into a resistance zone and attracted selling yesterday when gold failed to extend past it and back to $1600.




Central Bank buying out of Asia has been attracted to the metal on approaches to this lower support zone in time past. We will have to wait and see if that buying materializes again.

One thing I find quite ironic. Let me mention it and see if you do also. The Bank of Japan, has adopted the policy of its new Prime Minister whose stated goal when he ran for election was to deliberately produce a 2% inflation rate. That was for the express purpose of getting the Japanese economy out of the deflationary trap which has snared it for decades now. When you really examine that policy, all it essentially consists of is massive buying of all maturity ranges of Japanese government debt, along with some targeted buying of certain ETF's and some other financial assets. The scope and the size of this buying has various estimates that I have seen but it looks to be in the neighborhood of (US) $1.4 Trillion or so.

What is the methodology to induce inflation when we cut to the chase? Simple - drive the currency lower pushing the costs of imported goods higher while making Japanese goods much more competitive on the global market. Also, keep interest rates artificially at such extremely low levels that it spurs borrowing and thus consumption.

What has been the result for gold priced in terms of the Yen? Answer - it shot up to an all time high just yesterday.

Now turn your attention to the US here. What is the policy of the Federal Reserve? Buy enough government bonds to keep interest rates, both short and long term, artificially low in order to spur borrowing and thus consumption.

Somehow this is supposed to produce inflation in Japan without it being inflationary here. Okay - what is the difference? Well, the US Dollar is going higher and higher against a large basket of other majors. This is shortcircuiting the inflationary implications of a weaker currency and has thus far enabled the Fed to play the exact same game that the Bank of Japan is playing but without the same consequences.

Regardless, Gold in US Dollar terms keeps being sold by hedge funds while gold in Japanese Yen terms keeps rising.

I can note this divergence and apparent contradiction but quite frankly what irritates me to no end is to hear various talking heads, pundits and analysts, praising the Fed for its efforts and avoiding inflation in the process. Why praise them? The only thing preventing their policy (the exact same policy as Japan's) from knocking the Dollar into the same abyss as the Yen is the fact that the some of the other major currencies have stunk to high heaven.

With the US stock market moving higher alongside of the Dollar, foreign investors are chasing US stocks hoping to catch the move up and profit additionally from the Dollar appreciating against their own domestic currency - a DOUBLE BAGGER as we say. That is generating strong inflows of foreign currency to our shores creating yet another source of artificial demand for the Dollar.

I am not sure what will cause the US Dollar to reverse course but the US is at 100% Debt to GDP ratio with a growing federal budget and a looming entitlements crisis. We continue to read reports of various trade deals between China and some of its trading partners that call for direct exchange in their native currencies and so forth obviating the need for any US Dollar involvement whatsoever. The US fiscal house is in such serious disorder that it is screaming a warning at the top of its lungs and yet utter complacency prevails.

These things have a habit of continuing on merrily until one day they just don't. I do not know when that will be but I know it will be. Instead of giving this problem the serious attention it deserves, our leaders are instead fixated on homosexual marriage and gun snatching. Nero at least produced something constructive while Rome burned even if it was only a song on his fiddle. This current crop of leaders.....

25 comments:

  1. "I am not sure what will cause the US Dollar to reverse course but the US is at 100% Debt to GDP ratio with a growing federal budget and a looming entitlements crisis. We continue to read reports of various trade deals between China and some of its trading partners that call for direct exchange in their native currencies and so forth obviating the need for any US Dollar involvement whatsoever. The US fiscal house is in such serious disorder that it is screaming a warning at the top of its lungs and yet utter complacency prevails."

    Federal budget deficit is shrinking, spending has not risen since end of recession

    ReplyDelete
    Replies
    1. I would be interested in seeing what evidence you have for this statement. Just because one makes a statement does not make it true. Sort of reminds me of the rhetoric (bs) coming out of Washington!!

      Delete
    2. Apply a filter for 1/1/2013 to 3/31/2013. The debt is growing at a $1.3 trillion pace. How is the deficit slowing?

      http://www.treasurydirect.gov/NP/BPDLogin?application=np

      Delete
    3. "I would be interested in seeing what evidence you have for this statement. Just because one makes a statement does not make it true."

      Read the link, he is using the actual spending and receipts data from the Treasury Department - the same data and source, I might add, that you and everyone else uses when citing the total US debt.

      Calculated Risk has the same story out today as well:
      The Rapidly Shrinking Federal Deficit

      Delete
  2. I thank God for Dan's insight and honesty.

    Thank you Sir

    ReplyDelete
  3. I really appreciate your analysis on both sides : TA and fundamentals.
    Fundamentals : it seems that Fed and Friends are creating a Tsunami to keep the beach dry. Stay on the beach, my friends, stay long dollar, there is a lot of beautiful sand here...what is this tremor I'm hearing? :)

    Technically : sometimes I like to have a look at Andrew's forks. This time I'm posting you this chart because it's not so often that technicals are so pure. 3 Andrews forks, 3 times we went straight to hit the median AND bounced back towards the mlh.
    That would indicate that the next meeting point for bouncing back is at 1545 $, as prices want to remain Inside all of the forks.
    Funny configuration.
    If the green fork holds, well, Jim Sinclair will be proven right and the 1540 $ support zone will hold once more.
    No need to panic as long as it holds.

    http://s18.postimg.org/444jyj2zt/gld.jpg

    ReplyDelete
    Replies
    1. Hubert;

      Thanks for the pitchfork chart. Very interesting....

      Dan

      Delete
  4. thanks as ever for your great posts Dan, much appreciated. A sane voice in the wilderness!

    ReplyDelete
  5. Bernanke must be sitting back in his easy chair laughing at people like us.

    S & P 500 a stones throw away from 1,600 with the 10-yr. yield at 1.79%.

    Grains, gasoline, and gold trading near the bottom of the trading band despite the U.S. Deficits and the Fed Balance sheet getting hockey sticked into Outer Space.

    Bernanke has created a "Perpetual Motion Machine" whereby:

    - Rising stock prices boost confidence

    - Unwavering faith in the U.S. Treasury market allows infinite debt financing and expansion of free money for the poor like food stamps and disability payments

    - Any threat of inflation is immediately quashed by mere "words" from the Fed

    - Fractional reserve banking and derivatives continue to expand, providing the Fed with even greater influence on markets

    - Markets are now even more sensitive than ever to jawboning, thanks to the massive expansion in Algo trading

    So, in a nutshell, a virtuous circle has been created where the worse the economic news is, the cheaper interest rates and commodity prices become, which in turn ends up fueling even greater animal spirits, which boosts stock prices up even further.

    And the higher the markets go, the Fed's influence increases exponentially.

    Round and round we go, eventually Dow 15,000 will create such hysteria, that business confidence will improve by default because everyone will be celebrating.

    Never before in economic history has a Fed Chairman been able to create prosperity out of thin air by printing Infinite Fiat and suffering absolutely no adverse consequences whatsoever.

    And now that stocks have finally cleared to new highs, there is no upside resistance. None, nada, zip.

    And with gold trading at 2-year lows with most soft commodity prices in the tank, there is absolutely no fear of inflation. None, nada, zip.

    Simply brilliant.

    ReplyDelete
    Replies
    1. Yeah and so are most ponzi schemes until they fail. Only unlike a Madoff this one is going to take down the US and perhaps most of the world's economies with it!!

      Delete
  6. Always scares me to see Kitco gold charts go straight horizontal..from about 11:40-12:08 today. Just flat as a pancake. What in the heck is that about? It is like someone turns out the lights for 45mins.? Strange..
    Last time this happened, gold went Vertical straight down after the lights went back on. Wonder what awaits us now?

    ReplyDelete
  7. Yes, in politics it is Guns n Gays. Real incomes have been stagnate for well over 10 years and the sheeple are concerned about trivialities. The big banks run the show and govt is complicit.
    Like all disasters, they will not have seen it coming. Politicians know full well that no one gets credit for having averted a problem. We're a knee jerk society. Prepare accordingly.

    ReplyDelete
  8. http://www.marketwatch.com/story/critical-warning-no-13-stockmans-apocalypse-2013-04-06
    Paul Farrell of Marketwatch can be vague, abstract, exxagerate or understate matters.
    But here there's much less than customary MSM misrepresentation and understatement. In fact his editorials have a huge jump on his competitors, and that's partly why this ended up at 321gold for example. Excerpt:
    " But sadly, Stockman the truth-teller is clear, these grand solutions “can’t happen,” at least till after the next big crash. Why? Because the American government is run by a secret conspiracy of Wall Street, Corporate America and the Super Rich that’s in denial.

    So until the coming Apocalypse, this is Stockman’s Critical Warning No. 13: But “when the latest bubble pops, there will be nothing to stop the collapse.”

    So here’s his eighth and final solution, a personal one for you: “If this sounds like advice to get out of the markets and hide out in cash, it is.”"

    Well there's more quoting of Stockman's book we must consider, mated to Farrell's doomish narrative- the eight Stockman prescriptions for a better tomorrow?
    TOMORROW, if it rates that high. Snippits:

    "So “what must be done?” Stockman offers America an eight-point plan to stop the apocalyptic ending “to an end-stage metastasis.” But he admits, this “way out would be so radical it can’t happen.” Get it: Can’t happen. Inevitable. Game over.
    So scan the eight, you’ll understand why nothing will happen voluntarily, why Wall Street and its addictive conspirators must play out this drama because this time has never been different in the last 800 years of economic folly, crash after crash, recession after recession. Human nature, greed and politicians never change.
    Here are the eight solutions that “can’t happen:”

    Stop all government subsidies of capitalism: “a sweeping divorce of the state and the market economy” ending “crony capitalism.”

    Eliminate incumbency: A “sweeping constitutional surgery” with “amendments to give the president and members of Congress a single six-year term, with no re-election.”

    No more elected officials as lobbyists: “Prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll.”

    Overturn Citizens United: End the fiction that corporations are humans.

    Balanced budgets: “Mandate that Congress must pass a balanced budget.”

    Close all Wall Street derivatives casinos ... Purge “corrosive financialization that has turned the economy into a giant casino since the 1970s.” No cheap Fed loans, no bailouts, no deposit insurance.” Reenact the Glass-Steagall.

    Stop Fed micromanaging the economy: No more cheap money. No debt buybacks. No investing in private companies. Fire the Fed’s central planners. Restore “The Fed’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.”"

    Got gold?
    -Mikal

    ReplyDelete
  9. Sorry, but both Farrell and Stockman have been turned into utter fools who keep crying wolf.

    If you want proof, overlay a chart of XRT and XAU and you will see what I'm talking about.

    The consumer is splurging and there is no inflation prospect or economic collapse happening in the near future, if the market action is correct, which it is nearly 100% of the time.

    ReplyDelete
  10. http://quotes.ino.com/charting/?s=FOREX_EURUSD
    Dan, have a look at these bars on today's Euro chart. 1.31 euro + bit of lemon as spritz...

    ReplyDelete
  11. ty mark for your troubleshooting ER.
    I stand corrupted... beep...

    ReplyDelete
  12. A nice short PM's commentary from Bob Williams, mirroring Bill Haines at CMI Gold and Silver earlier this week:
    http://lewrockwell.com/orig14/williams-robert1.1.1.html

    ReplyDelete
  13. Jim Sinclair's not so busy with meetings he can't navigate the blogosphere. http://www.jsmineset.com/2013/04/11/in-the-news-today-1505/
    Check back later for possible updates,
    and here for whoever Captains the ship: http://www.jsmineset.com

    ReplyDelete
  14. Here's Martin Armstrong's take on this issue.
    http://armstrongeconomics.com/armstrong_economics_blog/

    ReplyDelete
  15. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/11_The_Stunning_Roadmap_to_$500_Silver_%26_$8,000_Gold.html
    Kevin Wides of Switzerland references Dan Norcini throughout this succinct, graphic analysis. Nice conceptual synthesis of technicals and fundamentals.

    ReplyDelete
  16. "These things have a habit of continuing on merrily until one day they just don't. I do not know when that will be but I know it will be."

    The only possibility I see for the fall of the USD is coming rapidly... China.
    Most people say that China needs the US as its main export market and will therefore never attack the USD. these people are completely wrong for (at least) 2 reasons:

    1- China GDP is growing nicely, thank you very much, but not because of an increase in export but because of a strong increase in internal consumption (both governmental and private). In 2007 internal consumption represented 39.6% of GDP against 55% in 2012. This is huge (and expected following the US created crisis of 2008).

    2- "US budget deficit is shrinking"...Ah!Ah!Ah! The same story we have in my country where a peasant is complaining that he lost money last year...He made 1.5M last year compared with 2.3M the year before...so he lost money !!!
    The same apply to the US budget... We celebrate because the budget deficit is shrinking...but still running at around 1 Trillion a year! Congratulation and of course we do not count the trillions created by the Fed! After all the US budget is one thing and the Fed monetary creation is something else and the two are not related in the smart investor mind.
    This is the second reason why we have to follow China. The Chinese are enjoying the suicidal actions of the US government (and the Congress).
    When China is capable of surviving a fall of 25 to 40% of its export to the USA (100 to 170B worth of export OR to better understand this number between 3.5 and 5.6% of WORLDWIDE CHINESE EXPORT IN 2012) It will let the world know that it is cutting its USD reserves by 50%, In the 5 minutes following the announcement the USD Index will fall by 15%, followed by a fall of the index to the 50 level.

    When is this going to happen? Sooner rather than later!

    ReplyDelete
    Replies
    1. I agree.
      I remember also Jim Sinclair mentionning that China is in fact already probably net short on the dollar, through long-term swap contracts of dollars against raw materials, precious metals and the like worldwide.
      I can't find his post, so I invite you to search because I don't want to twist his words, but I think the idea is they already protected their "dollar assets" by signing purchasing contracts all over the world on many years, buying everything in the future with their current dollars.
      If it's true, their dollar reserves are not to be considered in dollar terms anymore...it's already someone else's problems.

      Delete
    2. "I have commented on the huge purchases of raw materials by China all over the developing world. "These have all been dollar deals.

      I believe all these purchases are hedges against their holding of US treasury instruments as dollar deals.

      Jim"

      This comment dated January 2013 is only one of several from Jim.

      If you check the news you will see that the control of raw material (in USD) started a long time ago and accelerated following the 2008 crisis.
      What you have to add to the analysis is the fact that China through multilateral agreements is short-circuiting the USD making it less and less important for international trade. The end result is that when the USD goes down for good, the impact on the rest of the world will be lessened and the only victim will be the United States (with the EU asking China for help making China the new master of the (human) universe)... Checkmate

      Delete
  17. I just woke up and saw red on the S&P am I dreaming LOL. This market cannot go down.

    There is a UPWARDS channel on the daily S&P that is quite strong => http://bit.ly/12OOs6A

    I think there are 3 things at play.

    1) Too many people go bearish.

    2) Funds being pumped into asian markets needed to go somewhere? SO dumped into our US markets, instead of the emerging markets.

    3) many people are saying "do not fight the fed" as ben bernanke now has a hobby of PRINT....PRINT....PRINT LOL.

    We be interesting to see what happens next week and when the big bank report on FRIDAY.

    ReplyDelete
  18. Time is ticking for bears on the long-term regarding gold price, because as Hubert detailed, long-term trend of the dollar is probably down because of all those fundamental factors.

    But meanwhile and on the shorter term, I guess that the dream of the bears looks pretty much like this.
    Technically, does this chart seem bullish?
    Of course, the support around 1540 is still holding.
    But I'm not sure it will, and am very very careful with my positions.
    http://s24.postimg.org/fsmo8u5s5/gld_mt.jpg

    ReplyDelete