"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

Trader Dan's free work will soon be available at www.traderdan.biz

Sunday, December 8, 2013

QE is not Producing Inflation here in the US

In response to some private emails, I wanted to post up a chart detailing why, in spite of the massive amount of money created through the Federal Reserve's Quantitative Easing, there simply does not seem to be a massive wave of inflation building here in the US. Some may be wondering why I tend to focus on this thing termed, "Velocity of Money" but in my view, even though at times it may seem to delve into the realm of the esoteric, nothing can be more important in determining the future direction of the gold price.

Many will recall that when the first QE program was instituted ( late 2008) commodity prices and stock prices both bottomed out. The view of the majority of investors/traders was that the creation of such enormous sums of money through bond buying and mortgage backed security buying was going to result in a sharp jump in inflation. Almost as if on cue, commodity prices began to rocket higher as hedge funds jumped in on the long side of that asset class.

As the initial QE I began to near expiration, the Fed announced round 2 and thus QE II was born. More commodity buying ensued with gold soaring higher, eventually reaching a peak above $1900.

A strange thing began to happen however after QE II wound down - after that was replaced by QE III, Operation Twist, and then QE IV, gold continued to move lower along with most of the rest of the commodity complex. The US equity markets continued to ascend however.

I am not an economist nor do I make any such pretense of so being. What I am is a trader and traders have to notice when markets no longer respond in the manner to which one expects or assumes that they will respond.

Something had changed and for whatever the reason ( we can leave that to those who are more sophisticated about such matters ) a general wave of deflationary pressures surfaced in the commodity complex. I maintain that most of the "money" being created by the QE programs has not and continues to NOT make its way into the broader economy. It has gone primarily into the hands of speculative forces which have directed into equities. In other words, while these QE programs have not resulted in the widespread outbreak of inflation that most market participants originally expected them to produce during rounds I and II, one thing I think we can say with absolute certainty, is they have indeed produced a MASSIVE WAVE OF INFLATION in the US EQUITY MARKETS.

Such huge sums of "money"/ liquidity cannot be conjured into existence WITHOUT SOME CONSEQUENCES SOMEWHERE. To believe otherwise is to suspend all economic common sense and logic.

Let me interject one note here when it comes to general commodity prices. Many who read this site have seen me use ( to the point of disabuse ) the phrase, " the best cure for high prices is high prices". What is meant by this is that high prices encourage those entities engaged in the creation/manufacture/production/growth of the various commodities that are rising in price to INCREASE their production in order to maximize their profits as they take advantage of this increase in the price.

This is capitalism at its finest - the market gives the signal and the industry responds to the signal. As the supply then increases due, it eventually overwhelms the demand at that level and price then falls to balance the new increase in supply with the current level of demand.

During the run up in commodity prices during QE I and QE II, producers/growers, etc. responded to the higher prices by ramping up the supply. As there is always a lag time between the rise in price and the subsequent increase in supply, we are now seeing that. One can merely look at the corn and soybean markets as an example. I had quipped to some newswire writers and some friends that these extreme prices for both of these commodities was going to send growers in both S. America and here in N. America down to their local Home Depot/Lowes to buy clay pots and other assorted window boxes so as to have even more space/"land" to plant these crops. Lo and behold, we put in a record corn crop this year and an extremely large bean crop. Ditto for S. America.

So now we have two forces that have been working against any rises in commodity prices ( in general ). The increase in supply resulting from higher prices a couple of years ago combined with an outflow of speculative money in SEARCH OF YIELD in this NEAR-ZERO interest rate environment.

This has been a bit of a digression from my main point here but I felt it was important enough to note this. Here is that chart again:

Note how in spite of the QE programs, this key indicator, has continued to fall. Again, not being an economist I cannot get into all the when, where's and why's about this indicator but suffice it to say, my understanding of the inflation phenomenon, in the sense of sharp jumps in inflation, requires that money be changing hands in the general economy at an INCREASING RATE. That is clearly not happening.

What is rather startling is that this indicator has fallen to its lowest level since this data set was collected. That was over 50 years ago!

Look closely at the last grey area on the chart indicating a recession. Can you see how the Velocity of Money plummeted during the onset and into the depth of the credit crisis that erupted in 2008? Then look at the brief blip higher on the right edge of that grey region. Velocity of Money shot up rather sharply when QE I was announced. However it did not last in that uptrend for long. The graph peaked in the second half of 2010 and has been moving lower ever since.

Here is a closer look:

Here is a chart of gold:

It continued moving higher for nearly a year after the Velocity of Money turned lower. Some of this is the result of the sharp fall in the US Dollar that began at precisely the same time that the Velocity of Money chart peaked.

Here is a chart of the US Dollar index peaking at the same time VoM turned lower:

We then had the outbreak of the European Sovereign Debt crisis which triggered another huge round of gold buying but once that crisis was "contained" ( not solved ) there was nothing left to support gold based on the "inflation is inevitable" prognosis as the Velocity of Money continued moving lower.

Note how gold turned lower after the ECB took actions to stem the bleeding in the European sovereign debt market:

It seems to me that gold is now basically mirroring the Velocity of Money at this point. Outbreaks of confidence-rattling episodes have brought buying into the metal, but once that issue(s) is(are) resolved, or better, removed from the forefront of trader/investor's minds, the path of least resistance takes over and gold heads downwards once again.

This now brings me full circle to why I believe any sort of SUSTAINED RALLY in the price of gold will not occur until either CONFIDENCE in the ability of the monetary masters is shattered or rattled, or INFLATION EXPECTATIONS begin to arise. The latter is tied directly to the Velocity of Money in my opinion. When/if we see that indicator turn higher, gold prices should respond. I do want to note however that it will be important to also watch the bond/interest rate market to confirm market sentiment in that regards.

As always, we can posit a theory but until the market confirms it and sentiment shifts in that direction, a theory is simply that, a theory, or better, an opinion.


  1. Seems that velocity of money is the issue, but doesn't this lack of velocity price in more expansionary monetary policy? Shouldn't the market anticipate Janet Yellen is a huge dove and will print to infinity at some point?

  2. Gold and silver getting brutalized again while Nikkei futures are soaring once again.

    The "Horrifying Engame" in the PM space continues, as more and more money leaves this sector in order to chase stocks.

    Another key of the cog in Bernanke's "Perpetual Motion Machine", whereby trillions printed gets funneled into stocks, and anxious investors wanting to participate are selling anything and everything not nailed down (especially commodities) in order to enter the stock market

  3. Marc, Here's a chart on Nikkei http://www.forecast-chart.com/historical-nikkei-225.html and should also take a look at US$ historical chart http://www.ashraflaidi.com/analytics/us-dollar-index . Both tell us that one should not become too smug in any particular position as things have a way of reversing, sometimes sharply. Go short and go long if one has the conviction in any particular market....but caution is still key. JMHO

  4. Very wonky, but according to this guy, wage inflation has just begun, inflation elsewhere will appear, and what's more, it's just the beginning of a long cycle. Of course he could be wrong, but it seems plausible.

    If that weren't enough, I recently read this article here which is hypothesizing a baby boom in the developed world, particularly among the more affluent. Personally a bit skeptical on that myself, but it's an interesting thesis and, if true, would really help to stroke inflation. There's a very strong relationship between population growth and inflation rates.

    1. I can't buy the notion of wage inflation happening while household incomes are still contracting.

      The substantial decrease in the velocity of money that we are currently experiencing, as shown on the first 2 charts, is somehow not associated with an official recession. I look around this country and see recession everywhere except where the "haves" shop and dine.

      QE was never intended to reach the broader economy, it was intended to save the banks. Any talk of QE being designed to help the broader economy recover or stimulate employment is complete bullshit.

      The only inflation I see coming for mainstream Americans is in the cost of health insurance, but wages are not rising to offset that cost. Consumption of other goods and services will contract in order for households to meet the new inflated health insurance costs.

      In the absence of a robust economy, you could also argue for a strong relationship between population growth and a lower standard of living.

    2. there is absolutely no wage inflation domestically. In fact wages have continued to come down across the board in NOMINAL Terms. I hear talk of WalMart setting up factories in places around the rust belt. Professions like the medical industry are even having pay pressures as doctors must compete with govt and foreigners.

      Wage pressures would show up in the cost of goods. It just is not happening. If pensions and other assets are taken, watch out for a new round of deflation.

    3. You are both incorrect.

      1. Average Hourly Earnings of All Employees: Total Private
      2. Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private

      Due to reduced hours since the recession, real median household income has fallen, but it looks like it's bottomed out and is likely to begin rising again as the unemployment rate continues falling.

      Real Median Household Income in the United States

      Before you criticize the articles I posted in my link above, I'd recommend reading them first.

    4. "Before you criticize the articles I posted in my link above ..."

      Oops, I meant my *post* above.

    5. Answer not a fool according to his folly....

    6. This comment has been removed by the author.

    7. If you have links to data and analyses to counter what I've already shown, I'd be happy to see them. Otherwise I'd appreciate not being called a fool for providing links to my own data and analyses, thank you.

    8. Unknown

      Interesting links.
      Strange though, if average wages are rising why is median household income declining?
      Is it because the higher wages cannot compensate for fewer hours worked or because too many households have suffered at least one layoff?

    9. Hard to say how much unemployment figures into the mix, but for certain, average hours worked per week still have yet to recover to pre-recession levels, though they're definitely trending back up.

    10. Hey Unknown, don't get all worked up. I didn't criticize you or anything you linked to. I actually followed your links to the Fed charts and (tried to) read the one article you linked to. All I'm saying is that I don't buy the notion that we're on the verge of wage inflation. I follow John Williams' research and it makes sense to me (sorry but you need a subscription to read the entire article).


      With respect to the data used to create the charts, I offer you this article (yeah, it's from the NY Post).


      So lighten up on those of us who might not share the opinions of the Federal Reserve and economic egg-heads. I won't apologize for placing the validity of John Williams' research and my own experience above the hubris of economists who try to interpret cooked data.

      Regarding your assertion that average hours worked per week are "definitely trending back up", that chart could just as "definitely" be indicative of a pause before a plunge into the abyss. It sounds to me like you have a bias.

      We're all (I hope) trying to learn here and part of that process is constantly asking yourself "Does this make sense?". Nobody is going to convince me that down is the new up.

    11. Gil, my comment there was directed more at Eph 6:7.

      John Williams has as many, if not more, biases than any economist. I mean, a guy who has been wrong about hyperinflation for some 5 years running isn't a very credible person, in my book.

  5. Yes it does cause inflation but debt is cancelling it out, so far with a net gain of stagflation.

    Wasn't JS and his pal always saying that once enough electronic credits (money) is created to cover the amount of all debt outstanding then over and above that, inflation would begin in earnest except the amount of debt is like 80 trillion dollars or is it 800 trillion? We will know when all the hidden derivative values are discovered (mainly past and ongoing private swap deals). Big black hole to fill first before hyperinflation ever shows its ugly head in the US (if ever). That why banks are tight with funds, in case the cash call comes. Those reoccurring stress tests keep resulting in banks having to stockpile more reserves. States on the verge of their version of bankruptcy (liabilities receive pennies on the dollar) are only a symptom of overall outstanding debts owed.

  6. "Of course what we have now is the worst of both worlds – deflation in the things we hold as “investments,” and rampant inflation in the things we need. The deflation is caused by the debt as money scheme foisted on us by the bankers, and the inflation is caused by the money explosion that only benefits the bankers who create it and then use it to speculate commodity prices higher. Everyone else is caught in the middle, with very few safe places to hide."
    Nathan Economic Edge, 2011

    “Some people are mistaking deleveraging for deflation. They are mistaking a contraction in the real economy for deflation. This is a central point. The economy can contract and I don’t dispute that point. It is and probably will continue to do that, but it has nothing to do with the price level.

    The price level can rise while the economy contracts in unit terms. So I think that’s what is lost on people that are looking at deflation. Again, what they are really saying is they anticipate economic contraction and I don’t dispute that, but it has nothing to do with the price level.”
    Paul Brodsky

    1. Brodsky has been totally wrong on the gold; that may be why QB broke up; sparks

  7. See from p7, THE FOUR PHASES OF ASSET


  8. Very true.... When velocity drops this profoundly there is only one reason - the economy is broken and unfortunately, it seems that under our current system we will not be able to ever extract much of this stimulus. i just do not see a scenario under which the economy can succeed without QE. The debt markets are broken and the money just doesn't turnover anymore. Plus most of the inflation is exported to foreigners, and the only things these foreigners are bidding up from their bond redemptions are equities, quality real estate, and until about a year ago - bonds. Now the USFed will be buying all the bonds to keep the yield curve from exploding.

    As a trader I was interested in finding analysts who were able to explain why the continual stock rise was taking place, in the face of things like longer-term trending falling velocity. Face it, the above charts paint a picture of something not temporary. Anyone who explained it as saying anything good about the economy was rejected out of hand. That left about three or four people I follow right now. They seem to be understanding this issue and others well. Of course, they are not on regular TV or media. Once their ideas do hit the mainstream it will be time to sell.

    One of those guys is Armstrong. That's why I stumbled upon him in October. Dan is another one. I think Dan also knows where gold is going, but doesn't want to upset his readers... :)

  9. Gold is going lower...I can no longer find a commentator or analyst who is disputing that. Well, there is the odd one but they are part of the "collapse is only weeks away" crowd who's opinions are not worth reading anyway.
    Armstrong (or his computer) is saying the trend in gold will change in early 2014...I will believe it when I see it.

  10. Headline for the day

    "After five frustrating years, the economy is ready to bust out. Stocks already had a banner run in anticipation of the rebound, housing is scorching, and jobs won't be far behind."

    Buy the Dow or face financial ruin seems to be the message to the world.
    You have to admit, Bernanke did one hell of a job, so far the only inflation has been in U.S. equities and it appears that there is no end in sight for them...no matter what the economy does.
    At this point, Gold doesn't stand a chance.


    The dollar is dropping and Gold appears to have hit some kind of speed breaker during its trip down; if it should rise over 1253 and stay there for a couple of days that would constitute a successful test of the 2Q bottom...a DOUBLE BOTTOM ?....big IF....but then every commentator has many IFs in their forecasts.

  12. http://finance.yahoo.com/echarts?s=^HUI+Interactive#symbol=^hui;range=1m;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

    Does the HUI one month indicate softness & profit taking in Gold and Silver in the next few days ?

    I had to go back to October 2008 to get a similar low. The Yahoo charts show a HUI of 150 as a bottom, but I'm not sure if they are accurate.

  13. Wolf

    We still have the FOMC meeting next week. It seems no matter what they announce the Dow climbs and gold gets hammered.

    1. My prophecy is gold will rally till then followed by a sell on the news of no taper. Then dive into January for a bottom. By the new year wars and rumors of wars will drive gold followed by the coming inflation. JMHP

    2. Dean: I disagree; if Gold starts dropping it will have nothing to do with the FED but because the US $ has hit a short term low ( against the Euro) and starts to rise again.

      Also, Dan always stresses the importance of watching what the speculators do..well following links tells their story..

      In any case, I took the opposite approach on Friday and went the chicken route of buying shares of FSAGX and BGEIX.


    3. Wolf

      That is what I was trying to say...it matters not what the Fed announces. Shorting gold has been the easiest way to make money for just about 2 years now.
      The hedge funds (or whoever) just use the announcements as a kind of an excuse or something.
      I was actually surprised to see gold hold it's own today.
      I am still short gold, not buying any or selling any.
      Down to around 11% of my portfolio...my happiest day will be when I hit 0% (selling all and any rallies no matter how small)
      Still can't believe I fell for all the hype, I am thinking of having "Fool" tattooed into my forehead.

    4. My only response is good luck on your trade; for every seller there has to be a buyer; so someone has been buying along the way.

    5. Wolfwisdom

      I know what you are saying...however...I started selling shares earlier this year, someone bought them, those same shares fell another 30% after that.
      Whoever is buying is taking the beating of a lifetime.
      I have no idea where the bottom is but at this point it seems a long long ways away.
      Some analysts have put the bottom for the miners at sub 100 HUI and gold at under 700.00.
      At that point I doubt there will be any operating mines left. You will be able to buy them (if you dare) for less than the money they have in their bank accounts.

    6. Dean, they most likely won't go belly-up and simply will go into maintenance mode, BUT could face hostile takeovers if they don't have something in place to avoid that situation. As I've said before, everything is market supply and demand. We know demand for gold bullion is strong as I'm told it far exceeds worldwide production (exceeds it by about 2000 tons per year) with balance presumably coming from the West (well who knows, maybe bullion bank gold leasing or GLD redemptions or ???) so your scenario has gold mine supply shutting down and what does that do to demand when gold is basically unavailable. This IMO is the real cat and mouse game being played. What analysts are talking gold at $700? I think there are some who salivate at the thought of getting such a bargain LOL.
      Most bank analysts following certain mid-tier producers currently have target prices at twice what current share price is, so just goes to show us where their heads are at (no, not up their arse) but who really knows for sure where prices of anything are going. I hear recent gold conferences have had about 70% less attendance than past years which speaks volumes about fear, disgust or disillusionment with the sector.....which also they say is a great indicator of a bottom.
      If gold has another big snap down I suspect we'll see a huge buying frenzy. If you look at a long term chart for Dow, US$ and gold the picture is pretty clear as to where value remains long term. Just my opinion and big difference between trading for gain and buying for long term security...that in my opinion is the key. If we look at the change in prices during the 1929 great depression the speed of the market change in direction was heart stopping. Gold and gold stocks were the only things going up. Not saying we're close to that point but bubbles do burst.

  14. @ Eph 6:7, the stock market has been rising since 2009 (even with low money velocity) due to government spending and the huge fiscal stimulus packages implemented during the crisis. Now they have cut back on spending by 30-40% and stocks should suffer going forward. They could still rally another 5-10% but the party is about to come to an end. It's sickening to see how much our economy relies on govt. spending. Each year that passes our economy relies more and more on govt. spending while the effects marginally diminish.

    1. Alex

      Don't worry about a cut back in Gov't spending...another war will take care of that.

    2. I agree Greek; approaching blow-off; sparks

  15. HUI and gold up today....sucker rally might be approaching.

    1. Hey Dean-HUI up HUI:GOLD still under .16. If you look at HUI:GOLD as a sort of 2nd derivative of gold (HUI being 1st) for inflection/acceleration (obviously a metaphoric 2nd derivative), the tale has not looked good for some time. Ratio has been going down and to the right since at least 2011.

      Again, interesting if it will hit .145 as it did in Oct 2000... If there is indeed another bull market in gold, I wonder how the miners will play out. All the hedging at the bottom, resource nationalism, fudged all in costs, just plain difficulty in mining has become apparent to retail investors. One might figure that the circumstances of gold will turn well before the miners see any upside.

    2. MDLGTO

      I always thought the miners would lead the metals..doesn't look it will go that way, but who knows.
      The outlook for the gold miners is looking so horrible and hopeless that I just keep buying DUST to try and mitigate my losses.
      They were saying the miners were oversold when the HUI was still above 400...HAH !

  16. Dean,
    I agree they will start spending again and that war is on the horizon. But there will be consequences to cuts just like what happened to Europe last year. On the topic of war did anyone catch the AIPAC policy conference tight before Thanksgiving? Chuck Schumer stated that their goal is to put pressure on congress to enact more sanctions on Iran and that they are working with the secretary of state to "ratchet up the sanctions" when they return from Thanksgiving break. That sounds good for gold bad for the world longer term...

  17. Is the FED DUAL MANDATE maximum manipulation and price controls?
    THE FED and we the people

  18. Boy Oh Boy; the bearishness on this board so lopsided who is left to sell.
    A madman Cramer wouls say: BUY BUY BUY

    1. Good point Wolfwisdom

      Yet, we all know that in the next week or so…someone will dump another 200 tons of gold on the Comex in the early hours and…down she goes.
      I simply do not know who besides myself has any gold miners shares to sell. I always thought that markets eventually run out of sellers…not so with gold.

  19. First comment, but I'm a long time lurker and have a tremendous amount of respect for Trader Dan. I want to comment on the velocity of money topic. Velocity of money is calculated by dividing GDP by the money supply (M2 usually).

    Thus, V-=GDP/M

    The Fed is adding to the money supply much faster than GDP can increase (especially with 80% of QE remaining in banks, so it is impossible for velocity to increase.

    The Fed could announce they intend to double the money supply in one year and gold would go through the roof, but velocity of money would absolutely fall as there is no way GDP could make up for all those new dollars.

    My point is this. Velocity of money is a "Red Herring." Velocity of money will start to increase as soon as the Fed stops printing or at least prints much less. Till then Velocity will continue to fall as its formula dictates it must. Far more likely trigger for gold prices will be fall in value of the dollar.

    this is why many of the World's top economist are saying we will have a currency crisis before we see significant inflation.

    1. Just thought of a simpler way to make my point.


      1) As long as M increases faster than GDP velocity of money will go down. Mathematically impossible not to.

      2) Only way for V to go up is GDP to increase faster than M is increasing. Impossible to do at our current pace of money creation.

      Thus creating money faster than GDP increases will always lower V. However, creating money faster than GDP increases will always lower value of a currency and historically that happens in sharp and rapid declines which in turn cause increases in inflation.

    2. Thanks Matt.
      It's nice to stress the Relationship between QE and velocity indeed.

  20. Dan, would you please comment on this last post by Matt. It seems most interesting. Maybe even very important.

    1. Arnie - Matt - John Kitcher

      Thanks for the comments.

      Matt - you seem to approach this thing more from a theoretical/academic standpoint which is just fine.

      I try to look a bit deeper than the formula and ask "why" Velocity is falling. My answer may not be economically kosher but it is how I view these things.

      The reason Velocity does not increase in spite of the massive money creation has to do with the amount of debt in the system. There is simply too much debt.

      Also, the "money" that the Fed creates does not make it into the system (other than equities) because the banks have found riskless methods to use it instead of loaning it to consumer who really do not want to borrow it anyway because they are too distrustful of their economic condition to take on big ticket purchases.

      Wages are stagnant and remain that way because the job market is so anemic.

      Thus I tend to look at things the way John Kitcher so aptly describes. IT comes down to CONFIDENCE. When it increases, borrowing will increase and money will begin to change hands at a faster pace.

      Also, you need to explain that "blip" that occurred in Velocity which I plotted on the chart. Note how it picked up for a brief period as the general euphoria generated from ultra low interest rates the first time around with QE generated a burst in the rate at which money began changing hands. That fizzled out however. If I recall correctly, US GDP was still quite anemic during that time frame yet Velocity of money moved higher.

      I believe that the reason we are not seeing CONFIDENCE increase is that there exist structural issues in the US economy which money creation cannot cure. Those issues undercut consumer confidence and quite frankly, consumers were more interested in paying down debt than they were in taking advantage of ultra low interest rates to borrow and go even deeper into debt.

      In that sense I do not believe Velocity is a "Red Herring". That denigrates the concept and the role it plays in inflation. I maintain, that confidence is the key and anything which shifts that higher or anything that shifts sentiment away from the current view of slow/but stable growth towards growth which is of sufficient rate to begin putting upward pressures on wages/prices and nourishes inflation expectations are what is needed to kick gold out of its doldrums.

      thanks again for the post... it generated a lot of comments.

      I am pressed for time today and have to cut my responses short right now...

  21. Matt - I disagree. Velocity of money reflects confidence. Declining confidence causes people to hoard and business not to invest. Once people/business become more optimistic towards the future, confidence (and spending) will rise. Merely ending QE will not raise the velocity; however, people will likely be positive towards the move as they will think that the FED is tapering because the economy is improving. And rising interest rates will draw investors in as they will want to lock in low interest rates (on the expectation that they will rise further). It's all mind games and head fakes.

    Another point, people are getting more and more bearish, which suggests to me that a final bottom is at last approaching.

  22. 2 macro statements from Sinclair lately :
    - "Never mess with India’s love of gold. Worse even, do not touch a temple’s gold unless you want a full out internal war"
    (India being a huge player for gold imports, I'd like to know the real figures of their imports and how government measures + price decline is affecting (or not) the amount of their purchases)

    - The entire story will play out on the USDIndex chart.
    (because it is too big a market to be manipulated by anyone. So a dollar collapse is unstoppable, and the loss of confidence into the dollar is unstoppable if it starts)

  23. Gold : resistance I see is ema15, ma20, horizontal resistance daily, all around the 1250 area.
    Beyond, résistances are converging at 1290 : top bollinger band, top of a downwards channel and ma50.
    Breaking 1250 at the close may lead us towards 1290.
    The way I'd play it is wait for the break and a pullback then check closely on the faster time units for a long opportunity with, as usual, a tight stop loss.

    1. SILVER almost made it to $20 Hubert but it stopped at $19.997. Why not short some silver where you can get more bang for the buck?

    2. The News, explain me what exactly is your trade on silver which will make you get more bang for the buck.
      What price do you short? Stop loss? Target?
      Regarding silver, my answer to your question is : before dreaming on making a lot of money, I'm dreaming about getting into the market from a safe spot. Bollinger Bands 100 periods horizontal in a range give me a hint about the potential safe spot, i.e reversal. I like reversals entry points because they provide me with a stop loss very close if I am wrong. Whereas buying or selling stop directly forces me to put a stop loss quite far (therefore my first question to you about more bang for the buck : where / when do you sell, where is your stop loss?)

    3. One thing I won't do is pretend to know something I don't. So I really have no idea Hubert. But from a less than amateur like me who reads all this adanced data around here I figure it's going down so basically SHORT IT. And that's why I had the QUESTION mark above. Just want to hear what you have to say about it because I enjoy reading what you and others have to say about it.

      I have friends of mine that know all about these BOLLINGER BANDS, VWAP, MOVING AVERAGES, RSI, MACD, and all of that like you do. All I can do is look at a chart and I know the names of many of these terms in the GLOSSARY and just identify some of them on the chart. Making decisions on where to put my SHORT, STOP LOSS and TARGET would be like throwing a dart for me. And yes I've done it so I'm not the timid type either. :-)

      Actually I'm not too stupid and I want to be smart. I also know I'm not so smart so I don't want to be stupid about it either.

      So far I've learned it's time to sit back and start over again because I have no clue at the moment.

  24. Thanks for the feedback everyone. I hope no one thinks I’m being argumentative, I just truly like thinking about this stuff and do think we’ll have a dollar crisis or three down the road.

    First, I agree that nothing is more important than confidence in the dollar. That is what will get us if we are to be gotten.

    Here’s how I look at it:

    1) Since the financial crisis the M2 money supply has grown by over 45 percent. During the same time GDP grew by only 13 to 14%. So velocity had to decrease substantially and it did. Even though more dollars were spent and our GDP went up, the GDP growth wasn’t anywhere near the growth in the money supply.

    2) Right now more dollars exist than ever before and they are still being created faster than growth so V has to be at it lowest point since they started creating them. It is. And V will continue to fall until that changes.

    3) No way to know for sure what exact mix caused the blip in 2010, but it most likely occurred in part due to no money being printed between end of QE1 and beginning of QE2. (March to November of 2010 the printers were silent) coupled with how the banks handled the money they retained. Did they lend it out or build up their reserves? I don’t know, but the blip could be explained by either or a combination of the above. With no money being printed and a growing GDP velocity would have to go up. If the banks built up their reserves during that time M2 would actually shrink as bank reserves are not part of the money supply (only their deposits are). A shrinking M2 supply and growing or steady GDP would increase V.

    Again though, the dollar can fall rapidly if we have a loss of confidence even with falling velocity. In fact historically that’s what does happen. A hundred things could trigger it.

    The million dollar question is when? Wish I knew, but I watch the dollar like a hawk.

  25. @The News Unit, I will finish my answer which I started just above about how I'm getting into a trade and why not do as you say (if you say so, please again tell me where you sell and where is your stop loss and where is your first target, i.e what is your risk reward ratio on your short trade for silver, because if it is correct, you can perfectly be short, for example short under 20 dollars, I'm not saying I have a better way that yours :) But you must describe more than why don't you just sell without indications).

    It will also be another example (answering Steve) about why I think Bollinger Bands are relevant inside a T.A and trading (anyhow, in my trading system).


    Look where prices decided to bounce for silver.
    Bollinger Bands on the daily were in Phase 3 going down. But I warned several days ago that we will probably target the Bollinger Bands 100 period i.e the higher time unit Bol Bands as they are in a range, and likely to provide a support to prices.
    So I was waiting to monitor closely prices at that level, because it gave me a great spot to try a long on silver with a close stop loss just under the bands, and a first target at 20 $ (sell 1/3, raise stop loss at entry point).
    After that, silver prices do what they want, I've secured a win or no lose trade altrady.
    How do you precisely secure a trade on the short side concretely on silver is my only question to you.

    1. Hubert: (I didn't see your PART 2 here so I'll continue too. :-) You can read my previous response above.)

      I secured only one trade on the short side a while ago with that ZSL but that was pure luck. I also got lucky on NUGT and when it gave me some GREEN numbers I took them. :-)

      That's about how it works here. I'm in the study mode. But I'm not afraid to ask.

    2. I should say one more thing to get me into more trouble and that is that every time I think I should get in LONG it keeps going down. So I guess the trend is your friend--or your enemy--right?

    3. I actually watched Ira Epstein today explain those BOLLINGER BANDS and how this market was settling down with LOWER LOWS and LOWER HIGHS but just recently there was a SLIGHT CHANGE or SIDEWAYS PATTERN (so to speak) and we are at the BOTTOM now of this present BOLLINGER BAND with an EMBEDDED STOCHASTIC about to start up again. I guess that's how you explain it.

  26. The US$ chart is a reflection of a group of (changing) weighted currencies as a comparative standard (that is always reshuffled whenever they feel like it, much like DOW components for example), has nothing to do with its buying power here at home or consumable prices and the stock mark itself would act more schizoid than it already is.

    For all intents and purposes a reserve currency relies on confidence too. Don't rock the boat to much and everything will be fine. Any one of the major currencies gets out of line by becoming to strong or to weak, sets the wheels in motion to resolve that problem or trade unbalances will occur between the major producing nations, the little guys get beaten down all the time forced to use the dollar exchange rates. Much to delight of the big banks and world political policy makers.

    In the mean time, the never ending electronic dollar credit=debt creations are going somewhere, maybe for overseas banking use? I am sure of it. And you have to included that when painting a picture of money movement. The overall big picture ends up with a map showing lines connecting world banks together and it must be considered.

    More simply put, the creation of new money never ends (ever) or the Ponzi scheme would fail until the next new money began being printed in excess.

    Everything else is a predictable painful sideshow.

  27. Too much of fundamental analysis and philosophy ( on definitions of velocity ) and bearishness growing on this board; as I posted -- last couple of days--- there are NO bulls around and so manay BEARS there is no bear food left in the jungle; BUY BUY BUY for a nice trade ( GDX, IAG, FSM)

  28. Wolfwisdom

    You are probably right…but…I felt the same way back when the HUI dropped under 400..there weren't many bulls left at that point…50% loss later the Bears still look pretty strong. They have had absolutely no reason the fear being short for over 2 years now, can that end overnight?
    We are getting a nice bump right now but like I said…someone will dump 200 tons of non-existent gold in the early hours and..voila…rally finished.
    This has worked time and time again..what could possibly stop it?

    1. A mini dollar crisis would stop it. DXY goes below 78 it's most likely going to break through 75 and gold will fly. Gold flies, the miners will soar.

  29. As the title of this blog says it is Trader Dan and NOT Fundamentalist Dan.
    I am a trader and can tell you that if Gold stays over 1254 for over 2 days that will constitute a successful test of the July low ( a Double Bottom if you will) and this will mark the biggest BEAR trap that was set in a while.
    The danger is when a technician starts losing trust in his or her own proven methods and starts looking for fundamental reasons.All I can tell you is I put my money where my mouth is. Last Friday afternoon, after I could not find any BULLS around, I bought chicken little stuff like mutual funds FSAGX and BGEIX and yesterday- Monday - I speculated with some IAG, FSM and GDX. As of now I am in the money but if this reverses on me ( if it looks like Gold fails to close above 1254 ) I will sell before the market closes and take whatever I get. I believe Uncle Ben will not mess up his legacy by tapering before he leaves. That dirty job will be passed on to big jug Yellen.

    1. Wolf -

      What is the deal with you lately? Your posts seem to be taking on somewhat of an almost angry tone because traders have been bearish gold.

      Look - trading and investing are two different animals. I think you have been reading this blog long enough to understand that. It is one thing to use price weakness to acquire physical metal if you are a long term bull on gold. It is quite another thing to buy into a LEVERAGE FUTURES MARKET in the midst of a strong bearish trend lower. That is a recipe for disaster.

      I try to keep it simple here - the Trend is your friend. If you want to make money, you gain nothing by fighting it except a depleted trading account. When it turns, you go with it.

      Trading gold from the long side this past year has been a fool's errand. The only way to have done that was to have the most shortest of time frames. The successful trade was to sell rallies. That is simply a fact my friend. I am sorry if that angers you but it is what it is and nothing that you are anyone else can write will change that.

      Good traders take the market as it comes and do not try to force their will upon it. Remember that if you want to be successful as a trader.

    2. Dan: Thanks for your comments; appreciated. I ahve a lot of respect for your stuff which is why I am spending time on this blog. I am NOT angry at BEARS ( afraid yes !!). My message is that the markets have become a casino ( thanks to FED policy) and try to divine the long term on this board ( meant I hope for traders) with deep fundamental analysis takes us away from the objective. Having said that , every one is entitled to an opinion here. Still a free country, N_S_A not withstanding.
      Have a great day ( Bonjiorno)

    3. Wolf I don't think uncle Ben will taper either this month, wouldn't make sense, but as I said above this will rally then sell on news of no taper come Dec 18. This is what happend last time mid October.
      Also watch the USD it's close to it's bottom resistance and will more than likely bounce hard and it will slaughter gold to the downside.

    4. Wolf - I certainly agree that the Fed has turned our markets into a huge casino and in the process has distorted just about everything out there.
      I do think however that one can still have a long term view while trying to read the shorter term and intermediate term sentiment.

      Speaking of "free country" - we are slowly losing those freedoms....

  30. prophet , so you are saying that there will be no taper , that the dollar will rally , and then gold sell off ?? how does that make any sense

    1. Buy the rumor sell the news, nothing new in a downtrend market.
      Look at the last good run mid Oct to Late Oct, FOMC concludes and no taper, and where did gold go? Down.
      Better example is gold's run from 1530ish to 1790ish in late 2012 - then Fed announces a doubling of QE and what did gold do? Started decending then collapsed. Logically you would have expected it to smash through 1800 and make the next leg up on that. But that's why trading gold is very tricky - full of head fakes and sucker rallies.

    2. if you ask me it hasn't been too tricky for the shorts so far ….


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