"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


Friday, September 2, 2011

Gold - 4 Hour chart update

Gold has solidly taken out resistance centered near $1840 - $1845 and has now moved directly to the next level of chart resistance near $1880. This is the last barrier before a retest of the former all time high near and just above $1900 is in order.

That gold is doing this even as the Dollar is moving higher is evidence that it is trading primarily on currency related issues now ( currency debasement by the respective monetary authorities).

We are back to looking at the same issues that have driven the metal higher in the first place - deliberate currency debasement efforts by the monetary authorities ( aka loose and extremely accomodative monetary policy combined with official sector buying of government bonds ); raging inflation in the far East, particularly China and South Korean; and three, enormous federal budget deficits in the West. Throw in a good dose of rotten economic data releases which will reinforce the need for accomodative monetary policies resulting in NEGATIVE REAL TERM YIELDS for savers, and you have a perfect storm for higher gold prices.

That is the situation from a fundamental perspective. From a technical chart perspective, we will watch to see how gold acts should it make a move towards $1900. I would expect an all-out effort by the perma bears at the Comex (bullion banks) to check the metal at this level and attempt to paint a technical chart pattern known as a double top. They know full well that if they are unable to absorb the plethora of bids or buy orders that will come into the market as its price rises and thus fail to hold it below $1900, gold will be at $2,000 before the month is out.

I should point out here that gold has also made a Brand new all time high WEEKLY SETTLEMENT PRICE.

Markets continue to Beg Bernanke for more Jelly Beans

By now you have all learned about the absymal payrolls number. What more can be said at this point except for the fact that the current Administration seems intent on gutting the American economy.

Remember at the last FOMC statement when the Fed announced that short term interest rates were going nowhere for the next two years? They then went on to say that there is only so much a Central Bank can do and if the economy is going to grow, it is going to require policy changes that reduce structural impediments to growth. That was a not so subtle dig at the current clueless occupants of the Executive Branch to get off their Marxist redistribution wagon and start putting forth some business friendly policies (not to mention spending us all into the toilet). Well guess what? After today's jobs number, the markets have given up waiting for anything coming from that quarter and are now practically begging the Fed to save them.

This is being evidenced by the fact that the long bond is rallying as traders now are fully expecting the Fed to roll the proceeds from maturing short term Treasuries into longer term Treasuries. In other words, exchanging short term debt holdings for long term ones with the idea that the Fed will now engage completely in focusing on keeping those long term rates low for an extended period of time as well. My thinking is that were it not for this thinking, the equity market would have utterly imploded today.

What has been occurring is that the more bad news we get, the more stocks refuse to break down, in some instances actually rallying in the hope, wish, prayer, etc, that the Fed will be FORCED to act. Personally I find this sort of activity repugnant. The greatest nation on the face of the Earth, its entire economic hopes are now hanging on whether or not a group of monetary authorities are going to buy US government debt. Am I the only one out there who shakes my head in dismay and disgust at what we have all been reduced to? Instead of being able to witness the unleashing of American ingenuity, drive, ambition, know how and hard work, we sit around and buy stocks because we think the dispensers of slips of paper known as Federal Reserve officials will inject us easy money addicts with more of the same worthlessly ineffective stimulus? This is America early in the 21th century! Sigh....

Anyway, gold is reacting to this nonsense as it rightfully could be expected to do - it is moving sharply higher because it instinctively realizes that the only "solutions" going to be offered for the current economic disease is going to be additional currency debasement. Whether it is Europe, the US, Japan or even Switzerland, all are going down the debasement path. That is why gold is either making new all time highs in terms of these various major currencies, or just shy of those record high levels.

Silver too is now catching a safe haven bid as many investors are viewing it as undervalued in relation to gold and as offering the potential for better gains on a percentage basis than Ol' Yeller.

I will kick some of this around on today's Weekly Metals Wrap with Eric King over at King World News but wanted to note that those who keep insisting that gold is in some sort of bubble are utterly clueless as to what is driving this market higher. It is going up because a steadily growing number of investors are wising up to the game that is being played by the monetary authorities at the expense of the wealth that they have spend a lifetime accruing by the sweat of their brow and the labor of their hands. As more and more of these investors and average folks learn the role of gold in protecting that wealth from the depradations of Central Banks and spendthrift politicians, gold demand (and silver demand) is going to grow.

It basically comes down to this - whom or what do you trust more - monetary authorities and Central Bankers who have a distinct bias towards problem solving in the most painless manner possible or gold, which cannot be conjured into existence and which has stood the test of time and history. The market always votes with its feet and the voting is obvious.

The only additional comment I might want to make in regards to the ignorance of those who insist that gold is in a bubble, is that they obviously have incredible confidence in Central Bankers and politicians to fix all that ails us - also noting that it is this very same group of people who are the most responsible for creating the current miserable economic climate in the first place.

Note that the HUI has smashed, and I do mean "smashed" through overhead resistance near 610 and is charging higher. I mentioned not that long ago that the hedge funds who were employing this damned ratio trade had overstayed their welcome and that the first one to cover those mining share shorts and get out would be the only one which would make money on that crowded trade. That is now the case as the shorts are now in serious, serious trouble with all of them looking to buy and very few looking to sell.
We'll see how these indices close the session out today but I do find it very telling that the mining sector shattered upside chart resistance on a day in which the broader stock markets are cratering.

One more thing in reference to the mining shares - how many times in the last two months have we urged the hedge fund managers to get out of that  overcrowded and worn out long gold/short mining share ratio trade and to instead institute a ratio trade employing a long mining shares/short broader equities trade mainly because of the severe undervaluation of the mining shares?  Just look at the following ratio chart to see how successful this recommended trade would have been instead of trying to squeeze the very last nickel out of their former strategic trade.

Note that a rising line indicates the mining shares in general are OUTPERFORMING the broader US equity markets and have been doing so since June of this year.