"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, July 25, 2012

Gold Clears $1600 - Psychological Boost to Bulls

The abillity of the gold market to push a "16" handle on the price can be considered a minor victory for the bulls. You can see from the chart below, that within its broader consolidation pattern, gold had been experiencing a somewhat tightening or constricting of its range. The upper boundary of that "mini-pattern" has been the $1600 level. The ability of the bulls to take it through this region gives them a very slight advantage over the bears in the immediate term and provides the possibility of a push towards more stubborn resistance beginning near the $1620 level.

Keep in mind that every bit of today's move higher was predicated on the notion being floated that the Fed is going to ease and provide additional stimulus measures as soon as next month. What the Fed giveth, the Fed can taketh away in a real hurry. What this means is that as long as traders feel fairly confident that the stimulus is coming sooner rather than later, gold will attract dip buyers. On the other hand, if anything comes along to disabuse them of this notion, the market will drop back down towards the bottom of the recent range where the big Asian buyers are lurking.

I have stated many times that I believe any additional bond buying programs are an enormous waste of time which will do absolutely nothing to deal with the underlying problems in the US economy, which are structural in nature. Simply put - there is already too much debt in the system. Trying to lower interest rates even further in order to encourage additional borrowing is a fool's exercise.

For Pete's sake, the yield on the Ten Year note is at 1.406% today. Speaking sarcastically here I am sure that all those fence sitters out there just itching to spend money they do not have will immediately launch forward with those plans if the Fed manages to push the yield down to 1.25%.

They can do all they want to entice banks to lend instead of holding money at the Fed and earning interest but if consumers are afraid of sinking further into debt in this jobless economy, what good will conjuring up more attempts to entice lending do?

Also do not forget - the Fed has spent a minimum of $2.5 Trillion between QE1 and QE2. What lasting good did any of that do??? Answer - nothing.


  1. Dan,
    We are exactly where you and Stockman so eloquently put us. No mans land. If you think Benny can dance, then certainly Que it up and go long. If you think he is just utilizing his "verbal puts" to see what happens..then shortem in the short run but hold the solid bullion. November is coming and the budget talks begin in the middle of another..this is the most important election in history..season.

    Looks like we continue to dangle at the Central Banker Ball. The bottom seems in for gold. We may tip our toes on it a few times as the media spins it. Eventually, the till runs dry again and the budgetless figures show another dismal $1 trillion "on the books" deficit (with another $4 trillion in deficit off the books liablities building. What'll be some more magic potions for the crowd? Lookee in this hand..nothing here..wow, it's those guys fault. Print to infinity Dan. I would not sell gold, silver or lead for anything.

  2. A talk radio host in the DC area said the Wall Streeters are "tired of waiting" for the print machine. Wow, it comes to this. Come on Ben, hold your ground, your PHD thesis is being proven wrong. It is not the lack of
    the supply of money that caused the depression, it is demand!! We need a wringer. I hate it, but it is true. We need to stop funding rediculous Government overspending. Stop the press and freeze out the waste. We will all better when the thaw occurs. At least the savers and our way of life can be spared. I say the JPM's get squeezed first. Cough for me Jamie, lets see if anything else is wrong with your accounting tricks given a deflationary spiral and loss of the ability to leverage the free money forever.

  3. Thank you Dan. I could be wrong, but my gut feeling says no new stimulus measures are going to happen next week.

  4. Dan,

    Trying to lower interest rates even further in order to encourage additional borrowing is a fool's exercise.

    the Fed has spent a minimum of $2.5 Trillion between QE1 and QE2. What lasting good did any of that do??? Answer - nothing.

    I don't think supporting bank lending was the true purpose of QE1 and QE2. Most people inside the U.S. tend to forget that the dollar has an important position internationally: foreign entities hold some $8000bn of dollar denominated debt, and the U.S. keep running a trade deficit of about 5% GDP and a budget deficit of 8-10% GDP.

    So what does this imply for the policy of the Fed? The times in which the Fed could responsibly manage the financial system or support the real economy are long gone (mid 1990s perhaps). Since then, everything is focused on keeping the dollar in play internationally.

    This is also one reason for QE1 and QE2. When China wanted to sell their agency debt (Fanny, Freddie etc), the Fed was forced to implement QE1. Then the budget deficit exceeded the capital account surplus, in other words, the US government was no longer funded by foreigners. This is why the Fed had to enact QE2.

    But since the summer of 2011, all the hot money is afraid of the Euro (which is unnecessary, but that's a different story), and all the hot (=stupid) money is flowing into the U.S. As foreigners are again willing to fund the US government, there is no need for additional QE, and voila, there has been no QE since June 2011.

    The only thing the Fed did was operation twist, giving China the opportunity to switch from long bonds into short-term investments.

    You see, the domestic financial system is a secondary issue as is the domestic economy. Everything is focused on the international role of the dollar.

    So when will we get QE3? Answer: when the hot money that flowed into the U.S. after the summer 2011 starts to leave the country again, i.e. when foreigners no longer fund the US government.

    If you want to understand monetary policy, consider the international role of the dollar and forget about almost anything else.


  5. "Also do not forget - the Fed has spent a minimum of $2.5 Trillion between QE1 and QE2. What lasting good did any of that do??? Answer - nothing."

    This is correct, but what would have happened, if there would have been no QE?
    IMO all this discussion how bad QE was does not put into account, what kind of monetary system this is. Money is only created as debt with interestst. This means EXPONENTIAL growth is necessary to keep this ponzi scheme stable. Exponential growth in a limited world cannot work.

    Over the last four decades, the growth we saw therefore was purely a growth fueled with credit expansion.
    40 years of credit expansion!
    And once the markets are saturated, there is no possibility to create the needed exponential growth to keep it stable.
    Naturally the system would collapse in a deflationary crash, that wipes out a fourty year long blown up bubble! Ofcourse this would destroy the economy and bancrupt every state, by disappearing income and exploding spending. The result after the deflationary crash: hyperinflation.

    So everyone who is saying that QE was bad, should also say how the alternatives would have looked like.

    The truth is, the western financial ponzi scheme is in a shape, where there is no escape. The only decision that is left, if the FED and other CBs want to destroy the system immediately - then all they need to do is to stop printing the money that keeps the credit bubble alive.
    Or they try to create somewhat inflation and try with financial repression to get down the debt load.

    Interestingly, those that are pushing for austerity and a gold backed system, do not touch the REAL reason, why we are in this dilemma: interest slavery that needs exponential growth to be stable.

    And btw a gold standard would solve nothing, as long as not the force for exponential growth is removed from the system.

    Interestingly those who are advocating a gold standard also do not touch the mathematical fact of interest slavery.

    And btw, it is this force of evil, that leads to the ever increasing concentreation of wealth. It a result a mathematical function and as long as money is based on that function, there is NO WAY to avoid the result of this function.

  6. Its friday. And I dont get the gold trade today. It has everything going for it to be a very big up day. Just like it to take advantage when the advantage is there.

    1. I think Trader Dan's chart makes it pretty clear why Gold is stalling at 1620--looks like a pretty major battle...tiresome having it knocking around this range.


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