Geezer In Exile

Steady till...

2012-02-17T05:26:00.001-08:00

It is time, once again, to review the evidence re the progression of the gold market. It has been twenty five weeks since gold hit a double top. Then it took a substantial correction. Someone else has figured out that the time it takes to reach a new high is proportional to the size of the correction. The high occured in August and 25 weeks has passed since then. The graphic analysis suggests an interval of 38-40 weeks untill the next high in gold price. This amounts to between 3 to 4 months more.

The first graph on top shows the gold price. The graph shows a breakout from the down pattern and a reaction to it. So, we wait to see if the next peak confirms the breakout.

The second graph shows the combined gold and silver issues. It, too, shows a breakout pattern, but then the graph goes back to the down trend line.

The next three graphs show two gold miners and a silver miner. We see the same pattern. Breakout waiting to be confirmed.

There are several reports that I will try to summerize. Many people and institutions have taken steps to have enough cash on hand to respond to what may come. The estimate is 7-9 Trillion dollars. No point investing it in Treasuries: the banks will give you 6% gain in 3 years and 9% loss during the same time because of inflation. The US Stock Market is the highest in 4 years, so there is nothing gained in buying stock. There are a number of possible events that could rock the boat. There is the real possibility of recession in Europe and even in the US. Should such occur, stocks will be clobbered, along with gold and miners. On the other hand, the ECB stands ready to inject $1T worth of Euros into the economies of Europr and the FED is ready to open the money spigots.

So, my calculations peg the start of the next big move in gold to start in about 3-4 months. Larry thinks so too.

The beginning of the ened.

2012-01-26T07:57:00.000-08:00

Monday, Larry's weekly update came out predicting the coming collapse of the Stock Market, gold going to 1,400 maybe 1,200 (in round numbers), silver to hit $22/oz and the Dollar exploding on the upside. Since then the Market kept going up, gold shot past 1,700, silver hit $33 and gold mining and silver mining stocks added at least 10%.

I was tempted yesterday to collect the data and show you how this is true, but today it seems obvious. The question is WHAT HAPPENED?

Tuesday the FED Committee met and yesterday they announced their intention. Unlike Larry thought, the FED is not going to wait untill the Stock Market collapses but intends to hold interest rates near zero through 2014 and they "did not rule out" FURTHER BOND PURCHASES (note the plural). QE here we go again. From Europe comes the news that holders of Greek bonds are not willing to take a 50% loss - a step which is irrelevany anyway, since Greece is not able to pay even that levekl of debt. Meanwhile, the Finance Ministers of Italy and Spain tell us that their countries are unwilling and unable to do the reduction of deficit as agreed to and demand that the ECB provide the funds to buy their bonds and stimulate the economies of European countries.

So the US Dollar began to plunge and is now flirting with 80 on the down side and gold has begun to rally. Gold and silver miners are gapping up today and the gold and silver bears are scrambling to cover their shorts. Tower Hill Mine (which has $400/share value of gold in the ground at GOLD=2000/oz) shotpast $5.5/share.

Let's put it this way: chances of Larry being right are rapidly diminishing.

Gold and silver moving.

2012-01-20T13:38:00.000-08:00

I did not post about this. KWN is always talking about the coming shorts squeeze, so I kept quiet. What they report though is that the silver market is 20M oz short and that the silver was borrowed from SLV and sold. So, silver rocketed past 31 and is now over 32. There is serious backwardation for silver and Europeans are dumping the Euro as fast as they can. The Dollar had stopped rising, even as the Euro falls, and the CRIMEX has "compliance problems." Meaning that they can not deliver on paper contracts. Is this the early phase of the coming panic?

Slouching toward a small Armageddon

2012-01-13T22:08:00.000-08:00

There are three brewing disasters developing simultaneously:

1. A possible war with Iran.
You see it coming. The US govt is trying to discourage Iran from building atomic bombs with sanctions. The sanctions aren't working. For one thing, the sanctions are being ignored by China and the Europeans and for another, the Ayatollahs do not care how much their economy is hurt. Iran is now enriching uranium to 20% and when they have enough, they will test a weapon. For the US, Iran having nukes is a nigthmare of proliferation, but for Israel, it is an existential question. The US has moved an anti-missile defence system into Israel, anticipating that Iran (like Saddam) will launch multiple rockets into Israel. Iran is threatening to close the Straight of Hormuz and when that happens, it's bombs away.

2. Europe marching toward financial calamity.
A possible Greek default is on again. What now? Remember the agreement negotiated between Angela Merkel (Chancellor of Germany) and French President Sarkozy? The Agreement was to have lowered Greek indebtedness by a "haircut" of European banks - meaning a partial default of Greek debt. Well, the banks decided not to take the deal.

The European Central Bank has digitized over 500B Euros into existence, but a Greek default will set off a chain reaction of defaults of banks that can be papered over only by further digitizing of Euros. The Euro has been falling, which has been driving up the US Dollar and keeping gold and silver in check. Following on the heels of this financial uncertainty, S&P downgraded half of the European states and put the rest of them on watch. This will put a further pressure on European economies by raising interest rates. In order to keep interests low, the ECB will digitize more Euros which will fuel inflation.

3. The coming of QEIII.
The Obama regime is cooking the books to give the impression that the economy is recovering. FED governors, on the other hand, admit that the US economy is soft and are now talking about QEIII. A third injection of paper money will drive up inflation. Gold and silver shorts will be squeezed and gold will quickly rise to $2000/oz. This will accelerate the rise of gold and commodity prices. Things could turn really ugly if cowardly Republicans block Obama's request for another Trillion dollars.

These are interesting times.

Developments in the world of finance.

2012-01-08T19:15:00.000-08:00

The world proceeds as we expected. Europe is mired in ever more problems and default threatens Greece and Hungary. The Greeks are puttingup national companies owned by the government as collateral for bonds. I wonder if it will work. It's one thing to dell such enterprises for cash, it's another to put them up for collateral. Will investers bite - that's the question. Hungary is begging the IMF for a bail out while the IMF is trying to stop the FIDESZ govt of Hungary from amending the Constitution.

Meanwhile, gold and the Dollar have moved as forecast by Larry Edelson except: 1. gold bounced off from $1,450 and 2. it no longer runs opposite of the Dollar. As you can note, while the Dollar rose, so did gold. Now, gold is hovering around 1,600. Larry forecasts gold to fall and fall, but it does nor appear that ready. Except, that gold failed to close above its 200 day moving average producing what is known as "the kiss of death" formation. Bearish.

The forecast is for a black swan event between now and May and Larry's forecasts call for gold to bottom in February. The markets are not telling us much tonight. They simply continue as last week.

ECB begins bailout of banks.

2011-12-21T06:49:00.000-08:00

Just in on Drudge. The ECB extended 3-year loans to 589 banks in Europe. The loans total E523B. This insures immediate liquidity but is being described as totally inadaquate to backstop national debts or protect the European economies from a Depression. But, it is a beginning.

On the manipulation of PM markets.

2011-12-21T05:30:00.000-08:00

London Trader describes the process in today's (Dec 21) post of King World News. Here is how it works: The bouillon banks of England coordinate their activity with the Central Banks of Europe. In the middle of the night, when trading activity is low, the bouillon banks flood the market with paper orders to sell in order to lower the price of gold. They do this three successive nights, each night taking out one support level. The central banks loan the bouillon banks gold to cover actual sales. Short term traders and even some funds are forced to sell. However, Asians are wise to this practice and have scarfed up 100 tons of gold in this latest "sell off." Silver prices are kept in line by selling silver borrowed from SLV. London Trader estimates that SLV is short 20M ounces that it lent to the midnight thieves.
Meanwhile, silver stocks are very low again, with the waiting period being 3 months on large order delivery. Meanwhile, you can buy shares in silver miners for a song and dance. When this game of manipulation breaks down, expect prices to rise very rapidly.
What about Larry's prediction of gold going to $1.200 an ounce on the demise of the Euro? IMO, forget it. Will the ECB allow Europe to slide into a depression, the Euro discarded and the EU busted up? I don't think so. The ECB and the FED will digitize trillions to prop up the banks. That inflation will follow? So? It will make the remaining gold worth more and the central banks will be brought back into the black.

So, where is the bottom?

2011-12-19T14:32:00.001-08:00

Once again we ask 'have we hit the bottom of the correction?' We, of course, reject the idea of the MSM that gold's bull market is over. None of the forces (fundamental causes) that propelled gold has improved. Some got worse.

The graph is from "Casey Research" and shows the sizes and dates of the corrections in the gold bull market. The current correction is 12.5%, about average.

Gold is hovering around 1,600 and full hundreds tend to act as support and resistance. The US Dollar is above 80.2 and shows some tendency to stabilize.

Pundits defer as to where we are. Larry is most bearish, forecasting gold to fall to 1,200. Others (myself included) simply do not know. Larry's forecast for the low is February next year. Tempus fugit.

Liquidity crunch hits the West.

2011-12-14T07:32:00.001-08:00

The REPO RATE (the discount rate of repurchasing govt security by the central bank) is a measure of the money supply. To temporarily increase the money supply the central bank reduces the repo rate. This was done in 2008 when a liquidity crunch hit the West and it is being done now. The cause of the liquidity crunch is the European financial crisis that drives people into dollars. Consequently, the Dollar Index has skyrocketed to 80.57 this morning, (abrogating its double top) and sent gold into a free fall, flirting with the 1,600 level. This then continues with the gold breakout on the downside.

Larry forecast the drop in gold and the increase in the Dollar Index. He forecast that the Index may hit 82 and that gold may fall past 1,500. According to Larry, gold will hit bottom in February, which is the forecast rate for the end of the Euro. The fall in the repo rate tells us that the FED is pumping out money to keep European banks afloat, but the ECB must digitize more Euros if that currency and the banks are to be rescued.

The rate of fall in gold also tells us that some country (perhaps Italy?) is selling gold big time, although it is the paper gold market that is being liquidated. These are interesting times.

Financial Stress Continues.

2011-12-06T13:43:00.000-08:00

Weiss Research claims that its ratings are more accurate that Fitch, Moody and the rest. And Western Countries do not fare well, as indicated by the top graph. The US continues to run a monthly deficit of about 40% (graph two). What is more critical is that we are about a month away from bumping up against the latest debt ceiling.

Debt-related events are still driving financial news. Weiss's list of problem banks indicates that US and European banks are nearly insolvent. Opening the Dollar Window to European banks had staved off insolvency for now, but Greeks have pretty much emptied their banks. That means that the Greek economy can not recover and must again be bailed out and soon.

The convergence of these two events(reaching the debt ceiling and threatened default in Europe) are expected to raise gold prices, as it did last time (lowest graph). Gold and silver prices are still consolidating, but we are beginning to see higher lows. For example, during this current slide in gold prices, gold fell to 1,700, instead of the 1,680 support level. PM miners have been in a consolidation phase for a year and their breakout is now suggested. Yamada's reading of the financial bones (technicals) suggests a continuation of the consolidation, while Larry predicts gold to hit a low in February. Trends are converging.

The Markets refuse to...

2011-12-02T18:04:00.000-08:00

follow the predictions of those pundits,who are predicting a drop in gold prices and a continued strengthening of the US Dollar. Take Larry. He continues to see a very serious weakness in gold and figure it will drop to $1500, maybe lower. The weekly gold prices tell a different story. Gold continues its upward climb. In fact, the MacD histograms give up a double peak below zero, which means that we are not yet to the half-way point of the current rally. Look at the Feb-July period of last year and we see a similar formation. We can expect then the rally to continue for an equal time, such as during Dec and January.

We see the opposite with the US Dollar. We see a double top formation, with the Macd being in the positive territory while the actual value of the Dollar Index is beginning to fall. Again, Larry's prediction of the Index going to 81 and above is not likely.

Finally, I have said in a previous post that the FED can act any time and it is not likely to wait untill the DOW goes to 9,000. The bailing out of the European banks creates something like $800B, so this may act as QE3. Indeed, the FED's action lifted the Markets and the DJI finished above 12,000 for the week. Europe's long term problems have not been fixed, but in the short term, they have the FED ready to bail them out.

International QE?

2011-11-30T05:42:00.000-08:00

The following report came out this morning:

"The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland are taking joint action to make it cheaper for banks to get U.S. dollars if they need them."

Soicialist "thinking" is one folly after another.

2011-11-22T14:34:00.000-08:00

Socialists from Europe and the US are drowning in stupid thinking and are pulling down their countries. Do you recall EU officials who decided what curvature a banana could have? I am not kidding. Then there was the "Global Warming" scam, aided and abetted by scientists from East Anglia getting caught at producing fraudulent data. So, here comes the latest scam: in order to prevent bottling companies from selling bottled water, EU officials decided that bottled water does not rehydrate and can not be advertized as such. They relied on some other fraudulent junk science. Do you then wonder that the Socialists got their countries' finances so screwed up that they can not fund their borrowing. Greece is a basket case and so is Ireland and Portugal. These countries have already received bailouts. Italy and Spain are under the gun now and the new Spanish PM admits that Spain can not finance its debt at 7% rate. Same for Italy. And the contagion is now spreading to Belgium and even France.

Socialists are just as nutty in the US, except we call them Liberals. In a Florida school a girl kissed a boy and the school called the cops because they considered the event a "sex crime." Really? In another school, a Mother warned school officials that her boy's entanglement with a gay student was going to be trouble. The school's answer? Let the boy explore his sexuality. So, the boy shot the gay student.

Nothing shows the stupidity and duplicity of Liberals better than the just concluded meetings of the Deficit Reduction Committee. How Americans put up with the charade and why they allow the Media to misreport it is a mystery to me. The whole thing was a sham. The Committee supposedly was called to decide on how to reduce the deficit by $1.2T in ten years. That's $120B/year. Considering that "baseline budgeting" means at least a 10% increase in the budget each year, the s0-called "cuts" were no cuts at all, but a slight slowing in the increase in spending (the current base-line budgeting calls for an increase of almost $400B/year). So, why did Congress engage in this dishonest charade?

Republicans are deathly afraid of the power of the Media, so they agreed to the lifting of the Debt Limit. The deficit reduction panel was a fig leaf for John Boehner, who negotiated the "deal" with Obama behind closed doors. The Dems had no intention of reaching a deal. What they wanted was a campaign issue. They can now shriek (along with the Media) that Republicans are obstructionists that they want to preserve "tax cuts for the rich." Obama can up the ante by insisting on to repeat the cutting out of the payroll tax, making 47% of the taxpayers paying nothing. There is one more sham to this whole wretched deal: the "sequestering." A $600B cut in the military budget is included as another club that Dems plan to use to scuttle ANY "cut" even the phony cut.

What the Dems want is what goes on in Europe: 50% income tax for workers and even higher taxes for the high earners, emasculating the military and low growth of the economy. That way, Americans will be slaves to state control.

Political and financial interactions.

2011-11-21T07:02:00.000-08:00

1. What is driving up the US Dollar?
The US Dollar Index follows a pattern like a choreographed ballet. During the night here (which is the trading day for Europe), the US Dollar Index increases and during the day here (after markets close in Europe), the Index falls. We had seen this ballet play at 76. then at 77. and now at 78. The Index rises in Europe and falls here, but the rises are larger then the falls. How far will it rise? Hard to tell. When the forces that propel the Dollar weaken, the rise will stop. So, what is driving the US Dollar?

a) Japanese desire to reduce the value of the Yen so they can increase export to the US.
b) This is duplicated by the Chinese. They, too, are interested in keeping up the value of the Dollar. While, the Japanese are telling us that they are buying Dollars, the Chinese are close mouthed. As the value of the Dollar rises, gold is going down. This, too plays into Chinese and Indian hands to facilitate their buying of gold.
c) As the sovereign debt crisis unfolds in Europe, Europeans are piling into US Dollars, which is still the reserve currency of the world.

2. The "deficit reduction Committee."
During the last Summer, the Democrats and the Media staged a phony theatrics when the country was reaching the debt limit of $14T. If the ceiling is not lifted, they shrieked, the Country will default. That, of course was a lie. But Boehner caved and agreed to raise the debt limit by 2.T, enough to get Obama through the election. To give Boehner a face-saving fig leaf to hide behind, the Dems agreed to a "Deficit Reduction Committee" (which is to negotiate how to cut $1.2T in 10 years). Failing to agree on a plan to cut, automatic cuts would ensue beginning in 2013.

When Reagan ran against Mondale, Mondale said he had a plan to reduce the deficit by raising taxes. Reagan replied "you don't have a plan to reduce deficit, you have a plan to increase taxes." The Democrats are replaying that scenario. Dems offer "cuts" that come from getting US troops out of Afghanistan and Iraq in exchange for raising taxes. Sure, it would start by increased taxes on the upper earners, but that is peanuts and more tax raises would be in store. If Republicans agreed, they would suffer the fate of the first Bush.

In fact, the Dems do not want an agreement. They want an issue to run on. A lot of people think that taxing the rich is a splendid idea, even though it would not fix the deficit problem. The Media will blame Republicans as expected. So, the Committee is drafting a statement that they failed. And they will fail unless Republicans will cave today or tomorrow (they already offered a $300B tax increase).

3. The sovereign debt crisis of Europe. It continues. There are no credible plans to pay off the debt, there are only plans to fool the investment public. Investors, meanwhile, have already served notice that they want higher returns on Italian, French and even German bonds and the time is clicking on the ability of these countries to roll over bonds that are expiring. A downgrade for French and Italian bonds is in the works and I do not believe that a change in government in Spain will stave off their downgrade. Further political repercussions are coming. Larry and many others believe that the EU will dissolve and the Euro will be abandoned.

4. Larry's latest forecast. It reiterates what he said previously: the DOW at 9,000, gold back to much lower levels, a temporary high for the US Dollar, etc. Larry believes that only QE3 will stop this process. I still maintain that the FED continues to ease and does not need to declare QE3. But we will see. So far, it goes according to Larry.

Another agreement with Larry

2011-11-13T19:35:00.000-08:00

Conclusion
Merkel and Sarkozy will soon learn that an orderly break-up of the Euro is not possible. Even the slightest hint that a breakup is being contemplated will cause a global financial disturbance that is so great that any perceived benefits of a break-up will be completely overwhelmed by the costs that will be imposed by the market.
By the same token, Merkel and the Germans are unwilling to do what it takes to save the Euro.
Thus, a situation is fast approaching where a crisis is becoming unavoidable. European leaders cannot break up the Euro without incurring unacceptable costs. At the same time, the costs of saving the euro seem prohibitive. The result of this configuration of choices will likely be paralysis that will lead to outcomes that will be dictated by panicked financial markets rather than carefully planned policies.
Markets will move must faster than the Eurocracy can agree on anything of substance. As detailed here, various markets that have served as leading indicators in the past appear to be getting ahead of the curve already.
In the absence of aggressive intervention by the ECB, I believe that Europe could find itself in the midst of a full-fledged crisis before New Year. This accelerated timing could be averted through a series of aggressive and shrewd actions by European leaders and the ECB. However, investors should prepare for this potential eventuality before New Year.
Under such circumstances I would expect the S&P 500 index (SPX) to ultimately fall to the area between 950 and 1,020 within a matter of just a few months. I expect the Nasdaq Composite (IXIC) to fall to the area around 1,850-2,000. The Dow Jones Industrial Average (DJI) should ultimately decline to an area between the 9,000 and 10,000 level.
This implies declines for the SPY, DIA and QQQ of between 20%-30% from current levels.
Given the magnitude of the risks faced on a six-month time horizon, in my view, it makes little sense for investors to purchase or hold even very attractive equities such as Apple (AAPL), Microsoft (MSFT) or Pepsi (PEP). Investors will probably be best served by raising cash and letting the current highly dangerous situation play itself out. I believe that investors that raise cash now and wait for the storm to pass will likely be highly rewarded for their patience and discipline.

James A Kosterhyz todat in seeking Alpha.

Europe unraveling.

2011-11-11T05:01:00.000-08:00

Yes, I have written about the coming unraveling of the European Union, but now that it is almost upon us, we need to look at its history and mechanism. Many of the words that are involved have histories and concepts in them that are at the heart of the matter. Such as, bonds, bunds, basis points and point spreads.

Bund is a word that refers to several things: 1. a way by the water or just a road; 2. an organization or group of people (root is 'banda' a Sanskrit word) and 3. German government bonds. There were Jewish bunds (East European Socialist groups) and National Socialist bunds (such as Hitler's). World War One killed off the flower of French, German and English youth and left these countries with inflated currencies (the war was financed by printing currency). Rather than devaluing their currency in comparison to gold, these countries decided to withdraw currency, which created a Depression that lasted almost to World War Two. Europe became Socialist: Germany ruled by the Nationalist bunds and England by Fabian Socialists, while the US came under the spell of the Democrats of Roosevelt (an offshoot of Fabian Socialism). In the East, Russia came under the rule of a very virulent rule of Socialism known as Communism or Bolshevism. The Bolsheviks got their name from the Russian word "bolshe," meaning greater. The Bolsheviks came to claim majority status in the population, mush as the 99% er "OCCUPY" crowd does today. The Western brand of Socialism (beginning in England and spreading to the rest of Europe after WWII) left most of the Capitalist system in place, but established income distribution through high taxes and government programs of medical care, education and welfare. The Eastern brand of Socialism expropriated the means of production and established central planning by the Communist Party.

Communism cracked up first. People who were good at achieving political power were not good at running businesses. Fabian Socialism in Europe and in America lasted longer, because it allowed those with the talent to run business to to just that. European Socialism is cracking up, because Europeans are further along than we are. Europeans, for example, have government-run free medicine, free education and government-run retirement. All these things required financing. Since, Western Socialism is anti-growth ( higher earnings jack up your tax rate and that means you work for the government redistribution), the government programs were paid for by borrowing money via issuing government bonds.

There are two kinds of government bonds: plain govt bonds denominated in local currency and sovereign bond, denominated in some other currency. When the EU was formed, members of the EU had accepted the Euro as currency, so all their bonds became sovereign bonds. That is why we read about the "sovereign debt crisis." Still, we see the crisis moving from Greece to Ireland to Portugal and now to Italy. Why? Because these countries must roll over part of their debt and the new bonds reflect their credit worthiness. How? Italian bonds are compared to the German bonds called 'bunds' and the rate of interest the Market demands is higher for the Italian bond than the German bund. The difference is quoted in 'basis points'. One basis point is 0.01% interest rate. Thus, if the Italian bond pays 7.0% and the German bund pays 6.5%, then the difference is 500 basis points. The graph shows how the difference between Italian and German bonds has skyrocketed.

What's the problem? As the spreads widened for Greece, the European Central Bank and the IMF stepped in to essentially become the creditors of Greece, so they would not default. With Italy under the gun, the procedure of rescuing Italy will be impossible. Why? Because the Italian debt is too big to finance without printing up a bunch of Euros. Why is a default bad? Because a lot of Italian bonds are owed by European banks and if Italy goes under, the European banks go under. Why can't the European Central Bank (the ECB) print up enough Euros to buy up the Italian bonds, along with the Irish, Greek, Portuguese and Spanish bonds? They could, but Europeans still remember what happened to the currency of Weimar Republic and they are terrified of the prospect. Can the Chinese step in? Yes they can, but they demand trade concessions Europe can not live with. Besides, China does not have enough money.

Is there another way out? That is what the French and the Germans are looking for. So far, they are thinking about kicking out the dead beats and essentially ending the EU. Unfortunately, the Scandinavian countries and Belgium are soon to get under the same gun as Italy.

Could the US help? Yes, temporarily. With the election of Barak Hussein, the US is now running a deficit of $1.4T and growth has slowed as various Socialist schemes and impediments to growth plague the US economy. If another $3T is added the US will go into hyperinflation.

The only way out is to cut back on government programs, reduce taxes and encourage growth. By now, the electorates are so brainwashed with the concept of "free" government programs that they no longer can think of providing for themselves. Besides, the Media and Academia are run by the Socialists and they keep up the propaganda. Short of transporting these people to another planet little can be accomplished.

Ironically, the Chinese Commies understand and China is growing by leaps and bounds.

The Market that won't...

2011-11-09T05:24:00.000-08:00

Fresh from missing the Summer rally in gold, Larry predicts that gold will fall hundreds of dollars/oz, to recover only after a big drop in the DOW to 9000 and QE3. Since, his prediction is now almost a month old, it is appropriate to examine the data.

The top graph shows the weekly gold prices. The graph shows a market that just won't quit. The MACD tells the story that we can now expect the blue columns to cross to the upside and keep going for several weeks before another high is reached, most likely above the previous high.

The second graph shows the DOW. The Industrials just broke out of a wedge on the upside. Granted the preliminary numbers for today show a 200 point drop in the DOW, the MACD shows a steady rise. So, there is no sign of an immediate drop.

Finally, the daily gold price. We see gold rising toward 1,800.

Today, we see counter moves everywhere. The Left prevailed in Ohio and unions were successful in repealing the new labor law, Mississippi turned down a constitutional amendment to protect babies from conception and Berlusconi is promising to resign. The debt avalanche has finally reached Italy and Italian bonds reached 7% - an interest rate the country can not sustain. The ECB intervened to reduce the rate, which raised the value of the US Dollar and restrained gold, if temporarily. Eventually, the ECB will have to print more money to help Italy roll over a total of 1.9T Euro debt.

I think Larry is wrong again. I believe that the FED is printing again and it is not waiting untill the Stock Market crashes. The DOW will stagnate untill we see the next phase of inflation that will cause dramatic rise in equity prices and PM prices.

Gold and silver continue their rise.

2011-10-30T06:33:00.001-07:00

It is time to review the situation re gold and silver. Are we in fact at the beginning of a steep rise (as experts on KWN predict), or are we at the beginning of a steep drop as Larry predicts? Fresh from missing the Summer rally in gold, Larry now predicts a sharp pullback in the DOW to 9,000 and a pullback in gold to maybe as low as 1,100. So, it is time to look at the charts again.

The top chart shows the weekly price of gold. In line with previous predictions of a faster rise, weekly gold rose at the steepest rate since 2008. The MACD hit a low and has entered into an up phase and it, too, predicts a fast rise ahead.

Along with gold, silver began to rise as well. Since, silver rises faster than gold, this shows up in the gold to silver ration falling again (second graph down). This is again an indication that both gold and silver are rising again.

The next graph is the actual silver price. Note that it has kissed the 50 DMA, so further confirmation on the upside is required.

The final graph is the weekly silver price. It, too, shows a breakout on the upside. One of my gurus has issued a BUY rec on silver.

The DOW has also skyrocketed, so Larry's prediction of DOW 9,000 does not look so good. You may say that the big day Thursday was on the false premise that the European crisis has been fixed, but classical use of charting data ignores economic data, it only treats technical data.

Coupled with the sudden drop in the US Dollar, we can confidently say that the financial world has entered a time of inflationary expectations. Precious metals have risen and oil also. The Dollar has dropped and the DOW stays elevated. The latest round of meetings in Europe confirmed a printing of at least 1T Euros and the rollover of Italy's bonds next year may require the printing of possibly as much as 2.5 T Euros. The Markets are again in sync.

PM fails, at least for now.

2011-10-23T05:50:00.000-07:00

In the Silver market, the paper trade and the actual trade of metal are grossly out of sink. You can buy paper silver, but getting actual silver for delivery - you have to wait. For end users, the silver they use is relatively minor, so a price squeeze is developing.

There was also an attempt last week to knock the gold price down. Some entity was walking the price down by offering gold for sale. There was a ton at 1,613 and some more below 1,590. The Chinese swooped in and scarfed up a ton at 1,613, upon which the price went back up to 1,643 and the orders below 1,600 disappeared.

The general rule of the Market is that the longer the price is held down by manipulation, the larger and sharper is the rise when the manipulation no longer works.

Gold: coming out oif the correction.

2011-10-15T06:39:00.000-07:00

Gold is coming out of its correction. The actual gold prices are shown in the top graph. Note the volatility of prices, which is typical for a market changing directions. The second graph shows the break in the US Dollar. UUP tracks the US Dollar. The third and fourth graphs show weekly gold prices and end in the bottom of the correction.

The last graph shows the gold price plotted on a weekly basis. We now have two consecutive weekly rises, which is a confirmation of the end of the correction.

Three aspects of the graph are noteworthy: 1. The MACD lags the weekly gold price though it is bottoming out; 2. we are seeing the beginning of acceleration in the gold price, similar to what we saw at the end of 2009 and 3. we now expect a sustained rally in gold that will last into next year.

What about Larry's predictions of gold dropping back maybe as far as 1,100? Not going to happen. Gold is migrating to the East and is getting permanently sequestered there. Tremendous quantities of Euros will be printed to recapitalize European banks and the FED will continue injecting money into the pot. It is not in US interests to drive up the price of the Dollar, so we already see a drop in the Dollar. It is at a tipping point and if it goes below 76 a further downward drop can be expected.

The coming Treasury Bubble.

2011-10-13T08:59:00.000-07:00

I offer you this article that explains why "Operation Twist" is a failure. What the article does not say is the Operation TWist ensures the necessity of QE3, more inflation and a popping of the Treasury bubble.

Fed Unable to Prevent Rout In Long-Term Treasury Market

by: James A. Kostohryz October 12, 2011 , From Seeking Alpha.

Long-term Treasury yields have spiked above the levels that they were at before the Fed announced Operation Twist.

The Fed does not control long-term interest rates. It never has; never will. The Fed cannot even control yields on long-term Treasuries (^TNX, ^TYX), much less long-term borrowing rates to the private sector (LQD, JNK, HYG)

On September 22, 2011, one day after Operation Twist was announced, I warned investors: Nobody is bigger than the bond market; not even the Fed. Consider why:
Operation Twist is not big enough to matter. Operation Twist purports to buy up $40 billion or so of long-term US Treasuries (TLT, IEF) every month. That is relatively small change in a market of this size. The global market for fixed income is over $90 trillion USD. By my reckoning, yearly traded volume is well in excess of $300 quadrillion USD. On a monthly basis Operation Twist would represent about 0.4% of the total global bond market. And it would represent 0.00002% of global bond trading volume during that period.

Quality more important than quantity. Ultimately, long-term inflation expectations and long-term interest rates are a function of confidence in the currency (UUP). The quantity of bonds purchased by the central bank is an ambivalent force. On the one hand, under specific circumstances Fed purchases of long-term Treasury securities could exert downward pressure on the yields of these securities. However, under a different set of circumstances Fed purchases could have the opposite effect. For example, when the Fed purchases long-term Treasury bonds at negative interest rates (T-Notes at 2.0% and inflation currently at 3.8%) it is clearly “debasing” the currency for reasons spelled out in detail here. In this case, the debasement – the difference between the real (inflation-adjusted) NPV of the bond and the face value of the currency issued-- is of a magnitude of about 17%. This sort of operation has consistently served as an inflection point in the evolution of inflationary expectations in the history of inflation crises in various nations. Thus, Fed purchases of long-term Treasury securities in these particular circumstances could actually precipitate a bond market selloff and a spike in yields.

Fed risks “put back.” If investors begin to lose confidence in the US dollar they will begin to “put back” long-term Treasuries to the Fed en masse. There are currently over $15 trillion in US Treasuries with remaining maturities of over six years. Even if a small percentage of holders sell their bonds on the secondary market due to a loss of confidence, the Fed’s $40 billion per month program could become overwhelmed very quickly.

Market could force QE3 or rate cap. If the volume of sales of long-term US Treasuries were to become too intense (or demand for long-term Treasuries were to decline significantly) the Fed would be obligated to expand the asset purchase program in order to hold long-term rates down. This would require the creation of large quantities of money and a further dramatic expansion of the Fed’s balance sheet. This in turn would tend to fuel further skepticism towards the USD (UUP). History suggests that the situation could very quickly spiral out of control.

Conclusion
Ten and thirty year Treasury yields have pierced the levels that they were at prior to the Fed’s announcement of Operation Twist. This has occured despite the fact that there are no significant signs of economic acceleration and the fact that equities (^GSPC, ^DJIA, ^IXIC, ^NDX, SPY, DIA, QQQ) remain mired in a bear market.

Having said this, is still too early to say that Operation Twist has failed. However, there is no gainsaying the fact that less than one month after the policy was announced, a key benchmark of failure has been registered -- long-term rates are higher than they were prior to Operation Twist.

The potential loss of credibility on the part of the Fed that could arise as a result of a failure of Operation Twist could have momentous consequences.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Tracking the gold price.

2011-10-01T06:16:00.000-07:00

This is the time to examine the behavior of the gold price. Larry's forecast calls for a fall in the DOW to 9,000 and the PMs to crash right along with it. Since, we saw a movement in the DOW to below 11,000 and the serious drop in the PMs, do we accept Larry's analysis or, is there an alternate explanation, i.e. an alternate forecast?

The first graph shows gold price plotted on a semi log scale along with the 30 DMA and the 200 DMA. The graph is very similar to the graph of GLD in the previous post. In fact, I chose the 30 DMA to show that the correction bottoms fall on the 30 DMA.

In the next graph, I used the 50 DMA and labeled the rallies. There were 7 of these. A couple of features are worth mentioning: 1. the 50 DMA and 200 DMA were converging up to rally #3 and then began to diverge, so that the 50 DMA began to run faster that the 200 DMA. This indicated a rising price in gold; 2. Another inflection point occurred in the last peak (rally #7), which indicates that gold prices will now accelerate. Note that peak #2 was short and peak #3 was almost 6 months in duration, therefore, we expect now a long period of rising gold prices. Note also that when the MACD rolls over to a negative number, it indicates the beginning of rising prices. That is, the MACD may remain negative even when gold prices already are rising.

Peak #7 (or rally #7) is of particular interest. First, it was larger than the other peaks and was followed by a .6 Fibonacci retracement. Also, the bottom of the replacement was intraday (about $100) and the downward move successfully tested the 50 DMA.

The first two graphs are semi log, showing gold price on a logarithmic scale. This tends to reduce changes toward the higher numbers, so I replotted gold prices on an ordinary numbers scale. This does not change the conclusions, but lets us see some trends more clearly. For example, the inflections during peak #3 (when the 50 DMA began to accelerate away from the 200 DMA) shows up better and so does the inflection point in peak #7. If this trading pattern holds, peak #8 should be even bigger than peak #7 and take gold prices past 2,000.

Could Larry be right that PMs will crash along with the stocks? Sure. As YB said 'it is hard to predict things, especially the future.' However, Larry had already missed the Summer rally and he said that if gold hits 2,100, he will go in. The next two weeks should be interesting.

Gold correction nearing end?

2011-09-29T06:38:00.001-07:00

There are a number of questions re gold that we need to answer now. Perhaps, the most important one is: 1. is the correction over? I have used the graph of GLD as well as gold itself to try to answer this question.

GLD, when plotted on a weekly basis shows a very nice straight line vs its 30 week moving average. The value of GLD is pretty close to the moving avg, though the moving avg shows an upward displacement. The MACD tells us a slightly different story. Following a drop, the MACD takes 2-3 weeks to turn positive again. Next week may be the low point of the MACD.

Interestingly, the 30 day moving average of gold shows almost the exact pattern.

We may then conclude that the gold price is near the bottom in this correction, though a slight drop may yet occur.

There is another question that we might ask, though we as yet can not answer. Is gold price entering a steeper rise? Or put it another way, will we follow up the last peak with another peak that will occur at the same elevated rate as the last peak? If so, the next peak in gold may take it to 2,200 to 2,500. If that happens then the gold mania will occur in 2012.

So who was right?

2011-09-27T06:22:00.000-07:00

So far, I must say that it was Larry that carried the day. He forecast a big drop in gold and silver and predicted that the DOW would fall to 9,000. In fact, gold took a steep dive to 1550 or so before recovering some and closing above 1,600. Today gold is up again, but eroding some.

The DOW is also moving up and it had a good day yesterday. Will we disregard the clear head and shoulders? No. Volatility is still the name of the game.

And from elsewhere: a different story.

2011-09-20T07:35:00.000-07:00

"When some weathermen predict rain and others predict sunshine, it behooves the prudent man to keep an eye on the sky and on the radar, if available." Geezer Bela in Exile

Larry is a superb technician and he does rely on formulas that DO work, so his predictions should not be dismissed out of hand. Still, there are those other experts on KWN and they are not chopped liver, either. Louise Yamada likes the bull market for gold and silver, though she does not like the miners. Rob Arnott warns of tremendous inflation coming. And Robin Griffith says: "only a fool would short gold here." Larry recommends using a double short fund to protect current holdings.

IMHO, the divergence of opinion reflects the volatility in the Markets, which is another way of saying that there is a lot of uncertainty. As I write this, the price of silver is at 40 and gold is at 1,800. Both were a bit lower earlier. Gold has a support at 1,780 and silver at 39. So much for the radar.

Now for the look at the charts.

Silver is still increasing so its 50 DMA increases faster than the 200 DMA. Gold, on the other hand, is still increasing so that its 50 DMA parallels its 200 DMA and both are rising consistently.

Could Larry be correct that if/when the Stock Market retreats, people will dump their gold and silver for cash, as they did in 2008? Not likely, say experts on KWN. We face a different situation now. In 2008, the money circulation was virtually stopped when the FED imposed "mark to market" and people needed cash. Now, people are liquid.

Larry's formulas predicted that when the Stock Market will tank, gold and silver (and the miners) will not. He now conveniently ignores this earlier prediction. Something else that Larry ignores. The Greek "crises" is ON/OFF as their cash allotment is held up. There is no reason for Greece to default. Neither is there certainty that the US will have a double dip recession. Central banks can postpone these events by printing more money. True, that will not solve the long-term problem (governments spend too much and capital formation is inhibited by high taxes), but government can BELIEVE that more printing of money will do the trick. And that means that precious metals will keep rising in terms of currency. So, the argument is what happens if there is a sell off on Wall Street.

Larry: the sky is falling!

2011-09-19T15:25:00.000-07:00

Larry's formulas are at it again. They predict:
1. the failure of the Euro;
2. the breakup of the EU;
3. double dip recession;
4. a drop of the DOW to 9,000;
5. a slaughter of the commodities including silver and gold.

Curiously, Larry tells us that the FED can do moreless anything it wants: 1. reduce bank reserve requirements; 2. force the banks to lend; 3. buy stocks and bonds and, of course, print more Dollars. What the FED can not do is print more money and reduce the amount in circulation at the same time. Not unless it sequesters the new money in the banks by paying the banks interest (as it is doing now).

Larry's thesis is that we are heading into the same type of environment as 2008, when everyone was liquidating assets to get cash. In such an environment even gold is sold off. However, in 2008 the FED was working on creating an economic stoppage to elect Obama. Recreating 2008 will not get him re-elected.

Do you hear the foot steps?

2011-09-19T05:27:00.000-07:00

Can you hear the foot steps? It is the chickens coming home to roost in Europe. Secretary of the Treasury Geithner flew to a meeting in Wroclaw, Poland and told the European finance ministers to do what the US does: have the Central Bank hand a check to member banks and tell them to tack on a zero - Geithner calls that "leverage." It is counterfeiting on a grand scale.

But, Europe is not the US! The EU has several countries (17) and they all need to be consulted. And they all have different level of interests, different ways of looking at things.

This is the week when the chickens may find their coop. It is a busy weak: 1. the IMF meets; 2. the FED meets and is expected to agree on a new twist to things (essentially manipulate long term interest rates to reduce them); and 3. the European finance ministers meet to decide on whether to release Greece's next allotment of cash.

Can you hear the clucking?

The Financial Times of London described the different scenarios of a Greek default(first three graphs). The written text following (and you may need a magnifier glass to read this) shows the actual events that took place in Argentina after it defaulted. The events were very traumatic for the middle class.

It would be very comforting to know that the Europeans worry about the people of Greece and try to stave off default for that reason. The truth is that Europeans worry about "contagion." Contagion, like quantitative easing, is a code word used to cover up what really goes on. In the case of "contagion," it refers to the check kiting that went on between European banks to allow governments to engage in deficit spending without admitting it. The next to last chart shows the tangled cross borrowing by European countries and their Central Banks. If Greece defaults, the European banks would have to write off a lot of their assets and they are close to bankrupt as is. Of course, the Europeans can do what banks do when dealing with fiat currency: print more.

At present, Europeans are trying to dump the Euro and buying US Dollars. That is why the Dollar is rising in value. The last graph shows us the resistance of the Dollar to buying pressure. Bernanke does not want the Dollar to rise; in fact he wants the opposite.

One might ask what brought Europe to this state. The application of Social Democracy is certainly a major factor, but the Greens is another significant factor. "Greens" means higher energy costs and higher costs in manufacturing. Governments borrowed money to maintain "benefits." And Europe is running out of other people's money to redistribute.

Gold breaks out on upside.

2011-09-03T18:59:00.000-07:00

The last post uncovered a wedge formation both, in the plot of gold and also HUI (the miners index). This time I am reporting that both Gold and HUI have broken out of the wedge on the upside. The MACD's are very bullish for both. This time, the move in gold is confirmed by the move in HUI. In fact, the HUI 50 DMA has crossed the 200 DMA on the upside, which is also very bullish. Note also that the miner index has surpassed the value it had in April. Thus, we are beginning to re-establish the pre-April 2011 pattern of the miners moving up faster than gold.

Let us discuss now several issues related to the gold price.

Issue #1. Larry's calculations predict gold prices of $5,000 in the time frame of 2013-2016. This would mean that O'Bummer got re-elected in 2012 and he succeeded in destroying the US dollar and economy. I do not believe that this will happen. I believe that we will follow that 1980 scenario, O'Bummer will get defeated and gold will hit its high between now and 2012 Summer.

Issue #2. Larry's formula predicts that gold will not hit 2,100 till way into next year. My calcs show gold hitting 2,100 sometime in September and October.

Larry said that if gold hits 2,100, it will then head into the next up phase.

Issue #3. KWN reports that customers now want direct delivery of gold and the bouillon banks can not influence that. In fact, there is not enough gold to go around and the shortage will show up in fast price rises and the breakout of the gold and silver mining stocks.

Gold at inflection point.

2011-09-01T05:00:00.000-07:00

Gold may be at a what some people refer to as an 'inflection point.' In this case it means that gold prices are poised to start changing at a faster rate. This can be seen both on the chart that depicts gold on a weekly basis (top graph) and on a daily basis (second from top graph). Looking at gold price on a shorter basis (third graph), we see a wedge formation that indicates a coming change. The same wedge pattern can be seen in the Index that tracks the PM miners (HUI, last graph).

We are in the early phase of the new trend (i.e. faster change in gold prices), so Analysts wait for confirmation. There was a breakout of gold on the upside then a very fast drop to 1,700, which was partially reversed during the same day. A same day reversal in price is a very bullish sign. Then gold began to trade sideways around 1,820 and is now poised to move out: either up or down.

What would drive gold prices upward? On the European side of the Pond, German Chancellor Merkel has caved on the issuance of EuroBonds, which is the European version of our QE. The FED is about to meet in September and it is anticipated that some form of QE will be announced. In the meantime, Obama is to announce a new jobs program of maybe as much as $1.6T and even if the cowardly Republican pare that to half, it will add that much to the deficit and the National Debt.

The new Obama jobs program is a purely political gimmick. Government spending is counted as part of the GNP, so adding that much spending is designed to create the perception that we are not in a recession. It is a re-election gimmick by Obama. While, Obama and the Media may fool the Country and the cowardly Republicans, they can not fool the Market. Gold is going up. Gold miners will go up.

Gold bull enters different phase.

2011-08-27T11:25:00.000-07:00

The gold bull market entered a new phase. Large swings will be coming and downswings will be fast. We have seen this already. Gold price was down over $200 in three days (to $1700 in fact) before gold recovered and went up $130 in three days. Both, the up and the down phases have been faster. All eyes will be on the gold market Sunday night and Monday morning. Silver has not yet moved much.

The gold miner index corrected only about 5% while gold corrected over 10%. The expectation is that gold miners will outperform gold 3 to 1.

KWN expects gold to test $2000/oz during September and hit $2,100 by the end of the year. With the newer, faster moves of the gold market, these levels seem entirely possible and even within a shorter time span.

Changing patterns.

2011-08-19T19:17:00.000-07:00

One of the more interesting face of the PM market is the sequencing of events. Look at the first graph (the PM miners) and you see a downtrend in prices. This is supposedly due to shorting by hedge funds and will result in a shorts squeeze when the miners break out.

The second graph is that of silver. Silver has been heavily shorted and manipulated, but it has been in an ascending (but slow) pattern. Silver has closed above $42 today, which chartists believe will lead to a rapid rise in silver.

The third graph is that of gold prices. Gold has broken out of its normal trading channel and is beginning to rise at an accelerating pace (even more apparent with the MACD). Gold has wiped out a lot of shorts above 1,680, but is believed to be propelled now by the entrance of retail investors.

We can expect a sequence of breakouts: gold first, silver second and miners last.Experts expect silver to blast through fifty to set a new, all time record. Gold is expected to move past $2,000, but it is not clear what will happen then. Some forecasters see a government interference at $2,100, some at $2,300. Considering that we have a lawless President, who refuses to defend and enforce the Defence of Marriage Law or the Immigration Law, one hesitates to guess what this criminal will do to restrain the gold rally.

Disaster in slow mo.

2011-08-18T06:41:00.000-07:00

Have you seen the video of the collapse of the stage at the Indiana State Fair? It was slow enough to actually observe it, but too slow for some of the victims to get away. That is what is happening to Europe. During Q2, Europe's exports fell by 4.9%, enough to knock Germany's growth to 0.1%. Europe actually did better at 0.2%. The last meeting of German and French heads of State resulted in the decision to NO INCREASE in the EFSF funds (an equivalent of our TARP bailout funds). So what? u might ax? What this means is that Italy and Spain will get no more bail outs and now that France is coming under scrutiny...well, Germany had it with the bailouts. And the European banks stand exposed to attacks on the interest rates they have to pay on their bonds.

Contagion is spreading to the US. Actually, US banks hold a lot of dollars doled out by the FED. They do not want to loan the money out, because the FED pays them interest. As soon as they start loaning that money out, inflation will accelerate even more than it is doing now. So, the FED has two alternatives: 1. do nothing and watch the economy deteriorate more or 2. do another QE and accelerate inflation. If inflation picks up, it will force up interest rates on Treasuries, which could add as much as $1T/yr to the deficit. The CHANGE is HOPE-less.

Meanwhile, Rush is ridiculing the Obama re-election theme (re-elect me for all the good I would have done if the Republicans did not stand in my way). O'Bungle had a Democrat Congress for two years! Every day, the reckoning draws nearer. Gold is on the march. Today it hit 1,822/oz.

Where are the gold miners going?

2011-08-16T05:33:00.000-07:00

The Gold Miner Index is working on the right shoulder of a reverse Head and Shoulder with the head being about 30 units below the neckline. This implies a breakout of XAU to 220+30=250.

The Two-Headed Monster.

2011-08-16T05:00:00.000-07:00

There is an interesting interview with Jim Rickards on WTN. Rickards asserts that we are in a Depression brought on by excessive debt, resulting in tremendous Deflation (the loss of value of assets). Bernanke is trying to "cure" the condition by slowly devaluing the Dollar. In other words, creating Inflation. Rickards' solution is to devalue the Dollar all at once, pegging it to gold as 1 oz gold=$7,000. The US then would nationalize the banks and repudiate its debt. It would work like a reset.

There are several problems with Rickards' solution. Repudiation of US debt would wreck pension plans and leave the banks in government hands. Remember the US Post Office? Not exactly a thriving enterprise.

Fortunately, we already know how to cure a Depression. After WWI, the Country nosedived into a Depression. The President died in office and it was the Country's luck that Calvin Coolidge became President by succession. Silent Cal, as he became known, slashed government expenditures by 50% and ignited the "Roaring Twenties." That is the solution. While Medicare and Medicaid need some trimming (and Social Security should be privatized to increase returns), the problem resides in the Federal budget being too high causing Deflation. When the US entered WWII, Roosevelt got rid of "mark to market" which was an instrument to perpetuate the failure of banks.

How about the mining shares?

2011-08-12T04:29:00.000-07:00

The DJI can't make up its mind whether it is still in a Bear Market or out of it and gold is consolidating of wiping out the shorts and finally passing above the 1,764 point. Now what? we might ask. And what about the gold and silver miners? So, I brought up a few on BARCHART and I was rather astonished by the similarity of patterns: a building REVERSE HEAD AND SHOULDER.

The first three graphs are Fortuna, GPL and Impact silver (silver miners), followed by NAK and THM (gold miners). The patterns suggest that a breakout is coming in about two weeks.

John Embry on gold miners.

2011-08-11T04:24:00.001-07:00

London trader's predictions.

2011-08-10T07:12:00.000-07:00

KWN reports that shorts have been wiped out or badly mauled. The same Trader tells us to expect silver to rise by $2/day increments and gold by $50/day.

Gold and silver miners, on the other hand, have pulled back from earlier gains in the day. Are we building toward a shorts squeeze in the miners?

Is the Bear Market over?

2011-08-10T06:54:00.001-07:00

Yesterday appeared as a classic end to the Bear Market of 2011. Following a drop of over 400 points, the DJI took off on a 660 point reversal. It appeared to be a classic Bear Market reversal. However, the reversal took place not on a classic FED action, but on a promise that the FED would continue its inaction. So, the Market is dropping again. Clearly, Investors are expecting a QE and stocks will drop untill the Market sees the green.

In the Gold Market, the rally continues. After yesterday's test of 1764 twice, gold is up again at 1,772. Mining stocks were up earlier the sold off again. As you see from the graph, gold is beginning to rise in a hyperbolic fashion.

Gold storming 1,764.

2011-08-09T14:59:00.000-07:00

Gold is storming this important resistance. As I told you (and I gleaned this from the experts), the 1,764 level will be strongly defended. Last night, gold surged to 1,782 then sold off. This morning gold surged to 1,765 then sold off to 1,733. Overseas markets are opening.

Meanwhile, the FED eased and told the Market it planned to keep interest rates near zero. The Stock Market replied with a huge rally. IMHO, this is not enough and I expect other measures.

BTW, gold is clearly changing the slope of advance. Silver is quiet and so is the ZAU. This is an institutional rally in gold.

Changes in gold markets.

2011-08-09T05:58:00.000-07:00

Two milestones of the gold markets are important now. The 1,680 level was taken out and invetors and institutions are buying in. That pushed gold prices past 1,700 and in fact gold went past 1,760 overnight. By this morning, however, gold was back to 1,740 and references to the 1,760 figures have disappeared. Gold is again rising today.

We can expect the 1,764 figure to be defended as the Stock Market faces its Barakalypse (also called Obamageddon). It still has not dawned on the populace that the best way to safeguard monetary value is through gold and gold mining stocks.

I am tracking two other issues. The first one is the FED meeting today. Some form of QE announcement is expected by some people. Preliminary figures point to a higher stock opening. The second thing is the imbalance in the Markets. Gold/silver ratio has again risen as well as the gold/XAU(gold miner index). The gold/XAU ratio has been around 6 and has now gone to 9. The rise in gold price is said to be due to institutions and shorts and so far the investing public is skeptical. So, we will either see a retrenchment in gold price (gold is way overbought), or an explosion in silver price and gold and silver miners. And, will the Barakalypse continue to the predicted 9,000 before the FED intervenes or will the intervention occur earlier?

Important technicals:DJI vs gold.

2011-08-08T05:01:00.001-07:00

Important technical considerations are becoming clear re the Markets.

One way of analysing a Bull Market is by the "fan method." This involves connecting the bottom of the Bear Market to interim tops before a strong correction. When the Market breaks below the third fan line, the Bull Market is over. Last week's 500+ drop hastened the end of the Bull. We are now n Bear Market territory, because the DJI dropped more than 10%. So, the next question is how long will the Bear Market last. That is harder to ascertain. It really depends on the FED. The FED will have to inject gobs of money into the system in order to end the Bear Market and to stop the economy from deteriorating further. The amount of money to be injected, and its timing, will decide the "when?" and "how far?"

Another import technical point concerns the gold prices. The second figure shows the test of the Gold Bull Market and 5 successful test of the 150 Day Moving Average. There are other important technical and a fundamental considerations. Gold prices fell during the 2008 Bear Market, but they are rallying now. What is the difference? In 2008, the Markets were frozen, because the switch to Mark to Market had frozen the money supply and investors had sought the safe heaven of US Treasuries. Now, the Treasuries are no longer safe havens (see the downgrades and Chinese comments - after all China is the biggest market for Treasuries) and investors are beginning to flock to gold as a safe haven.

Another important technical indicator was the gold price of 1,680. Many traders were waiting to buy in when gold closed above that. These orders are now being filled in and according to some, the rise in gold price to 2,300 is assured.

Another technical indicator will be at 1,764. If gold closes above that, it will go into a hyperbolic pattern with gold advancing very rapidly. What will propel gold prices? The coming QEs in the US and the ECB rescuing Italy and Spain by buying their bonds. In order to do the rescue, the ECB has to print a lot of Euros (the 66 or so billion Euros are not even enough for half of what they need). The Markets anticipate inflation.

Finally, we had been warned that the 1,764 level will be heavily defended. Closing above that will be a capitulation by gold bears.

Gold breaks toward $1,700.

2011-08-07T19:30:00.000-07:00

Following the raising of the US debt ceiling and the subsequent downgrade of US debt, gold began to rally. This time overseas money is not going into US Dollars, but into gold. When overseas markets opened tonight (Sunday night), the rally was confined to gold, but silver is also up - not as much as gold. Gold was reported to have reached the 1,696/oz level, so some of the buy ins may be occurring. It will be interesting to see if the NY market follows up tomorrow and push gold over 1,700/oz.

As the US economy slows, we see oil dropping as well.

We should look for correlations. With gold up, will silver follow? and with the PMs up, will the miners finally get off the dough? Tomorrow will be an interesting day with the DOW dropping over 100 points. Look for a big reversal when the FED intervenes.

Dagong downgrades US debt to single A.

2011-08-03T07:08:00.000-07:00

The FED does not want to accept Dagong Global Credit Rating Company, but the question is whether the Chinese govt will accept the rec and demand higher return on Treasuries. Nobody else but China has the resources to buy even part of the $2.5T worth of Treasuries the Obama regime has to sell to finance the new debt. Meanwhile gold has soared to $1,072 in early trading.

As the Euro is slowly falling apart, gold prices go down some at night, when the European markets are open and then recover when the US market opens. If the US has to print money to finance the overspending, a 20-49% inflation is to follow, say forecasters. Obama's plan to destroy Capitalism is succeeding.

Gold at 1,641: new top

2011-08-02T05:43:00.000-07:00

Gold has set a new record this morning. This is the day that the new debt ceiling is supposed to be voted on by the US Senate. Passage is anticipated. It is quite obvious that the new high in gold reflects the Market's vote on the raising of the Debt Ceiling. Why you might ax.

The new Ceiling authorizes the Obama regime to borrow $2.4 (or 2.5)T. Since, a lot of government programs are income transfers, I have no doubt that the regime will spend the money. Since, "baseline budgeting" involves a 5% spending increase every year, a $100B cut per year (part of the Debt Ceiling deal) does not even freeze the budget, let alone cut it.

The gold price is not reacting to the fact that the "cut" is phony. The gold price is reacting to the consideration: "where will the money come from?" Two and a half trillion bucks is serious cash. Not many countries have an economy that big, let alone being able to fork over that much into the insatiable maw of the US spending machine. China's reserves are said to be near $3T, but it is highly doubtful that even China could finance this debt, assuming they wanted to. So, where will the money come from?

It is highly likely that the FED will print the money and that is propelling gold prices at a time when gold is relatively quiet. We could also be seeing short covering; a factor predicted and aired on KWN.

Have we moved another notch?

2011-07-31T12:25:00.000-07:00

All eyes are on the debt ceiling charade. It is clear now that the debt ceiling will be raised along lines that the Bubba Clinton suggested. Which means: 1. raise it $2.5T (to last past the next election); 2. an imaginary cut of $1.2T to be decided by a group of Dems and Pubs and 3. shelving tax increases.

What of new revenues ( meaning a tax increase)? Irrelevant. If all income above $250,000/y was confiscated for taxes, it would reduce the deficit by only 50%.

Don't the Pubs know that by agreeing to the Obama plan they agree to the destruction of the Dollar and put the Country on the path of certain default? Yes, the Pubs know, but they are afraid that the Dems and the Media will make their opposition to raising the debt ceiling the imaginary culprit for the bad economy and the calamities to follow.

Why is default inevitable? The US is closing in on the figure of $15T as the National Debt. If our current rate of spending continues, rating agencies will reduce our rating and bond vigilantes will demand more for buying Treasuries. Even at 10%/year, the US will have to pay $1.5T (soon $1.6T) interest on outstanding loans and finance another $1.5T in deficit. The only way out then is to print money to pay for interest and the deficit - leading to enormous rates of inflation.

Under Obama, 200,000 new federal employees have been hired and spending went up by $1.5T.

The Market is anticipating the coming financial calamity. The US Dollar broke out of a rising wedge and is once again below 74. Gold continues its slow rise and has closed above $1,625/oz. Only the XAU shows a moderation in gold price. Is it because people do not believe that gold will continue to rise? Or, are the miners being shorted again? If the latter, then the PM miners will undergo one heck of a shorts squeeze. Gold sales are usually slow in the Summer and the persistent rise in gold price is an indicator of things to come.

Gold/Silver: report from the trenches.

2011-07-25T04:42:00.000-07:00

To be sure, I AM NOT in the trenches, but I report here on people who are.

Gold bears (bouillion banks and swap dealers plus weaker (private) shorts) have tried to keep gold below 1,580 and have accumulated a large short position. Bulls (hedge funds and small public buyers) have moved in the dips and brought gold back above 1,600. Now that gold is past 1,600, the private shorts will run to cover and the bouillion banks and swap dealers will continue to enlarge their shorts. The private shorts may take gold up to 1,625 (a minor resistance). Gold's interim high should be around 1,650.

The 1,760 figure mentioned on KWN is a capitulation figure for the shorts. Once that figure is breeched, gold will go into a hyperbolic mode so that the 50 DMA will far outpace the 200 DMA.

What is driving gold? For one thing, there is the Greek default. Greece has already defaulted according to the rating agencies, because there has been a 21% reduction in the value of the Greek bonds that is part of the deal reached by the Europeans. Greek bonds are rated default privately and those bonds are not bought by the public, but the European governments and banks. Official recognition of the default is coming. So, it is a matter of time till the 'contagion' becomes known.

Besides Greece, the US is heading into troubled waters. The argument about raising the debt ceiling comes about within the context of another dose of mass layoffs and continued economic softening. If gold closes above 1,760, it will mean that the Market had given up on the US and the Dollar.

The fundamentals of the PM Market.

2011-07-20T05:01:00.000-07:00

I remember a poster's comment on Seeking Alpha, re the fundamentals of the PM market: "what fundamentals?" he asked. Obviously, the Poster was influenced by other than facts, because the PM market does have fundamentals.

First, PMs have intrinsic value. They are rare, have uses and it costs to produce them. Thus, they represent a certain amount of value. Because of their physical and chemical properties, they have served as money throughout history. People liked PM money, because counterfeiting is easy to spot and governments could not cheapen the money without the people knowing about it. Modern day predatory governments like paper money, because they can counterfeit it (I.E. print it) and the counterfeit money is indistinguishable from the original.

Like everything else, PM prices in paper money reflect supply and demand as well as the accepted value of the paper currency: i.e. the degree to which paper currency is being expanded.

The top graph shows the annual production of gold. Gold production began to rise in 1980 and doubled. However, it has now leveled out. So, the supply of gold has become limited once again, so that changes in gold prices viz a particular currency reflects the change in the value of the currency. Another factor influencing gold price is the demand. The second graph down shows the buying by central banks.

We now come to an important distinction that Bernanke fuzzes out deliberately. First, the value of the US Dollar continues to go down, because more is being printed. You can see this in terms of comparing the value of US Dollars to currencies NOT being printed in excess, such as the Swiss Frank, the Canadian and Aussie Dollars, the Baht, etc. You can see the loss of value in the US Dollar when comparing it to the value of Dollar in gold (last graph). Gold is steadily gaining value vs the US Dollar, because of the printing of the US Dollar. This is DEFLATION. At the same time, we have INFLATION. This is the amount we have to pay in terms of Dollars. Inflation will continue to escalate as the Dollars printed cycle through the economy of the world.

Bernanke complains about DEFLATION, but deflation can not be cured by printing more Dollars.Meantime, PM prices in US Dollars are going up but in an orderly fashion.

When?

2011-07-18T06:13:00.001-07:00

In forecasting what will happen to the Precious Metal (PM) prices, we are interested in the answer to two questions: 1. How much and 2. When?

Martin Armstrong and Alf Fields estimate the top of the gold bull market to push gold prices to between 10,000 and 12,500 USD/oz. So the we are left with the question of when.

Jim Sinclair and Dan Norcini told KWN that the key figure to watch is $1764/oz gold. When the market closes above that figure, confidence in the US Dollar will be lost and gold will go hyperbolic, jumping $100 to $200 daily. So then, how far are we from the $1764 figure?

In order to try to answer this question, I decided to look at the graph of the weekly gold price. So far, gold prices have increased on a predictable schedule. A mini rally lasts 4-5 months, followed by a slight correction and then the rally resumes. Weekly gold prices run above the 50 DMA and the 50 DMA is diverging from the 200 DMA, so that the two lines are coming further apart. Assuming that gold prices continue moving at this same rate, the weekly average would exceed $1760/oz between November of '11 and April of '12.

There is the question of fundamentals to consider, however. Financial conditions have deteriorated in Europe and the United States and this may shorten the time to 1764. Europe may have to print some serious cash to rescue Italy and Spain and the O'Bungle regime is busy trying to engineer a US default. This might shorten the time to the financial denouement. There are two technical indications that this might happen: 1. the MACD of the graph is continually rising, indicating that the momentum of the gold price is getting stronger and 2. the breakout from the last correction is much stronger than in previous mini rallies.

Uncommon Wisdom estimates using the Cycle Theory that the big rally will begin in the Fall.

On the cusp of rapid change.

2011-07-14T04:43:00.001-07:00

Rapid changes are taking place in the valuation of gold and the US Dollar. The first graph shows the aborted breakout of the US Dollar. As I reported to you in the previous post, the slow mo collapse of the European (Socialist) system was forcing European investors to look to the safe haven of the US Dollar. Consequently, the US Dollar began a rally, which was documented by a breakout from a wedge pattern. The breakout occurred on the upside. Yesterday's events aborted this breakout and the US Dollar retreated sharply into the wedge pattern. Will it break out on the downside now? Still waiting.

Gold, in the meantime, set a new high by blasting past the 1,571 price. The next graph shows the daily gold price and we can see that it is flirting with 1,600 and overbought conditions. The final graph shows the weekly gold chart. Although, gold has entered the next upleg and is advancing rapidly, it is not yet in the parabolic phase.

The PM markets reflect the changes occurring in the financial world. Greece, Portugal and Ireland can function now only with borrowed money. This shows up in the valuation of their bonds. Greece now is rated just above default, while Portugal and Ireland are rated as junk. Italy has been downgraded and cost of servicing its debt is going up rapidly. Spain has just started this progression. European authorities are meeting to do something about this crisis. WE COULD BE WITNESSING THE CRUMBLING OF SOCIAL DEMOCRACY (European-style Socialism). Eastern-style Socialism fell, because its leaders could no longer lie that Central Planning worked. Socialism in China was abandoned, because the Communist Party of China saw that it was an economic dead end. Since then China has been blooming economically.

Meanwhile, the US has been put on a downgrade watch.

Is the US Dollar rallying?

2011-07-12T11:54:00.000-07:00

If you follow the US Dollar, you see it going up during the night then come back during the day. Yeasterday, it was different. The Dollar went up past 76 and put a dent in the PM prices. It seemed to me that the long-awaited Summer rally in PMs was on (see previous post) and that yesterday's events were contradictory.

Today was a different story. The Dollar stayed above 76 then began to move down. Then the PMs moved and gold jumped $22.

What gives, u might ax.

There has been a flight to the Dollar in Europe as the sovereign default of Greece is now likely and Italy and Spain are now in the cross hairs (hence the buying of US Dollars during our night hours, which are daytime in Europe). However, now the US Dollar is coming into the cross hairs as the Obama regime is trying to engineer a US default. Hence, the jump in gold.

The first graph is the US Dollar on a daily basis. You see the breakout coming. On a weekly basis, the breakout is not there. The Dollar is still sinking.

As I write this, the Dollar sank to 75.79 and gold is up $20. to $1,569. The Summer rally is here.

Has the next upleg begun?

2011-07-09T15:12:00.000-07:00

We are talking about the gold market and the gold price. And the question is whether the next upleg in gold prices is under way. If you listen to the Liberal pundits on the Networks, they uniformly dismiss gold as a good investment now. Nonetheless, gold price keeps climbing. If you look at the gold price plotted on a weekly basis (see previous posts), you see a steady march upwards.

I look at the gold miners and gold prices. The first graph shows XAU, the gold and silver miner index. There are two critical points that can be learned from this chart. The first (and most important) fact is that the index hit a low on about May 10, with both the value of the Index AND the associated MACD confirming. Then the index began to rally and hit an interim high about May 26 or so. This was followed by a further decline to a lower low in the Index. However, this low was NOT CONFIRMED by the MACD. This constituted a BUY SIGNAL for precious metal miners.

The second graph shows the gold price on a daily basis. While, the weakly gold price continued to increase, the daily price began to rally after the 4th of July holiday. There are important factors here that I shall dissect out presently.

Beginning in the Spring, traders switched out of the miners and into the metals. Hence, PM miners lavished while PM prices went up. We are now see the opposite. Traders began to switch into the miners before the metal prices went up.

One more important piece of info can be gleamed from the charts. When a market undergoes an important reversal, it batters a support price twice (on the way down) and then drops below that when a third drop occurs. We see that gold prices challenged the $1480 support and bounced off from it the third time on the fourth of July. This also indicates that an increase in gold prices is coming.

The fundamental reasons for gold prices to go up have been discussed a number of times and these have not changed. However, a new factor has been added. No, not the debt ceiling, something else. China and the US had been engaged in a currency war. The Obama regime tried to get China to revalue its currency upward, to reduce Chinese imports and to make US goods more competitive. If China consented, it would play havoc with China's economy. Instead, the Chinese have begun to emulate the US and print money so as keep the value of the Yuan down. This way, the US inflation has been exported to China as well. Such a policy worked well short term, but it is not a long term solution (from China's point of view). So, the Chinese government opened the gold market to Chinese citizens. Estimates tell us that there are over 300 million Chinese who can participate in buying PMs. That is a huge market.

Currently, Western investors are not participating in the PM market. It is estimated that only 1% is buying gold and silver. The markets are straining to provide the metals. If that market were to double, gold prices would go sky high because the supply of metal is limited.

So, what is the new factor? The opening of the Pan Asia Gold Exchange. It will be metal only, no paper contracts. It will come to dominate gold trading. Yea, the Dragon nests on a pile of gold.

A difficult Market to call.

2011-06-30T19:30:00.000-07:00

The PM market has become almost too difficult to call. Perhaps the difficulty is due to which graph is being used. When Silver and Gold are plotted on a weekly basis, an uptrend is clear. But, when these are plotted on a daily basis, there is a lot of volatility, especially now. Furthermore, the PM trades are quiet different from the AM trades. And Advisers from the same company see it differently. Perhaps the biggest difference is the start of the next upleg in gold prices. While, it is being forecast fo July, Aug and September, the Market is tending solidly up but slowly.

Not an easy Market to call.

PM miner shorts squeeze is coming.

2011-06-25T05:40:00.000-07:00

Gold stocks are seasonal (first graph). And the Summer months are not kind to their price action. What is developing now is something else. In an interview on KWN, Sinclair and Norcini forecast a coming consolidation among junior gold miners and an enormous shorts squeeze. Let's look at the facts and see why these experts make these predictions.

Gold has been going up steadily and the weekly chart of gold gives us two parallel lines for the 50 DMA and the 200 DMA(second graph). During the same time, gold miner stocks have been going down (see the graph for HUI-the AMAX index). Sinclair and Norcini point to the hedge funds shorting these stocks as the cause of this.

The drop in gold miner prices has two consequences: 1. they have become very cheap considering what they have in the ground and 2. once consolidation begins, it will set off a rapid shorts squeeze. The impetus for the consolidation is the desire of senior miners to acquire gold that can be mined for many years to come.

There are a number of junior miners that fall into this category. THM is one with 14M ounces of gold in the ground and 92M shares. The king of the juniors is NAK. It is located in Alaska, has about 100M ounces of gold and 55 billion pounds of copper and a fair amount of tungsten. Anglo-Gold Ashanti owns one half of the proposed mine and is committed to financing the development and permitting process to the tune of $1.5 Billion. NAK has roughly 100 million shares outstanding. If we multiply the ounces of gold by the gold price and divide by the number of shares, we get a number that represents the value of a share of stock. For NAK, this is (100M oz x $1,500/oz)/100M shares, or $1,500/share. That's just the value of the gold they have and at current prices. So, a share of NAK is worth roughly the price of an ounce of gold in American Dollars. The last figure shows what has happened to shares of NAK. So, NAK is valued 150 times of its current price/share even if gold went no higher.

Sinclair and Norcini remarked that eventually value wins out. The coming shorts squeeze will be awesome. When and what will set off the process? The two experts remarked that the final factor that sets off the run is usually something that you do not guess ahead of time. My guess is late July or early August.

A Moment of Uncertainity.

2011-06-24T03:57:00.000-07:00

The gyrations in the financial world yesterday reflect the gyrations in the political world. Simply put, the era of Socialism in Europe and the United States is ending, but not without financial chaos. How can I say that Socialism is ending? Because the most forceful proponents of Socialism (the Communist Parties of Russia and China) have given up on Socialism.

This does not mean that clean, unfettered Capitalism will be restored in Europe, because Europe may come uder the domination of Islamic Fascism (excuse the redundancy). We are, however, witnessing the death throes of European Socialism. How? By seeing the currencies of the Socialist countries unraveling. These countries and the United States have covered up the shortcomings of Socialim by printing currency and kiting checks via their central banks and other banks owing large sums to each other. In reality, the billions of dollars European banks owe to each other should be added to the bonds these countries have issued. In the US, the indebtedness is mostly in treasury bills: over $14T and counting.

Yesterday was the first time the Euro was shaken badly. There will come other days like yesterday. As the Euro shook, it drove the Dollar up, which in turn reduced the price of gold and silver. The graphs of gold and silver show that both gold and silver dove below their trading channel and gold dove under 1,520 briefly and silver under $35. Both of these are support points. This morning, the US Dollar is dropping but so are gold and silver in the overseas markets.

Gold and silver miners fell again yesterday (check XAU), but it seems to me that the miners will bottom out.

What prognastications can be made at this point? Uncommon Wisdom forecasts continued weakness in PMs based on the Summer weakness in gold and silver. Mr Sinclair forecasts a sudden Summer rally that will catch people by surprise. How could this come about? If the Greek bailout holds and is ratified by the Greek Parliament, then the Euro will be stabilized for the time being. But, now it will be the Dollar's turn. July 2 is approaching and that is the deadline given by Republicans to the Obama regime. Needless to say, the regime has no intention to stop its march to Socialism and cut spending other than for defense. The US has no authority to borrow any more money. The regime is trying to blackmail the Republicans by talking about defaulting on US obligations. And as the economy deteriorates, the FED can be counted on to continue its money printing. This will weaken the Dollar.

We live the Chinese curse: THESE ARE INTERESTING TIMES!

And the status of Greece is...

2011-06-23T19:52:00.000-07:00

Still uncertain. Papandreou won the confidence vote, but the chaos continues. The EU-IMF agreed to continue the bailout subject to increased austerity measures for 5 years. Will Parliament vote for it? That is the question. Greek Socialists (like ours) want the problem solved by reducing "benefits" and increasing taxes.

Why is the Greek Mess so messy.

2011-06-16T07:40:00.000-07:00

Greece is teetering on the edge of chaos. Crowds are chanting and rioting in front of Parliament as PM Papandreau tries to hocus pocus his way out of the mess.

The reason why this process is so messy is because it is not simply a question of giving Greece the money to bail it out(in fact, even Pres O'Bugle offered to fork over the money). The UE and the IMF are demanding that Greece dismantle many of the government support programs. That is what is called "austerity." Greeks have become accustomed to living like the Germans and the French, but that is only possible by borrowing some of the money needed. Forcing them to lower their living standard is widely opposed.

Then there are the political machinations. The opposition wants Papandreu to resign and the President of the Republik to name a caretaker government to renegotiate the terms of the bailout. This would mean papering over the default, but it is highly uncertain that it work.

Papandreu wants Parliament to vote in the austerity measures and THEN he will resign and call for elections. In fact he would like nothing better than to hand over the austerity to the opposition. There is a problem though. PASOK had only 155 seats in a 300 seat Parliament One defected and another resuses to vote for the measueres. My info is that the vote failed. Now the question is WHEN, not IF.

Nearing the tipping point.

2011-06-14T04:53:00.000-07:00

There is a debate raging among gold bugs about the divergence of the gold miner index (first graph) and gold itself (second graph).

Gold seems to be holding up much better than the gold miners. When I last posted, gold was heading up and so was the gold miner index. Since then, gold went sideways and the gold miner index gave up its last gain.

In fact, PM miners are being sold off (allegedly by the hedge funds). It is easier to short gold and silver miner stocks than gold itself.

Nothing changed much fundamentally. Greece's financial ratings fell to CCC, the lowest in the world. Greek default is imminent. US default is not far off. In fact, the Chinese rating agency already considers the US in default, because of the drop in the value of the US Dollar. There is also a game of chicken between the House and the Democrats aided by the Media. The Obama regime threatens default if the debt ceiling is not raised. The deadline is Aug 2 or thereabouts.

Meanwhile, the US economy is sinking and the FED is saying it is done with QEII. Treasury notes in fact are not selling well and some people expect the FED to raise interest rates. But, to raise interest rates in a worsening economy is to invite a Depression and political defeat. Make no mistake! There will be more money printing. Only the method is in question.

What about PM miners? I consulted my internal instinct. I see panic and a desire to sell. That means we are nearing the bottom. Just another month now.

Greece on the brink.

2011-05-30T04:07:00.000-07:00

Greece is a small country with a small economy. That is, compared to Spain or England it is small. But, in many ways, Greece lies at the heart of the financial troubles of Europe. You might say that the chickens are coming home to roost. And it is getting near to impossible to paper over the failure of Social Democracy (Socialism). Greece is the canary in the European Socialist vote mine.

Here is the latest. Simply put: Greece can not pay its bills. In order to stay afloat, Greece must borrow money. But, lenders are willing to lend only if Greece pays a very high interest rate. Greece can not do that, so the Europeans, the IMF and the FED have bough Greece's bonds to paper over the crisis. In return, the lenders demanded "austerity" from Greece - meaning a cut in government spending.

Did it work? We were told that it did. Now we find out that it did not. Greece's economy kept shrinking, so it needs another round of cash infusion and another round of austerity.

Can this be put in place? That is doubtful now. Each plan unfolding has significant opposition. The IMF is out of chits. Creditors view the idea of "restructuring" (i.e. postponing the payments) as a default. And, of course, the Greeks themselves oppose the idea of the creditors interfering in their economy and financial affairs demanded by the plan.

In the end, it will come down to whether the creditors figure the default is preferable to the rescue.

Meanwhile, Portugal and Ireland are marching to this same ending, while Spain and Italy are getting their credit rating lowered.

Back in the US of A we are drifting toward the tipping point. The Dems in the Senate voted down the House-approved budget, assisted by NO votes from five RINOS. O'Bungle's budget got zero votes in the Senate. And the Senate refuses to produce its own budget. The Dem strategy seems to be to preserve current spending by forcing to keep the govt running via continuing resolutions. Democrats are jubilant that they found the formula to regain the House by the Mediscare tactics applied in NY 26. But, the Country can not remain on this course till Jan 2013 when the next Congress is sworn in. The clock is ticking. This will be an interesting Summer.

Precious Metals: The techicals.

2011-05-28T19:15:00.001-07:00

We begin the documentation by comparing the US Dollar (top graph), gold (second graph) and silver (third graph). We can see that the rally in the US Dollar and the correction in silver and gold all began at the beginning of May. We know that margins for silver contracts were changed five times for a total of an 85% increase, virtually wiping out those on margin. This obvious ploy to drop silver prices was accompanied by shrill cries in Seeking Alpha that the PM rally was over. The next graph shows that silver prices were soon oversold. Furthermore, the silver market split into two: the actual price of physical silver and the price of contracts. In fact, the drop in paper silver set off a scramble, so that it became very difficult to buy silver without delay (backwardation increased in other words).

The next graph (XAU) shows that the larger gold and silver miners began to rally even before silver and gold (next two graphs). However, not all miners are rallying to the same extent. Gold miners are doing a better rally than the silver miners (I choose the same miners as before to facilitate comparison).

What this shows us is that the second tier miners are slower to rebound than gold and silver. Whether these stocks will catch up or not remains to bee seen. However, this makes them even more of a target for acquisition.

Meanwhile, the pressure cooker in Europe and in the US continues to acquire more pressure. What will set off the next leg of PM rally? I believe that the next leg is already under way, but not the robust rally we expect. Only 1% of ,investors now hold gold. When that doubles, gold prices will go parabolic.

Precious metals: the fundamentals.

2011-05-28T17:28:00.000-07:00

A few of the Bloggers on Seeking Alpha doubted that there was such a thing. Fundamentals of gold? Or silver?

By fundamentals we mean the reasons why PMs will be more expensive in the coming months.

To consult the opinions of people knowledgeable in the field, one of the best places to consult is King World News. The people interviewed flesh out the reasons why PMs are going higher:

1. Western governments are carrying on a Ponzi scheme: governments have gotten the voters to accept govt handouts that are financed by borrowing and increasingly - by money printing;
2. Inflation is hitting people hard and that is the underlying motivation for the Arab Spring. "Benefits" are being phased out, the cost of living is increasing while jobs are harder to come by.Wages are not keeping up with inflation.
3. The Ruling Class is handing itself bonuses and high pay.
4. There is a resource scarcity as it costs more and more to produce needed materials. This is aggravated by the Chinese buying up all they can.
5. Decoupling the Dollar from gold has made it possible for the political class to spend without discipline.

Will there be more QE's? The consensus is YES. It might be called different, but the govt can't stop. The causes of hyperinflation are such that once a nations enters the path, there is no way out. Consider the US: the Dems want to increase the debt ceiling by 2T. They threaten US default if they don't get their way. A default could be the event to set off a PM rally not seen since 1980. But, if the debt ceiling is raised, it will fuel inflation and more printing as well. European countries are really behind the eight ball. Who will default first? Greece? Ireland? Portugal? Even the ratings of Italy and Spain are getting its trimmed, which will increase the cost of financing their debt.

Attempts to rein in the deficits will bring demonstrators into the street such as the "Arab Spring." In fact, Gerald Celente (in the Summer Trend Journal) predicts revolts by the Summer or at the latest by the Fall.

As the extent of the disintegration of the Western financial system becomes known, PMs will rally. When? This Summer. It is not known what will be the catalyst that sets things off.

As for the gold and silver miners, these are grossly undersold. An ounce of gold identified by THM, for example, is valued at $40. Such companies may become takeover candidates. The large producers are getting flush with cash, but their production is dropping. A wave of consolidation looms for some of the smaller miners.

Predicted Inflation and PM prices.

2011-05-24T06:06:00.000-07:00

I have in front of me the rec's of the Real Wealth Report. It deals with the effect of expected inflation. It is a sobering and frightening reading. Why? Here are the Minimum, Probable and maximum prices:

Wheat: minimum $52/bushel making for a loaf of bread at $15;
Gasoline: minimum $7/gal, probable $9/gal, maximum $11/gal;
Silver: minimum $135/oz, probable $170/oz, maximum $245/oz;
Gold: minimum $2,400/oz, probable $7,700/oz, maximum $10,000/oz.

The scariest part is that some of these expectations are for 2016; which forecasts that O'Bungle is predicted to be re-elected.

House of cards.

2011-05-19T05:36:00.000-07:00

Some folks are very skilled in putting together a house of cards. It grows and it grows, seemingly defying gravity. The Builder seems immune to physiological needs (or to foibles such as shaking hands) and acts as is the edifice will grow on forever.

Social Democracy is like that. Socialism is a failure economically, so Socialists build an economy built on debt. They maintain the illusion that people do not need to work hard, do not need to invest, save or otherwise inconvenience themselves. All they need to do is keep re-electing Socialists and government benefits will flow.But, just as a house of cards does not grow forever, Social Democracy fails, because debt can not grow on forever.

The house of cards built by Socialists is beginning to fall. Will the fall be swift or slow then accelerate all of a sudden?

Talk of default is everywhere. The measures adopted to stabilize the Greek debt has failed. In fact, Greece is now worse off economically and its deficit has grown, while its ability to repay its debts has shrunk. So, what is the problem with that? The problem is that the debts are partially hidden by European banks owing huge sums to each other. Once a default occurs in one place, it will spread - what the financial world calls "contagion." (Patrice Hill in the Washington Times: Europe debt crises forces nations to make tough calls). Ireland and Portugal are next and even Spain is shake.

Back in the US things are not much better. The US Post Office Service will default on its financial obligations and Democrats threaten to force the County into default if the Debt Ceiling is not raised.

We live in interesting times.

Doomsday sayers.

2011-05-18T05:28:00.000-07:00

There are two kinds of doomsday Sayers; those who look at events long term and those who look at things short term. Long term, the US Dollar is toast, inflation will go higher and precious metals (PMs) will end up in the stratosphere. Short term, we see a counter trend of QEII ending, markets adjusting, commodities getting clobbered along with the PMs. Ceteris paribus (all things staying the same), these are the predictions people make. All things, however, do not stay the same.

Next year is a presidential election year. No matter what the Media says, the economy is NOT GETTING BETTER. I am not going to rattle off the numbers, but housing is in the dumps, unemployment is way high and inflation is beginning to bite. A Republican House will not pass another Stimulus Bill to keep unionized State workers paying dues to the Democrat Party. The House demands cuts in the trillions and the US has exhausted its authority to legally borrow more money. The Chinese are dumping their Treasuries as are some big bond firms. Greece is again on the brink and the Euro is teetering.

Do you think the FED will stop printing money at the end of June? Do you think the Democrats will agree to cuts?

We have reached a time of maximum uncertainty and the Markets are confused. THAT IS THE SOURCE OF VOLATILITY.

I was duly reporting the wedge formations that forecast a breakout and the breakouts DID occur. On the downside. PM prices are stabilizing at 34 for silver and 1,480 for gold, but there is no clarity for direction. As for the miners, they still are being sold off.

There are some true bargains out there.

As for the sudden, apparent switch in the Obama policy on drilling, this is phony. Lifting the drilling moratorium means nothing. EPA can still block things, so the policy is designed to shift blame to EPA and away from Obungle.

Irish Eyes Are Crying.

2011-05-08T19:36:00.000-07:00

One thing to say that Ireland is a financial basketcase, another thing to cite the numbers.

By 2014, Irish debt will be 270B Euros, or 120,000 Euros per worker. That is about 60% larger than the GNP. Ireland is toast.

Precious metals: now what?

2011-05-08T14:25:00.000-07:00

Every time there is a correction is PMs, the gold bears start shouting..'the bubble has burst, the bubble has burst.' So the first graph from the top shows what happens in a real bubble. The first bubble is the gold runup during the Jimmy Carter years. The second bubble is the NASDAQ bubble in about 2000. Compare to this gold price changes the last 2-4 years. We do not see the almost vertical rise in pries at the end of the bubble. There will be a bubble in the PMs, it's just a question of WHEN.

The first graph is important because it gives us clues of how and when to get out of the bubble. The graph shows that the bubbles ended the same way. When the top was reached and prices peaked, we saw a drop of about 30-35% of the final blow off, then a 35% recovery of the drop then a further drop. While gold prices did drop, they still remained above the pre-bubble level. The lesson for PMs? We may not know the exact top, but if we miss it, then we can unload during the recovery peak. The Jimmy Carter gold bubble unraveled after the election of Ronald Reagan. The Obama bubble will pop if he is defeated (or looks like he will be defeated). If he is re-elected, the scenario does not bear thinking about.

The next graph shows the changes in gold prices in the correction. This was a steep correction. Is it over? I do not know for sure, but I think so. If not, we are close to the bottom.

The graph of the silver prices is the next. Again, a steep correction of about 38%. Here is a description of what happened: 1. many investors know that the prices run up to a new high twice before the price busts through the third time. The approach to $50/oz was the second run up, so a lot of investors sold some holding, including myself. The CRIMEX and the CME used this opportunity to lower silver prices to save some banks and others who were short silver. They did this by increasing margin requirements five times, which forced these traders to dump their holding (mostly paper). As silver prices began to fall, stop losses were triggered and more stuff was sold. So, paper silver was decimated, but actual silver is still hard to come by.

Silver and gold miners were shorted by hedge funds and some short covering may have happened during the silver correction. The next graph shows that gold is once again rising in relation to silver. The silver miners are also rising in relation to silver (penultimate graph).

The last graph is the actual spot price of silver with the RSI (relative strength index). Drops in silver prices are noted by small blobs on the RSI graph. The first drop was in July 09. Silver prices dropped below the 50 DMA and the 200 DMA. The word was out: 'the bubble has popped.' The next significant drop was in 2010 and silver prices again dropped below the 50 DMA and the 200 DMA. The next two drops occurred this year, one in March and one in May. This time the price dropped only below the 50 DMA. It occurred on very large volume and Seeking Alpha had an article every day about PM prices were going down from hereon.

According to some experts I read, the reversal in silver prices will begin this coming week, between Monday and the end of Wednesday.

A final comment about fundamentals. Precious metal prices are rising, because of the wrong-headed fiscal policies of the Obama regime and its European counterparts. May 16 is the date when the Treasury officially runs out of authority to borrow more money, because of the debt ceiling. A few more weeks and Sec Treasury Gaithner runs out of tricks to avoid the hard reality of facing the reality that the govt is broke. I don't want to make predictions about the political machinations that will take place to force the Republicans to agree to lifting the debt ceiling or do away with the debt ceiling altogether. We are also witnessing the continued saga of Greece and Portugal trying to borrow more when their credit rating is zilch. Greece may even leave the EU and face certain default. All these are reasons for people to trust no paper currency any more than they trust the governments who issue them.

Consulting the bones of May.

2011-05-01T05:58:00.000-07:00

Some fortunetellers would throw a few bones and judging from the patterns of their scatter, they would make predictions for the future. I wonder if they, like we, were consulting their memories to discern a pattern in the past. Then we make predictions based on what happened in the past.

This is the third year of the misrule of Obama and we can compare events to what happened under Jimmy Carter's misrule. During the Carter years, it was the third year of his misrule when precious metals hit the top of the chart then retreated as people figured that Carter would be a one term President. Figuring in for inflation, gold should hit $2,300 and silver $200. I suspect that as the Obama regime is busy undermining the dollar, these numbers should be obsolete and precious metals should hit twice these numbers. In THIS year. Should this turn out to be the case, gold and silver prices should accelerate from hereon.

Let's consult the bones. This time, the figures should be read from the bottom.

Gold (bottom graph) and silver (next up) have been rallying since March and the rate of rise in prices is accelerating. Friday, gold hit $1,570, before it settled back to $1,563 and change. Thus, an earlier prediction of gold hitting $1,555/oz has already been exceeded. What is next? $1,700 is believed to be the next top. The fundamentals of financial developments will encourage gold prices to rise. The default bluff of the Obama regime could very well be carried out. The US Dollar is already on a slippery slope.

The next graph up is THM. We see that THM increased by steps, rather than by a steady increment. THM has 10M oz of resource in gold to support mining for 20 Years. The company is about to enter the permitting process. Note that every increase in price is preceded by a double bottom. Volume has increased in the stock, but not all that much.

The last graph is the trading pattern of GPL(Great Panther). It can be thought of as primarily a silver miner with other metals thrown in, including gold. GPL has an ace up the sleeve, the potential gold mine where they have found electrum. GPL's rallies have ben short, its corrections deep and so we can expect the next rally to be steep as well. Rumor has it that the stock has been shorted and its holders have been encouraged to sell it. If past pattern is an indicator, GPL should hit between 8 and 9 on its next upleg. As the price of PM's is accelerating, we may expect an acceleration in the price of GPL as well.

USD: A sinking feeling.

2011-04-29T04:35:00.001-07:00

A picture is worth a million words. Do you believe it now? The US Dollar is being destroyed in front of our eyes. Following the head and shoulder pattern of the winter (with shoulders like lady gaga's on steroids to make it a double top as well), the US Dollar is dropping. If anything, the drop is accelerating.

The economic news is a horror show. First time unemployment is still near a half million every report and corporate profits are being squeezed as raw material prices are rising. Gasoline prices are nearing $4 nationwide and inflation is running at 10% and accelerating. Economic growth has fallen and heading to toward the double dipper we heard so much about. The housing market is still sliding and foreclosures are beginning to rise.

Keep your eye on the Dollar and the condition of America's finances. S&P has warned about the downgrade of US debt (and Treasuries) and Weiss Research rates America's bonds down there with Greece, Ireland and Portugal.

Oh, but The One has produced a birth certificate.

Addition to Plunge protection.

2011-04-26T18:07:00.000-07:00

The last sentence discusses the the RSI of GPL. RSI, as you know, measures the state of sales from OVERSOLD to OVERBOUGHT. During the last correction of GPL, its RSI hit just over 30. It is at that point again.

Sean considers the breaching of the 50 DMA as very negative. This also happened during the last correction. As I write this, gold is trading at 1,509, just about $10 away from its peak. Silver is 45.8. Now is the time to buy some more GPL.

Plunge protection.

2011-04-26T05:47:00.000-07:00

We know that the US govt has a "plunge protection" team. It is activated if the US dollar is threatened. How? By a large increase in precious metal prices - which is almost the same as saying a 'drop in the dollar.'

Take the crazy action lately. Silver almost hit $50 yesterday before it was sold off to 46.07 today. How can that be done? Silver is in "backwardation." That means that the price of silver now and future price is backward. Delivery of silver in the future requires storing it (so it would cost more to buy silver futures -contracts to buy silver 3-4 months in the future- ) than buying silver today. All that means is that silver supply is very limited. If you believe that silver plunged from 49+ to 46.07, try buying a silver dollar at that price. You can't because silver dollar's are not available.

So, how come silver prices went down if the current supply is very tight? Yup, the plunge protection team must have ordered some banks to short silver by selling "paper silver," silver options. So, what if they lose a few millions? The FED will make it up to them.

It is not only the price of silver that has plunged, but the price of silver miners. I have reproduced the graph of GPL (Great Panther). As in a previous post, the wedge pattern is very clear. A wedge implies a coming and sharp breakout. In this case the breakout occurred yesterday and on the downside. Silver miners have been dropping even in the face of increasing silver prices. KWN had warned us that the reason for this was shorting by by certain funds. In addition, a newsletter published by Sean Broderick asked his followers to sell a half of their silver miners (GPL is one of those).

Sean explained the drop in GPL as follows: 1. rising oil prices will reduce profit margins, 2. Fear of expropriation - all of which encourages traders to buy the metal.

I have critiqued pronouncements coming out of Weiss Research (first by Larry Edelson) and told you that Edelson's expectation of a drop in gold to and below 1,250 was simply wrong. By now, Larry admitted it. This time I am telling you that Sean is wrong. First, gasoline prices are not hitting Mexico as hard as the US, so operating costs of GPL will not increase as much as gasoline prices in the US. Second, exploitation fears are justified in Bolivia, but GPL and IPT.V are in Mexico, while FVITF is in Peru, yet all three stocks took a hit also.

When you look at the technicals without wondering about the fundamentals, you see that GPL rose from ).75 to3.00 so its Fibonacchi number was near 0.7. The stock then corrected back to 1.75, between 2F and 1F. Then GPL went tp 5.00 with an F number of 1.1 A 1F correction took GPL back to 3.9 and we would expect another correction (about 1/2F) to produce a bottom of 3.25-, 3.35.Another day or two of falling prices will also bring GPL to 20, where the stock bottomed last time.

Happy investing.

Silver and silver miners.

2011-04-22T06:48:00.000-07:00

Silver prices have been climbing, defying all expectations by silver bears. Since, last August, silver went from 17.5 to over 47. Earlier this year, silver corrected like gold, though the timing and size were different some. After the correction, silver resumed its rise and has been on a tear since.

Silver miner stocks did something else. Beginning in March, silver miners began a wedge formation. I have provided the graph of three of my favorites: FVITF, IPT.V and GPL. I did not draw in the wedge for FVITF, but did for the other two. The resemblance in the graphs suggests a common cause. Profit taking is probably one. All of these stocks have at least doubled since last September and GPL has increased 5-fold. Some experts claim that PM miners are being shorted by the hedge funds and predict that when the rally in these stocks resumes, their rise will be spectacular because of the short covering.

Gold miners do not show the same pattern, but some have dropped or have gone sideways while gold broke through the1,440 resistance.

We can see silver moving faster, because of the disparity between gold and silver prices. The latter is more attractive to the small investor.

Could it be that the miners give us a non-confirmation to the PM rally? IMO, that is doubtful. The FED continues to increase the money supply, inflation is showing and threatens to accelerate, the rising oil prices are dampening the barely existent economic recovery and the sovereign debt crisis of Europe has driven Greek bonds past a 20% yield. Greece can not survive with such an interest rate. In addition, US debt ceiling may be breached next week, meaning a crisis in raising it. Granted, that Republicans are afraid of the Media and are expected to cave when the Dems turn on their demagoguery machine, but even the dim wits will start seeing that something is radically wrong. None of these factors is conducive to stabilize PM prices.

Possible wild cards.

2011-04-08T08:25:00.000-07:00

1. The FED. One spokesman at the FED was hinting that the FED may finish QEII before it bought all the Treasuries it intended to buy. This would be anti-inflationary if true, but it would also act to dampen the economy. The statement could be just a bash to try to reduce precious metals and keep bond yields from rising. 2. The serious wild card. The Dems have been angling for a government shutdown. The final excuse was that Republicans demanded a withholding of federal funds from Planned Parenthood and its abortion mills. But, this "shut down" is not what you think. The shut down effects those agencies that cause maximum inconvenience to the public. The worst is the stopping of pay to the military. Is the Obama regime trying to provoke a revolt by the military? That would be a huge wild card with unpredictable results. The composition of the military is tilted more toward blacks and Hispanics.

What about PM miners?

2011-04-08T08:11:00.001-07:00

As gold broke out 3 days ago, Precious Metal (PM) miners went into a temporary slump. Great Panther (GPL) is an example. You might ask how come? And, will the non-conforming change in PM miners mean that the current gold breakout is temporary? Here are my thoughts (based on research) on these subjects. 1. Many of the PM miners have undergone a large increase and people are taking a profit. 2. In the case of GPL, the stock moved 160%, while silver moved 16%. So, GPL has incorporated in it several other factors besides just the change in silver prices. Among these factors: GPL has a gold resource and it is issuing financing to prepare its gold field for mining. The graph shows that GPL was correcting (digesting its gains) even before the breakout in gold prices. Today, GPL is up, so it, too, is breaking out.

Gold breaks out during worsening news.

2011-04-08T06:34:00.000-07:00

The Obama regime began with a torrent of lies. The economy was allegedly bad and the new regime had its prescriptions: increase govt spending in an unprecedented way by passing a stimulus bill of nearly 800B. Such a massive spending bulge by the govt was supposed to have brought unemployment down to what it was when Bush left office.

Then the cat got out of the sack. Unemployment went up even higher than projected without the Porkulus bill. That's because most of the money was spent to bail out teachers' unions and finance "green" scams. In fact, the stimulus made matters worse.

Employment meanwhile barely rose, while the rolls of govt employees grew much fatter. The Obama regime's pland, therefore are an unqualified failure.

Socialists are in trouble in Europe as well. Europe's questionable debts have risen past $2T and that may be hiding even more toxic debt. Meanwhile, the FED continues with QEII and may extend the money printing by shortening the maturity of some T-bills.

Did you believe the propaganda that gold was in a bubble? And that silver should be shorted? Even Larry at Weiss Reserch slipped up on that.

The last graph shows gold breaking out from the 1,440 resistance. As of now, gold is quoted at $1,469 and silver at $40.2/oz. and the US Dollar is just above the magic 75.0 support.

What of the coming months? There are two scenarios: 1. with re-election of Obama and 2. an Obama loss in 2012.

Gold and silver will continue to rise and the Dollar will lose maybe 1/2 of its current value. We can only go by the precedent of the Jimmy Carter disaster. In the third year of his Presidency, gold skyrocketed to over 800/oz. In current dollars, that would be 2,300. With inflated Dollars, it may get up to $5,000/oz. As the re-election of Jimmy Carter looked more questionable, gold began to lose its luster and it declined during the Reagan years.

Are we on the same or parallell path as during the Carter year? Yes, Obam is even worse than Jimmy Carter. We have economic stagnation, gathering inflation, rising gasoline prices and we even have the signature military disaster. Not in Iran this time, but in Lybia. I believe that gold may soon go hyperbolic. I'll let you know.

The financial tug of war.I.

2011-03-26T06:30:00.000-07:00

At the bottom: what is money?

Contemporary financial Liberals argue that gold and silver are "barbaric relics" and that the real money is the fiat currency printed by Central Banks commanded by Liberal governments. This myth gives rise to several other myths: 1. that the US can print money without consequence; 2. that we owe the debt to ourselves; 3. that it is a good thing to weaken the dollar (let's us export more). These myths can be easily exploded and I won't bother to repeat the process of doing so. Instead, I will concentrate on the consequences of these beliefs as they lead to action by the Liberal financial elite.

The US Dollar.

The central player on the financial scene is the US Dollar and its manipulation. The FED and its zombie banks maintain Liberalism by counterfeiting the Dollar and 'loaning it' to zombie banks, who can then turn around and loan 10x as much to customers. As long as the FED does not overdo it, the resultant inflation is small and the populace can be made to believe that inflation is a natural phenomenon.

As long as other Social democracies (meaning left-leaning governments) follow the same path, the rate of descent of the value of the dollar can be controlled by manipulating the interest rate (the Prime Rate the FED charges to banks for using the counterfeit money) and by adding/withdrawing fiat currency by telling the banks how much of funds they have to keep as reserve.

The economic use of the US Dollar.

The way it normally works is that the rate of inflation is controlled by the amount of money put into circulation (- the downward pressure on prices due to industrial innovation), which sets the interest rates. The FED can intervene and does by setting the Prime Rate.

The FED puts out money by selling Treasury Bills, which are IOUs by the US govt. The FED can write itself checks (and pretend that these checks are assets) and buy back some of the IOUs (Treasury Bills) and this is called Quantitative Easing. It is counterfeiting in a big way.

The bond vigilantes.

These are folks who buy bonds. If the interest rate is too low, they won't buy. This puts an upward pressure on interest rates.

Interest rates.

These are used by the Social Democrats to spur growth. Reducing the interest rate makes it easier for business to borrow. But it also increases inflation.

The hidden tax.

The outcome of all this is that a parasitic class of government regulators and bureaucrats is supported not just out of taxes, but running deficits. Inflation is a hidden tax used to finance the parasites.

Hyperinflation: the ultimate result.

As the National Debt rises due to the increase of income transfers and other govt programs, the day comes when the amount of money printed becomes so large that inflation becomes uncontrollable. That's hyperinflation.

Precious metals are marching on.

2011-03-24T08:05:00.000-07:00

Silver just hit a new high at 38 + change. It is flirting with 39 as I write this. Silver miner stocks are also hitting higher, though they lag behind previous highs. Finally, gold has begun to move and is heading to 1453, the magic number Larry says it must close above twice in a row to make the rally in gold credible. He further states that if gold does not correct to 1,250 then a correction in gold price might last two years.

I think I know what is going on. Larry uses a formula, a mathematical equation, that involves the current price of gold. And it figures into future price.

The last time my favorite guru was this wrong it was Joe Granville in the 80's. Joe developed a formula that allowed him to predict BUY/SELL signals and Joe told us to short the Market. I learned the hard way that no formula works all the time. In the 80's the wild card was the coming presidency of Ronald Reagan. People understood that the fumblings of Jimmy Carter would soon be over. Reagan was not in Joe's formula. This time, the wild card is Obama and the PM market knows the outcome. So, formulas that worked before, no longer work.

Correction to previous post.

2011-03-17T06:43:00.000-07:00

The previous post refers to a "head and shoulder" formation. The text should read "reverse head and shoulder formation." The blog refuses to accept commands to correct the mistake.

Edelson has reiterated his forecast of gold dropping to 1250 or below. The market shows no sign of moving much lower. What we see is massive volume. What we see is a massive volume in gold transactions. It it is buying, how come the price stays put? And if it is selling, why don't we see a drop?

The obvious explanation is that very large quantities of gold are being transferred (most likely to China) and the gold price reflects the agreed upon transfer price. This is very similar to what happened in December.

Precious Metals: In the Murk.

2011-03-15T05:55:00.000-07:00

From October 2010 till Jan 2011 gold has traced out a near-parabolic pattern that are usually seen at market tops (graph 1). This was followed by a reverse head and shoulder pattern that signals the reversal of a previous down pattern. Graph 2 shows a smaller portion of the data so the pattern is clearer. Were this all that was said, I would be saying...'get ready for a rally.'

But, Larry Edelson of Weiss Research is forecasting (again) a drop to 1,250. His forecast is based on graphs 3 and 4. Graph 3 in comparing the gold prices predicted by the cycle theory (red) and the weekly composite gold price. While there is some agreement up to October 2010, the relationship clearly breaks down afterword. We can then proceed to Larry's second graph. Here he contrasts the gold price with the RSI. From July through November, the rising gold price is accompanied by overbought conditions. Then the recent rally shows much less overbought conditions. To Edelson, this signifies less strength. However, a look at the top graph (graph 1) shows that overbought conditions signify a pending reversal, a coming drop. And there is no showing of an overbought condition now. We see much more overbought conditions in the silver prices and indeed that market has been busy.

The last two graphs show the gold miner index GDX. The next to last graph shows a massive head and shoulder formation. Not only is the formation broad, but compound; i.e. it has short jabs downward halfway into the trough. So, let's look at the GDX over a more extended period (last graph). We see a compound reverse head and shoulder that hit its low in Feb 2010. This formation did not send the GDX to new record, but the following formation (centered at the beginning of August) did lead to new records. The current RSI is a bit larger than the one centered in August. Are gold and gold mining stocks about to take off again?

As I stated before, a good weather man looks out the window before delivering the forecast for the day. So, how is gold doing today? Well, earlier it was down forty dollars an ounce. Now, it is down $29.

The markets are generally crazy today. While, we are told that Lybia has suspended oil shipments, crude is down $3.72 this morning.

Is the Gold Market in error?

2011-02-25T19:45:00.000-08:00

Uncommon Wisdom insists that the Gold Market has to correct before gold can go higher. Why? If we look at the closing prices for gold, we can discern reverse heads and shoulder patterns three times - going back to July/Aug of 2009.The second such pattern showed up in Feb 2010 and the third such pattern is playing out now.

We learn some more as we examine this last correction. The downward spike was as deep as the other times (perhaps a bit deeper) and so was the extent of oversold condition (shown in the top graph). The 200DMA remains pretty steady (i.e. a straight line) indicating the the Gold Market has yet to approach the final, parabolic stage. Can gold drop back and form yet another shoulder on its way up? Possible, but in either case, gold is heading up. Silver has already broken out to new highs and gold will soon follow. Current events and comig events and the QEII will eventually force gold to new highs.

Guidance on gold moves.

2011-02-24T04:46:00.000-08:00

Uncommon Wisdom came out with a flash alert this week.

1. For the first time the Analyst was wrong about forecasting a gold move;
2. Gold will re-enter the rally if it closes above 1,453.

My take.

We see a divergence between the DJI and gold prices: the DJI is dropping while gold is going up. Frankly, I have expected this umpteen posts ago, i. e. a divergence between the DJI and the gold price. What this means is twofold: 1. factors that propel ll gold prices are stronger than anticipated by Uncommon Wisdom. In fact he was right about the drop in gold prices, but the drop was not as deep as the equations predicted; 2. the artificial deflation created by the Obama regime to keep inflation down is no longer sufficient to keep inflation down or gold prices from appreciating. The Market expects oil prices to go up and inflation with it. The dollar is dropping, so the Markets are now in sinq. At least, for a while.

Questions about the end of correction.

2011-02-23T04:41:00.000-08:00

We are used to silver and sold moving together. Looking at the silver prices in the top graph, we see that silver broke out of its reverse head and shoulder and set new, record prices. When we look at the gold prices, however, (second graph), we see that gold price failed to reach the pre-correction price and in fact slipped yesterday. The gold miner index (GDX, third graph) tells us the same thing.

Uncommon Wisdom (which uses the Cycle Theory to predict moves) tells us that this is not the rally that will take gold over $2000/oz. In fact, they predict that the correction will take gold much lower (1,250 - the second Fibonacci) and Silver to 22.

What we can see is that silver has become a stronger market than gold. Will the softness in the DJI signal a softness in the stocks? Will that take down gold and silver as everyone rushes into cash? The next two weeks should tell.

Ahem - or is it?

2011-02-23T04:31:00.000-08:00

And the correction is over.

2011-02-21T05:09:00.001-08:00

My last post talked about the possibility that the corretion in gold and silver might be over before March 1. So, I put up the figures for gold and silver as of yesterday, the 20th of February. As of today, gold has reached above 1,400/oz and silver is 33.4. This is the third day in a row that silver hit new highs, but gold is yet to reach 1,420.

We now see the usual end of a reverse head and shoulder: a breakout on the upside. And it is silver that is leading the way.

Happy Investing!

Silver hesitation.

2011-02-03T04:55:00.000-08:00

Silver is a precious metal. It is both, of monetary value and an industrial commodity. So, it is not surprising that gold and silver behaved similarly (during the Sep-Dec run-up), yet showed some differences.

Let's see what the graph of silver prices tells us. Please refer to the previous post for the graphic on gold.

Here are the comparisons between gold and silver:
1. The last rally in gold began in the middle of July, whereas the silver rally began at the end of August; 2. the gold rally began to lose steam in October. The up legs of rallies were still the same slope, but the down legs(mini corrections) made the gold price change look toppy, i. e. topping out; 3. silver prices also underwent the mini corrections, but during up legs silver price changes accelerated; 4. silver prices, therefore, did not top out, they kept going up at the same rate; 5. silver and gold prices seems to be in sinc as of Jan 1, 2011 and silver correction may be a day or two ahead of the gold correction.

Both, gold and silver have reached a low on the graph that shows their oversold condition (top graph), yet I hesitate in flatly saying that the correction hit its bottom, even though silver has broken out of its downward trading channel. The MACD for gold and silver has also began to turn upward if slightly.

Why do I hesitate? Corrections in a bull market usually wipe out 1/3 or 2/3 of the last up leg (the Fibonacci numbers). In the case of gold, 1 Fibonacci would be at 1,350 and 2 Fibonaccis at 1,250. Gold has traded at 1,320, somewhat below the one Fibonacci. Also, silver has reached its 50 DMA and backed off, while gold has yet to do so. If silver closes above its 50 DMA a couple of times, it would then complete the reverse head and shoulder and enter its next up leg.

Here is a Summary of what we know: the silver and gold markets synchronized, with silver may even be ahead of gold; silver is our canary in the mine to tell us if the correction is over. If the current picture holds, the correction will be over before the first of March.

Are we there yet?

2011-02-02T04:55:00.000-08:00

Are we there yet? That is a phrase that has been satirized in Shrek II. Just hilarious. Of course, the phrase loses its humorous side when your children keep asking it during a long day of driving. We are asking it in connection to the precious metal bear market.

Let's look at the graphs. The first graph (Gold), shows areverse head and shoulder, with the deepest part of the head 24 days after the neck. That suggests a total length for the bear of 48 days. The second graph down is the Gold miner index (GDX). It also shows a similar pattern, where the end is shown maybe a couple of days earlier. The third graph down is AXU (Alexco, a Canadian silver miner). Ditto for pattern, but an even shorter duration. I actually drew the head and shoulder pattern for THM and again, the same pattern emerges.

All these suggest that the end of the bear will come in the first part of March. The last graph is a take over pattern for NAK. The Palin tribe will be happy no doubt.

Gold correction nearing its end?

2011-01-28T06:42:00.000-08:00

Speaking of the Gold Market, we have to answer three questions: 1. what is happening; 2. how long will it go on and 3. when will gold take off again?

The first graph shows the march of gold from 900 to 1450. We are in a gold bull market. The second graph down shows the last segment of the bull market up to before the correction. A strong (double) support level was set up at 1,225, then a weaker support level was established at 1,375. The third graph shows the breakdown of the upleg and the correction up till now.

A few points need to be pointed out: the march of gold upward has been steady; 2. the 200DMA shows no deviation in the rate of increase in gold prices; 3. the corrections along the way retrace 1/3 to 2/3 of the last segment of the bull, just as we would expect from the Fibonacci numbers

The one third retracement of the current segment (from 1150 to 1450) would put gold at 1350, while a two third replacement would put it at 1,250. The current price is 1319. We are clearly below the 1/3 retrenching, but still above the 2/3 retracement (end point at 1250). And the support level is 1,225.

The next graph down is GDX, the Gold Miner Stock Index. Gold mining stocks are related to the gold price, but move faster than gold itself. Note that GDX is already below its 200 DMA, as it usually is at the end of corrections. It could still move a little lower and not be unusual.

Individual gold miners move according to their own rhythm. THM (one of my favorites) has given up 1/3 of its gains in the last segment, while NAK (my favorite) is showing a takeover pattern and pays no attention to the correction.

This is why I did not sell into this correction. By the time you subtract commission twice, your scalping the drop is not that profitable. Plus, you may miss the bottom and get back in after the correction is over. So, it was not worth taking that risk.

Uncommon Wisdom, my favorite forecaster, predicts that the next up segment will be the steepest yet. Good investing.

The correction under way.

2011-01-25T05:15:00.000-08:00

I discussed the possibility of a sharp correction in precious metals (Dec 6, 2010). The first graph is gold prices as of Jan 3, 2011. We see a parabolic/hyperbolic convergence of prices indicating a breakout coming. The second graph shows the actual breakout on the down side. The third graph shows the same thing in the silver prices.

Gold and silver have entered what promises to be a short-term bear market, as the drop is already more than 10%. In any bear market, the questions that arise is how deep and how long before it turns around. Most of these moves go by the Fibonacchi numbers of 33, 66. Gold rallied from 1150 to 1455, or $300/oz. A third retracement would take gold to 1,350 and a two thirds replacement would knock it back to 1,250 an ounce. Current price is 1,329 so we are into the second leg of the downward move. In fact, I expect a bounce upward this week.

In the realm of gold and silver miners, the story is somewhat different. Silver miners have been hit harder than gold miners (silver moves faster than gold), but some gold miners have resisted the downward move. I have a hunch that the strongest gold miners (those ripe for takeover like NAK, THM and NG) may in fact be taken over by the majors, which will create a bear market rally in these stocks. Why would the majors move now? Because they have had good earnings and the next upleg of the gold market promises to be violent and steep, pushing the juniors way up. The best price is now. NAK has been moving up lately, even though gold is in a short bear.

We then have the question of WHEN? When will the bear market in gold be over and gold price take off on the upside? That is harder to answer. Momentous things are happening and they will all converge on affecting the gold market. The yuan will be revalued upward, the Stock Market will have a steep correction and the idiots will recommend buying bonds. Interest rates, inflation and gold price will all be heading higher. Most of these will take decisive turns in the next six months (counting from Jan 1).

Enron execs were jailed for such.

2011-01-23T04:42:00.000-08:00

The FED announced new accounting "rules" on Jan 6, 2011. According to these "new" rules, the FED can shove its losses to the Treasury and pretend that it is doing fine. This is the same kind of gimmick that led to the jailing of Enron executives.

Just to make sure that ordinary yokels do not understand what is going on, the FED will call the losses as a "negative liability," instead of a reduction in its capital. The FED will then pretend that everything is fine and go on its merry printing as usual.

Enron executives shoved their losses into a subsidiary and pretend that these losses were mere "negative liability." There is really nothing new under the Sun.

The rain in Spain...

2011-01-20T05:33:00.000-08:00

The propaganda we receive from the MSM says that the European financial crisis is solved. The Media even let out that the US (via IMF and even the FED) kicked in a big chunk of dough to rescue the Europeans. As usual, the truth is somewhat different.

True, Greece and Ireland were able to roll over their scheduled debt payments, but these governments continue to spend more than they take in. Their problems are not over, they just kicked the can down the road.

The next dominoes are Portugal and Spain.

Portugal's problems are similar to that of Greece and Ireland, too much govt spending and too little economic growth. Spain is another kettle of fish.

The MSM tells us that in spite of the erosion of Spanish credit rating, they have recently conducted a successful sale of govt bonds. That allowed Spain to roll over a portion of its debt. So, Spain, too, have kicked the can down the road. Of course, we do know why the sale of bonds was "successful." China bought them up.

Which brings us to the question: why is Spain in trouble and how come the Chinese are getting involved?

Spain is run by a Socialist govt and it has two types of banks. One set of banks is the kind of like a regular bank, either run by the govt, foreigners or is otherwise influenced by the govt. The other banking system (that has 41% of the Nation's deposits) is what is called 'cajetas.' Cajetas are local banks, controlled by boards made up of various political factions: Socialist unionists, priests or locally influential people. The govt wanted to control these institutions, so they forced the merger of cajetas: 45 of them were merged into 17. Some of the cajetas refused to hand over their deposits, giving rise to chaos as to who controls what. While this contributes to Spain's financial problem, it is NOT the main contributor. Spain has been living beyond its means and worse, it embarked on building solar power plants: these produce high-priced electricity and had financial problems from the beginning.

Why are the Chinese interested in rescuing Spain? Because the Spanish buy most of their solar panels from China.

The denouement. III. Stagflation.

2011-01-14T04:17:00.000-08:00

The Obama regime and its defenders in the Media greet every sign of improvement as if all our problems are near solution. But, if you read the Drudge report, you get an entirely different picture. 1. "Jobless Claims Jump, Wholesale Food Costs Surge" says one headline; "Banks repossess 1 million homes in 2010...May Jump 20% in 2011," says another. "S&P, Moody warn on credit rating." There is another article on the possibility of the FED needing a bailout and the Financial Times asks what will happen if the US defaults. Natural disasters add to the feeling of coming doom: the floods of Australia and Brazil seem to coincide with the economic denouement.

In the meantime, the Nation witnessed one of the most sordid episodes of journalistic malpractice, as the Media is trying to smear the Tea Party in general and Sarah Palin in particular. The purpose? To stop opposition to the Obama regime destroying the economy of the Country. Obama, by asking for more civility, is really telling his opponents to shut up.

March may be the start of the denouement. Gold prices are forecast to leap, along with retail food prices. Reducing our bond rating may require further money printing and several States and hundreds of cities face bankruptcy. CHANGE might be all that's left of the Dollar.

The coming denouement. II. Economic factors.

2011-01-13T07:18:00.000-08:00

It began with the imposition of "mark to market." This forced the banks to value their mortgage portfolios as worth zero in many cases. The move stopped money flow, sent the economy into a free fall and destabilized the real estate market. Faced with mortgages that were more than the houses were worth, many property owners just walked away, leaving the property to deteriorate. Thus, once "mark to market" is imposed, it initiated a self-sustaining deflation.

The Obama regime promised to "cure" the problem by flooding the economy with money. There was a serious monetary inflation, but price inflation was kept in check by the lack of demand to buy and take loans. This is the first leg of the Denouement.

The second leg of the Denouement was a consequence of the first leg: the recession caused by "mark to market" bankrupted many states and cities. Some of these are raising taxes (further depressing their economy), while others are cutting spending.

The third leg of the denouement is the unraveling of European debt servicing. Several States of Europe are unable to service their debts and have difficulty of raising money in the markets. The reason for this is that their credit worthiness is being questioned, so they have to pay higher interest rates. The EU has established a fund to buy the suspect bonds of Greece and Ireland, but now Portugal and Spain are coming under stress. The US has been pouring money into the EU rescue and now Chine has moved in as well.

All this is like a house of cards sustained by the use of the US Dollar as a world currency for settlement. That means that if the US Dollar slips, the house of cards will come down.

How can the US Dollar slip? There are several factors that can make the Dollar slip. First is the reduction of the credit rating of the US. This does not sound very threatening, but it is. It would mean that the US would have to pay higher interest rates to sell Treasuries. This would automatically increase the deficit. The second way to undermine the Dollar is through inflation (Price inflation).

The Obama regime tries to counter by devaluing the dollar, as Roosevelt did during the Depression. This would be done by having China agree to increase the value of its yuan.

The poster child of the Media coup D'etat.

2011-01-11T05:50:00.001-08:00

The coming denoument. I. Its politics.

2011-01-11T04:54:00.000-08:00

Historical metaphors abound to describe the current plight of statism. "Apres moi, La Deluge" is what I have chosen: After me, the deluge, said the French King and he was right.

Several skeins make up the politics of the denouement. Part of it is financed and inspired by George Soros. Part of it is driven by the American Ruling Class (Liberals) fighting for its power. There are political opportunists, but they are not the major players.

There are two Left-inspired guiding principles pushing this: 1. that American financial and military power is the greatest evil in the world and 2. that US Capitalism must be destroyed in order to build a just and fair system (Socialism).

In the background of all this is the unraveling of Euro socialism: the inability of some European countries to pay their deficits and service their debts, the destabilization of the Euro and the coming dethroning of the US Dollar as the world's reserve currency and the shifting of power from West to East (Obama and puppet masters refer to this as 'reordering the international economic system'). We have arrived at a crucial point politically. The Obama regime has lost the Congressional elections and faces rough going for the results of its economic policies. So, the regime and its allies in the Media reach for the 'Reichtag ploy.' It is a manufactured excuse to do away with the Socialists' opposition. In Germany, it was the burning of the Reichstag (Parliament). It was used by the National Socialists to do away with democratic means. In the US, it is the shooting of a Democrat Congress woman. The Media is using this to reverse the results of the last election. This is their line. Conservative rhetoric is hate speech. Hate speech = murder. Conservative rhetoric should be banned, rejected. Will it succeed? Stay tuned.

It is against this background that the economic denouement is about to start. Well, it has been going on, but it will now come to center stage.

Euro crisis gets worse.

2011-01-07T20:02:00.000-08:00

It is quite obvious now that Socialist moves in Europe or in the US are not growing the economy. Nor are those moves stabilizing the financial situation.

Pressure is mounting on Portugal, Italy and Belgium as they face a bond auction next week. These countries have to pay higher interest rates and pay higher insurance on theirbonds. The uncertainity is once again channeling money into dollars and moving the US Dollar higher. The Dollar Index has once again hit 81, forcing gold prices lower.

Meanwhile, something funny happened to the propaganda tour of the Obama regime and the Liberal Media. It was "highly anticipated" that upwards to 300,000 new jobs would have been created and noted in the last report. The actual number was 130,000. The actual (true) unemployment then has worsened, even though the regime reports it had dropped to 9.4%. The continued weakness in the US economy is made worse by the anemic growth of Europe, so that Western governments have to rely on inflating their currency. Sooner or later, this will lead to serious inflation.

This will be the year that gold prices go through the roof. We should see a modest increase between late Jan and April and enter the hyperbolic phase in the Summer.

How long is inflation and low growth expected to be around? Four or five years, FED Chairman Bernanke anticipates. About right. By then Obama should be gone as President, Republicans should be in control of the Senate as well and the Media destroyed for its lies.

Will PM's get the steep correction?

2010-12-10T04:38:00.000-08:00

My favorite guru uses the cycle theory to predict movement in PM prices (gold and silver prices). According to him, the PM market is due for a steep correction. How steep? He pegs gold to go back to 1,350 (maybe even a hundred lower) and silver correcting back to maybe as low as $22/oz. Then he made a strange statement. Unless silver corrects back, it won't move beyond $30.

I am not privy to his formulas. He was correct in his long range forecast, but he keeps repeating the forecast for the steep drop. So far, it has not happened. But it could happen. Still, forecasters should do like weathermen and look out the window.

I have collected silver and gold prices that go back to August this year. Both graphs show an almost straight line change till mid October then volatility increases. Furthermore, the rate of change of gold prices slowed, while silver prices continued. Is this meaningful?

Let's look at the fundamentals then. 1. The European debt crisis continues and if the papering over shows cracks, Europeans will again buy dollars which might drop gold prices for a while. 2. The FED is continuing the printing of money. Of course, the printing has been reduced to punching computer keys, but the result is the same, adding money to the money supply. Potentially, this could be as much as $6T or even more. 3. The fundamentals of the US economy are being still devastated by Obama and the Democrats. The latest example is the political maneuvering over the expiration of tax rates in place since 2003. Obama refers to efforts to maintain this level of taxation as "tax cuts for the rich." In what has been dubbed as an abrupt about face, Obama agreed to an extension of these rates for two years in exchange for extending unemployment and reducing Social Security witholdings. Some people believe that Obama was setting up a hoax in order to discredit supply-side economics. The idea that maintaining the same tax rates is a "tax cut" is a hoax, since there is no change from the current level of taxation, except that inheritance taxes will go from zero to thirty five percent. In any case, members of the Socialist Party (Democrats) reacted violently and the Dem caucus in the House has voted to defy Obama. So, here we are facing the Dec 15 witching hour. Will people dump stocks (including PM miners) anticipating a rise in taxes on cap gains?

So, while technicals do not forecast a drop in gold prices, fundamentals are uncertain. The feeble attempt by Obama to try to emulate Bill Clinton's move to the mythical "Center" is a sham. He remains a Marxist and a foe of Capitalism.

All this uncertainty is having a good effect: the Dem's Dream Act of registering millions of Hispanic Democrats has been shelved by the Senate along with the repeal of "don't ask don't tell." At least for the while. Dingy Harry Reid is a treacherous bas...d and can renag on promises at a drop of a hat.

So, here we are. Will we see a drop in gold?

Nesze semmi, fogd meg jol.

2010-12-07T14:58:00.000-08:00

The Great Tax Compromise of 2010 between Republicans and the Obama regime is already ballyhooed by the financial Press as leading to growth. Of course, Liberals believe that giving people unemployment creates economic growth, so we can not expect better from them than to expect cutting Social Security taxes to do the same.

Markets responded with a yawn.

Why would this not work? The title tells the story in Hungarian. Roughly translated it means: 'here is nothing, hold it tight!' In essence, there is very little here that would cause growth. Keeping current tax rates simply maintains things as they are. Reducing Social Security taxes is not that different from giving people $500 that failed to grow the economy. And contrary to the firmly held belief of Pelosi and her minions, giving people money for doing nothing does not grow the economy either. Still, this compromise will do one thing: INCREASE THE DEFICIT.

Nothing in this package is a supply-side tax cut. Nothing in this package will grow the economy.

Economic idiocy.

2010-12-03T05:01:00.000-08:00

The Media is doing everything it can to extend the power of the defeated Democrats in Congress. As usual, they are clueless about how the economy works. Democrats want to allow the tax cuts of the Bush area to expire and raise taxes by doing so. Especially tempting for them is to raise taxes on upper earners making more than 250,000 a year. They refer to this as "tax cuts for the rich." In reality, Republicans are fighting to preserve CURRENT TAX RATES.

Most small businesses file their tax return as sub chapter "S" returns and so the overwhelming majority of incomes above $250,000/year represent small business income. Raising taxes on that would automatically prolong the Recession. That is not all the harm that would come from raising taxes now. The Stock Market would take a big hit, because if the current tax rates are allowed to expire, capitol gains would go from 25% to 30%. Why would that be bad? Because Investors would sell their stocks now (before TAX RATES WENT UP), precipitating a Stock Market retreat.

SenateRepublicans pledged to filibuster anything the losing Dems want to bring up unless the current tax rates are preserved. The Media refers to this as "holding the Nation hostage," as if the losers of the last election are entitled to slip in one more dose of their idiocy before they get out of town.

What idiocy - you say. Read the AP story dated Nov 30. It echoes Nancy Pelosi that unemployment compensation grows the economy. They cite figures that every dollar spent on unemployment cause $1.6 growth in the economy. No wonder the recession goes on and on.

Will we, won't we?

2010-12-02T07:30:00.000-08:00

Many financial analysts are constantly predicting two things: 1. a robust economic recovery and 2. a drop in gold prices. I would expect that analysts would set up a clamor now when gold prices are showing a head and shoulder pattern(first graph).

At first glance, the head and shoulder pattern is fairly clear, with the head forecasting a &90/oz drop in gold price. Only the second look makes you wonder. Why? Because the neck on the right did not form properly and the pattern is being drawn out into a simple correction that is nearly over. This is even clearer with silver (second graph). Silver prices simply hiccuped and continue to rise after the correction.

Yesterday's action in gold and silver miners also deny the existence of a sharp correction. Today's action is mixed. The dollar is again pushing 82, but oil finally has cracked through the 85 level and is coming up on $87/bbl. Inflation is beginning to mount a show.

What is a likely scenario is that investors are beginning to lose their fear of another (double dip) recession and have increased funds going into the Stock Market. Gold prices, meanwhile, are consolidating while silver prices continue to rocket higher. With each day of gold staying close to $1400/oz, the chance of a big correction (signalled by a head and shoulders pattern) is diminished. And another rally could push gold to new highs, above $1422.

Gold and silver: are we there yet?

2010-11-18T07:37:00.000-08:00

Every time gold prices take a correction, we hear the chorus that we are in a gold 'bubble" that is about to burst. The chorus continues until the correction is over, abates, then restarts when gold takes its next drop. The chorus is even louder when it comes to silver prices.

The first graphic purports to show a "parabolic" rise in silver, the final proof of a bubble in some eyes. When I get a plot for silver prices, the price rise is steep but not parabolic(second graph down). Even more revealing is the third graph, the gold price. Since, last November, gold has traded in a rising channel. No runaway bubble there. Compare the rise in gold prices to the previous graph: while gold has started the current channel in November, the rise in silver began in August this year. Until then, shorts were keeping silver prices almost even. So, now silver prices are pushing hard. Also, the occurrence of silver to gold is 14 to 1 in the ground, so for many years gold ran 15 times higher than silver. The ratio of gold to silver got as high as 60. Clearly, silver prices were being suppressed.

The biggest reason for the rise in precious metals is the money printing across the world, especially in Europe and the US and Japan. Yes, we have a fear of inflation as well, but it is the Central Banks and our FED that are ruining the fiat currencies.

The FED is starting QEII with a 600 Billion purchase of Treasuries that is supposed to goose the economy and lower interest rates. Instead, we see municipal and Treasury bonds yielding more in interest, forced on the bond issuers, because of the value of the Dollar is dropping. Strange that Helicopter Ben is still 'surprised' every time one of his schemes do not work out.

The last graphics is a description of what happens in a gold bubble. We have yet to see the Public become enthusiastic.

The best guesstimate is that gold will reach $5,000/oz between now and next August. Sometime, between now and then, gold will start moving fast. The current rally is small potatoes.

Update on gold and the debt crisis.

2010-11-16T06:19:00.000-08:00

The two graphics I posted should explain the basics of the debt crisis in the world. It's like this: not enough producing, too much spending and too much borrowing. It is the nightmarish end of Social Democracy: endless government subsidies and spending to buy votes.

The first graphic shows the borrowing needs of selected Western countries as percentage of GDP. We can see that these rates are not sustainable. In the case of Japan, the government borrowed the money its citizens saved, so when Japan goes belly up, its citizens will lose all their savings. The US borrows most of the money it spends from all over the world (including China). This year, the FED is going to do "Quantitative Easing #2, or QEII, a nice way of saying printing money. We will 'pay' for it in the coin of inflation and the dollar losing its reserve currency status.

The second graphic is the increasing debt burden of the PIIGS countries. Notice that in spite of the spending "cuts" promised, debt continues to swell.

How do these countries get into the pickle of unsupportable and escalating debt? It began with the promises of the Social Democrats to provide for various government services to the population. At first, they raised taxes, especially on the high earners. These were the people who knew how best to invest money in profitable ventures and increase the GDP. When their earnings went to the government in the form of taxes, the high earners reduced their taxable earnings. Down went the GDP and down went the taxes collected. The Media is Socialist all over Europe and it defends every government program just as fiercely as it does in the United States. Opposition Conservatives became "me too" politicians and after a while it made no difference who got elected; government programs and subsidies continued and so did deficit spending. As the private economies grew anemically, an ever larger amount is being financed from borrowing.

So, where is the problem, a Social Democrat might ask. The problem comes when investors (those who buy the debt) decide that with larger debt, the risk of default grows and demand larger return on the borrowing needed to roll over old debt due for repayment. At some level of interest demanded, the debtor can not pay and default looms.

This creates a problem for all who own debts by the deadbeat. If the deadbeat defaults, all of its loans might be declared unpayable and pyramiding of debts stops. Hidden to the population of Europe is the fact that these countries owe large sums to each other and if one gets caught in a default, it will be come a "contagion," a serial default as one country after another admits that it can not pay its debts. That is why the EU decided to bail out Greece and is now considering bailing out Ireland and Portugal, with Spain looming on the horizon.

With the debt crisis comes another unexpected surprise: a surge in the price of the dollar, as deluded people try to convert their Euros into a "safe" currency, the US Dollar. And that raises the value of the dollar, depresses oil, gold and silver prices. Permanently? Oh NO!! When the Europeans paper over their latest currency "crisis" the dollar will again sink and gold, silver and oil will soar.

The first game of the World Series.

2010-10-28T04:17:00.000-07:00

This is an unusual year. So, it should not surprise us that we are having an unusual World Series. The ascendency of San Francisco and the Texas Rangers into the series stunned the East Coast crowd that expected (and wanted) the Yankees and the Phillies. But it was not to happen.

The first game was viewed by the East Coast pundits as a pitchers' duel. Low scores were expected. And it began as if the pundits were right for a change as Texas went ahead two to nothing. Then in the span of a few minutes SF scored six runs and the Texas pitcher (unbeaten untill then) was not only beaten but out of the game. That was not the end of the story. By the time of the final out, the score was eleven to seven.

On to tonight's game.