Who will be right about gold?

Some Wall Street Analysts predict a future drop in gold. Bespoke Investments, for example, predict a drop in gold price by the end of the year. See graphic:

The actual gold price, however, is beginning to take on some serious upside potential. I expect gold prices to retreat now to preserve the 2 up, 1 down, 1.5 up, .75 down then another 2 up, etc. pattern, so I expect gold prices to retreat some tomorrow. But not too far. Tomorrow's gold fixing should tell. If tomorrow's gold price reaches 1070 or near then we have a far stronger rally than even I expect.

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Looking at gold prices, one must take into consideration the underlying fundamentals. The deliberate policy of the Obama regime to deflate the US economy by deflating US assets means that there are more and more dollars that buy less and less. This alone would eventually cause inflation, even though the rise in prices is counterbalanced because unemployed people are desperate to raise cash. In fact, what the regime is doing is transferring wealth to other countries by reducing the value of our money. There is more going on than the Obama regime destroying American assets; it is also printing more and more dollars to continue its Munchausen by proxy Socialist policies. So, gold is rising in value because everyone is converting dollars into gold.

If it were only gold, one might deny the fact that the laws of economics are working. But, the loss of value in the dollar is reflected not only in increased value for gold, but for other commodities as well. Here is a report from today's market action:

Equinox Minerals jumped 5.15 percent ...
Rio Tinto jumped 5.23 percent ...
European Goldfields jumped 7.45 percent ...
Atlas Iron jumped 8.2 percent ...
Fortescue Metals jumped 9.12 percent ...
Hallador Petroleum jumped 11.3 percent ...
And many other resource stocks surged even higher!

If the Obama regime will try to fight the increase in gold value, it will only succeed in squandering our gold stock as well. But then the dissipation of American wealth IS THE POLICY of the Obama regime.

The War on the Dollar.

Those of you who read these posts have come to understand my take on what is happening in the world, especially in the United States. Essentially, we have fallen into the clutches of a collection of radicals, perverts and fruitcakes. The way they see it, the instability in the world is caused by the United States being too rich and too powerful. So, they aim to trim what they consider undesirable: our wealth and our power.

The Obama regime is following the path that Hitler took: becoming the financial stabilizer of the country and the source of economic power and medical care. In order to control the country, the regime's allies in the FED and its affiliates had collapsed the banks and rescued them with monopoly money. They have now set us on a course where they guarantee and control industries. Our wealth is being down-sized. How? By making energy more expensive and by lowering the value of the dollar. By manipulating the banks and mortgages, the regime hopes to induce deflation and "fight" that with large sums of printed currency.

The world is not populated by fools but various kinds of villains, so they know that our government is intent on lowering the value of the dollar. That is why the world is buying gold, silver, oil, uranium, copper, metals and other commodities. These will increase in price, because they are not denominated in dollars, but in their actual (or perceived) value.

The power over international monetary matters have now been ceded to the G-20, which includes China and Brazil, two Socialists countries. Their interest is to allow the Obama regime to reduce the value of the dollar. In fact, the Gulf States no longer sell oil in dollars and that is the first international step to dethrone the dollar as the world's reserve currency.

My forecast remains the same: gold rising and the dollar falling. Gold has set new highs two days in a row and doing it again today. While, I thought that gold would take a breather yesterday, it merely slowed its ascent and continues to rise today. We can expect the price of gold to rise to the 1,300 indicated by the reverse head and shoulders, but it could be even 1,500.

Good investing!

How accurate were my forecasts?

OK, here is the forecast from Sep 29 this year:

"...the scenario predicted by Cycle Theory is still in effect: we will have a rally in gold to maybe 1,300 and the Stock Market will continue to rally. Then ,when interest rates are raised (and some in the Fed promise a large and fast rise), the Stock Market will collapse and also the economy. The price of gold mining stocks will tumble along with other stock prices. At some point, gold mining stocks will begin another rally, as the FED panicks and drops interest rates again, and gold prices will then move past 2,000/oz. The Stock Market will not recover untill the Obamabots are gone from power and Capitalism is re-established in 2013,..."

Let's check the facts:

Here is the S&P 500 today. It is up.

And here is the dollar. It is down as expected.

And here is gold. It set a new record high today, on the sixth of October.

I think gold will not move much tomorrow. It is getting ready to pull back a little.

The "carry trade."

The "carry trade" is a way to keep the value of your currency low with the mistaken belief that by having a cheap currency, you increase export, This was the practice of Japan and it is responsible for near zero growth in Japan and what has become known as the "lost decade." Japan in fact downsized itself. Its stock market was kept low, its growth had stopped and its population started to implode.

Here is how the carry trade worked. If you were a billionaire, you could borrow Japanese yen and pay a half a percent of interest on it per year. You could then buy into other currencies that paid you a 3-4% interest, pocket the difference and even gain more as the Yen deteriorated. The practice kept the Japanese Yen low in value, syphon out Japanese capital and downsize the Japanese economy and nation.

That is what is in store for us.

Signs of economic failure mount.

Obamanomics is based on the idea that the artificially induced financial panic produced Sep 15, 2008 can be cured by the injection of ever increasing FED money. If you are an economist, you watch with fascination to see if all what you have been taught works as you have been told. If you are an interested individual (such as me), you watch with trepidation as you see the Obamabots recreating the 1930s and trying to CHANGE us into a socialist society. It is a process accompanied by incredible hubris, like Obama going to Copenhagen, expecting that his mere presence would sway the IOC to award his crooked friends in Chicago the 2016 Olympic games to milk.

I do not know if I have the gift of words to describe the economic mess the FED has created to elect Obama and its further efforts to negate the effects of the 'mark to market' coup against America. So, let me start. Through various machinations, the FED helped the banks develop an astounding 200+ Trillion bundle of derivatives that sit on the bank balance sheets as "assets." This is more than three times the derivatives that were on bank balance sheets before the meltdown. These derivatives are interest rate sensitive. Should the FED raise interest rates, these "assets" decrease in value and will set off another meltdown of the banks and the Stock Market as well.

So, the FED is obliged to keep interest rates low. How low? The current rate is as low as it can get between 0 and 0.25%. This creates other problems. First, the value of the dollar is reduced viz other currencies and gold. So, the FED must keep interest rates low to keep the Stock Market up, but the low rate is reducing the value of the dollar. The FED can counter this by letting some of the hot air out of the derivatives bubble (which creates some deflation), which reduces money velocity and slows the economy. The FED can also try to manipulate gold prices by selling US gold or borrowed gold, but there is only so much it can do.

The result? A slow economy, high unemployment, loss of the value of the dollar and restiveness in the Stock Market. The FED can not deal with one pile of money without affecting other things. Stagflation with high unemployment is the best the country can hope for under Obamanomics. A continuous downsizing of America is the radicals' goal and it is happening. The edifice of Capitalism is crumbling and people are losing jobs and wealth.

Soon, Liberals will start blaming Obama personally. They will not admit that their ideas are at fault. To be fair to the man, he is just a ventriloquist's dummy, his speeches written for him, delivered via a teleprompter and economic moves are directed by shadowy figures.

Is the economy recovering?

The Obama regime has been touting the change in GDP. In Q2, the GDP dropped only one percent, but this is not an indication of recovery.


Let's look at various parameters. Unemployement is now over 10% (officially 9.8%). It is not getting better. In fact, another 263,000 jobs have been lost in the latest period. What about the GDP figure, you ax? Very much distorted. How? The GDP includes government spending and government spending is being fueled by borrowed money and printed money. So, the economy is not recovering. There is no international recovery either.




Housing - one of the legs of the economy? The government has moved in and most of the mortgage money is now poured in by the FED. The Lumber Index is stuck in low gear just as construction season is winding down. This leg is weak.





Consumer confidence and spending. The other leg of the economy. Consumer confidence took an unexpected drop in the latest reporting. Consumer spending is dragged down by the many people out of work. There is no adaquate substitute for jobs.


Stock Market. The S&P 500 is running out of steam. So are a lot of the stocks. Overall, the Stock Market is still doing OK.







The S&P 500 is taking a hit, but is still running ahead of the 50DMA and the DJI is likewise doing well. Where you note deterioration is in the monthly average plotted against the 200 DMA. The S&P 500 is yet to confirm a Bull Market by crossing the 200 DMA.

Gold and the dollar. Gold continues to have higher highs, in spite of dire predictions from the cycle thory. While, gold is taking a breather (and testing the 990 support level), the dollar is rallying some. Yet everyone considers this rally temporary.

Obamanomics has failed and we are most likely in for another drop in the Stock Market.

Changes in US economic outlook.

Changes in the US economic frame work.

The New Deal.

The frame work of the US economy underwent three changes during the last century. The first change was the Depression. The Stock Market bubble and its unwinding was used by America’s Socialists to introduce the New Deal. Part of the New Deal was repealed in order to win WWII. The US remained a basically market-driven economy.

The Reagan revolution.

Ronald Reagan rolled back some of the confiscatory taxes the Left had imposed and had proven that supply side economics works. That is, if you reduce the taxes of high earners (who know best how to earn money), the economy grows faster than if the government goes into deficit spending to try to stimulate the economy. The Left succeeded in preserving Social Security (a govt Ponzi scheme), but failed to sabotage the economy or save the Soviet Union though unilateral disarmament of the US. Communism was beaten.

The Obama CHANGE.

The Obama regime began even before this impostor was elected. In order to recapitulate the Roosevelt Presidency, the economy had to be crushed so various Socialist programs could be started or enlarged. The basic mechanism of crushing the economy was the imposition of the ‘mark to market’ rule. This gave the faceless bureaucrats the tool to stop money circulation and bring the GDP down very quickly. Obama was elected. Following the election, a bunch of radical Leftists were installed as “Czars,” but the proper name for them is “Commissars” –unelected Party hacks who answer to no one except the President.

The new regime quickly acted to nail down some of its priorities: a) setting aside billions to promote Democrats re-election in 2010, b) nationalize the automobile and insurance industries and control the financial industry, c) control (reduce) energy production and c) try to nationalize the health care industry. Michelle Obama told a woman’s group that the Movement that brought Obama to power has government-run insurance on its program next. Shutting down Talk Radio is next and then disarming the population and the establishment of a political army.

The regime made assumption on how the economy would work. The basic assumption is that money flowing from various pools are isolated so the Regime can control them separately. That is the classic flaw of Socialist economic thinking.