With the global economy caught in a deflationary vise, I queried Bob Prechter recently about gold’s prospects. He is the right guy to ask for two reasons. First, his 2002 book At the Crest of the Tidal Wave established him as the foremost expert in the world on the subject of deflation. And second, as someone who has been relative tepid toward gold, perhaps he can explain why bullion quotes have not been hitting new highs even though fiscal and monetary policy in the U.S. and elsewhere have turned recklessly expansive. Below is my letter to him, followed by his response: “I am writing to ask your opinion about a key question that divides inflationists and deflationists. To wit: If we are indeed headed into a deflationary depression, why has gold quadrupled off its lows, and why does it look like it’s consolidating for a push above $1000? (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.) “I am a deflationist myself -- a hard-core one, in part because of your pellucid writing on the topic in At the Crest. Other books that influenced me were C.V. Meyers’ The Coming Deflation (1977) and Davidson & Rees-Mogg’s The Great Reckoning (early1990s). I have written myself on the topic (and inevitability) of deflation in Barron’s, as well as in the column I freelanced for several years to the San Francisco Examiner in the late 1990s. I continue to write regularly about the tightening deflationary noose in my daily newsletter, Rick’s Picks, and I see the economy as headed into a morass even deeper than the one the nation experienced in the 1930s. ‘Puny’ $8.5 Trillion “I have been arguing that the so-far $8.5 trillion bailout is a puny number compared to the deflationary implosion
Tuesday, January 6, 2009
February Gold (853.60)
– Posted in: Current Touts Free Rick's PicksA minor downtrend in play Monday night pointed to 851.70, a Hidden Pivot that night owls can bottom fish with a stop-loss as tight as four ticks. If the stop is hit, expect the weakness to continue to at least 845.00, or to 829.10 if any lower. That last number can also be bottom-fished using a stop-loss as tight as you can abide. _______ UPDATE: Gold is acting too, too coy today. Bearish short-term targets were negated by a move above 861.00 (aka point 'C'), but there are no useful upside targets that I can offer you as of yet. Meanwhile, price action in gold stocks such as Newmont has not only been bullish, it has been blatantly manipulative in a way that will have benefitted knowledgeable buyers.
NEM Newmont Mining (38.84)
– Posted in: Current Touts Free Rick's PicksWe hold 200 shares for 40.41. Since the stock looks like it could fall to 37.74 before it gets traction, let's try to hedge the exposure by offering two Jan 40 calls (NEMAH) short for 1.19. They were trading for around 1.25 when the bell rang on Monday. _______ UPDATE: We shorted two calls for 1.20, giving us a covered write. No further action is suggested for now. Incidentally, I have inferred that the action at the opening was quite bullish, since the predatory scumballs who manipulate this stock for a living were able to move it 86 cents, from low to high, on the opening bar.
February Crude (48.07)
– Posted in: Current Touts Free Rick's PicksThe bear rally has been mediocre so far, but that would change if the surge were to hit 57.25 without any intervening pullbacks lasting for longer than a day. The chart shows why. As you can see, a push to 57.25 would surpass three prior peaks, two of them "external" -- an impressive feat. More imnmediately, the futures appear to be struggling to reach the 49.65 target of a minor uptrend. If they get there in the first two hours of today's session, though, you can try shorting with a stop-loss as tight as 18 cents. _______ UPDATE: The move above 49.65 came in labored spasms, but the fact that it occurred at all suggests that still higher prices lie in store. Since it occurred in the middle of the night, no trade was effected.
