With the correction in gold prices now entering its third month, bulls would do well to take the long view. Compared to the gut-wrenching grind to hell in 2008, the current consolidation has been a piece of cake. Since hitting a record high of $1229 in early December, the price of an ounce of gold has fallen $185, representing a decline of 15%. In comparison, the 2008 correction amounted to a full-blown collapse. Prices fell 35% over a seven-month period, from $1066 to $694. The chart below shows both corrections. We’ve also drawn in some hypothetical price bars in red to show what the chart would look like if this consolidation were to track the path of the earlier one. That would yield a bottom near $856 in early June. If that sounds like strong medicine, consider the payoff: The price of gold rose 77% from its October 2008 low. If a similar situation were to play out in 2009, gold would hit 1515 by the summer of 2011. That scenario sounds like a scenario that everyone but bullion bankers and Democrats could root for.
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More immediately, the Rick’s Picks forecasts calls for further slippage down to at least 1014.20, basis the April Comex contract. That’s less than 5 percent below current levels, so it could conceivably happen by the end of this week or early next. We’d buy aggressively down there with a tight stop if the opportunity were to present itself. Since we never want to chisel these predictions in stone, we should also allow for the possibility of a bullish reversal at any time. To achieve that today, the futures would need to hit 1077.40. A bullish turn from above 1014.20 – from here, perhaps – is not exactly a longshot bet, either, since our analysis for the Dollar Index suggests it may have made a top of at least intermediate-term importance when it hit 80.68 on Friday.
65-Week Moving Average
We’d like to share an interesting note from the Rick’s Picks chat room, which you can access with a seven-day pass by clicking here. This was posted by “Emerald” on Monday, and it squares nicely with our own, patient outlook: “Regarding your query on Gold, one the most reliable metrics for evaluating it has been the 65-week moving average which has contained every decline since mid-2001 except for the sell-off in late 2008. The market peak in December stretched Gold about 1.33x its 65week MA; only May 2006 and March 2008 were more extended. Currently, the 65WMA is at 972 and rising about $5 to $6 per week. After the May 2006 peak in Gold, it took five months for Gold to consolidate back to its 65WMA. It could be that Gold needs more time to digest its gains from the fall of 2009. I am very bullish on Gold, but perhaps we get too impetuous in wanting Gold to properly reflect the economic/financial environment we are in. Gold will get there on its own time.”
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{ 12 comments }
Aloha Rick et al
With all due respect, Big4 still very much short gold and silver,
so we are holding to our $350/$4 gold/silver targets before this wave of
deflation is done. Seems people may be most bullish after tops.
For a tough look at why we think physical dollars may become even more
scarce than now, take 5:37 to watch this money sink:
http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1111064
Regards*All
Good remarks by Emerald. I’d also like to point out that Rick’s downside target is only a few points below the 200 dma, currently at $1019. This is right around a significant support level from the Oct-Dec move. This area makes great sense for a support level and a great place to load up.
comments which are upto mark & its correct …..UR analysis is xlent
Rich,
Your video is a great expose. If it is accurate, it is scandal of biblical proportions. However, I don’t see how it is going to cause a deflation to drag gold down to $350. If anything, I’d say Ben Banksternanke will just have some digital chits conjured up, use them to monetize some toxic sludge or treasuries (just about toxic sludge by now) and use that to pump up Sunwest (was it?) and their ilk. They won’t sit on tha money forever, and I’ll bet some of that will end up buying pms, remember Paulson is buying gold. (Interesting that George “Gold Bubble” Soros is in with Paulson on this sweet deal, if I understood your video).
As for Big4 commercial short interest, those shorts are gonna have to get covered some time, and if they wait for $350, I think they’ll more likely end up having to pay 25% premiums to settle in cash near the top again, like last time.
TP, thanks. Brave populist mortgage guys telling the painful truth about crony capitalism in their industry. Paulson may have bought leveraged gold, but lately has had to liquidate a lot of it. Assets always correct the amount they are financed.
Imagine the deflationary effect of defaulting derivatives.
In the old days, we called collusion between government and capitalists communism, fascism, socialism or totalitarianism. Amazing we trade with communists. The original rationale by the Rockefeller Trilateralists and Rothschild Bankers was that trade would civilize and democratize communists by increasing human rights and standard of living. If anything, it emboldened
communists who armed Iran, Libya, North Korea, Pakistan and Syria.
The inflationists could well be right for a time, who knows how long?
At some point, the whole house of cards defaults as it always has with usury in the Jubilee Generation.
That’s when implosive deflation takes hold of the economy and financial system with a cold vengeance and fury.
With Agencies, CIT, Dead Corps, Fed Bad Banks, STUPID PIIGS and Treasuries guaranteed by Geithner at the expense of tapped out taxpayers, maybe it’s sooner rather than later.
The natural state of economic affairs with freedom without a Central Bank is mild deflation due to increased jobs, productivity, savings and investment supply. Government investments an oxymoron. Government does not produce. It takes. At it’s best, it upholds Constitutional Law to protect liberty and property.
Rather ironic we have a President who taught Constitutional Law but seems not to practice it.
Big4 not commercial shorts. Big4 the largest four traders, usually on the right side of trades in the short run, and almost always for the long term. Time will tell.
Regards*Rich
The current support level for gold is at $1050. I’m not worried until it breaks through that support and if it does, then the next support is at $950 and $850. So talk all you want, until these support levels are broken, your $350 gold theory won’t hold water.
As far as the video is concerned, it only shows that banks are much smarter than Congress (who knew?) and the public. You could even go as far as to say that Wall Street banks are crooks, before and after the crash. But is this something we didn’t already know? This is just one of many scams they are using to get money from the taxpayers. This is why the gov’t should have let the banks fail. But with so many ex-Goldman Sachs employees working for the gov’t, this didn’t have a hope of succeeding.
Dusty
Rich
That is a great video….but aren’t they creating more dollars, based on this model? They are simply transferring borrowed fed money to the banks, like every other gubment program. I don’t see how that is creating scarcity. Interesting that both Paulson and Soros are top holders in the gold etf’s, too. Regardless of Soros’ words, he has been a big buyer of the gld etf.
In the end, yes, housing will deflate. Stocks will deflate. We could get 350 for gold, but if we did, you would be able to buy 10 times more shares of GE than you can today with the same weight of gold. Ditto for housing.
The gubment can’t function with housing dropping 90% from here. Ditto for income and cap gains taxes. They must keep assets up just to feed the machine, regardless if the currency stinks.
I read a recent fluff piece in Newsweek about the weak dollar being a necessary next step and good thing for America. Obama, recently spoke of a weak dollar as the only way to fix our trade problems. I think Dines has it right and we will see a continued fiat currency competitive race to the bottom. The only thing that will save any of us is to get off the train and secure your wealth in something tangible. I agree that there will be substantial opportunities shorting the market, but I think politicians will be pressed to fight this tooth and nail through schemes, like the one in the video, which shove new phony money into somebody’s pockets.
Whether its the price of copper, oil, or gold, this new phony money gets accounted. Doesn’t it seem a bit odd, that even after we have had a total housing implosion, car sales through the deepest trough ever imagined, and still copper prices are 4 to 5 times where they were in the 90’s? Soy beans? Fugetabout it. This is more monetary than simple supply and demand forces. Our currency is being destroyed by keynsian nutjobs who are convinced they are brilliant. There is no feedback loop in the minds of Summers or Bernanke. Why would there be? They are brilliant and never wrong. Just ask them. Correction, just listen, they will bore you to death with an unsolicited monologue of their brilliance.
Could be right. Especially since the COT numbers are saying we are nowhere near the bottom of a correction. Those long/short positions between the commercials and the longs have grown with the gold bull market, especially with the advent of massive liquidity injections.
In the simplest terms, that means larger and larger straddles and strangles in the paper gold market. We can’t be certain that the correction is over until the gold price moves this time around, because relying on the COT numbers will distract us from the price move.
We have seen the 34-week EMA, which is all it needs to continue the uptrend, and that very briefly. 1033 is almost exactly four times the low of 252, so if we continue as per Rick’s formulae, four times the low of 681 is ~2791.
Its only a matter of time before we see negative interest rate policy on short term treasuries, which most probably has a positive risk benefit to gold in its bull market. But I speculate that a parabolic move in the bullion market will be a part of some bullion lease rate infarcus, where short term interest rates cross over long term interest rates in the bullion leases. (short term lease rates are positive, where formerly they were negative for the longest time. Can gold rise in such a climate?)
Posted by Rick for Erich Simon:
Ben is not supporting these markets. He is not monetizing these markets. The more he does, the more he bankrupts the majority and invites revolution, because this is ‘elective investment’. He IS face-lifting where possible… end-of-day, but that is all. Watch for warnings on a terrorism strike in the national press to precede key technical selling junctures and the coming 20% haircut.
* * *
The coming Terrorist strike and Tax Payer strike overlay, R,
Over the weekend, a Saturday, it was announced by our “top intelligence” that there is absolute certainty of a terrorist strike on US soil within the next six months….
Six months is long enough to be vague, while three months would invite panic, questions and criticism. I have to confess that I am more fearful of our own government and these blanket pronouncements than I am of any terrorist group, other than the homegrown kind, those black shoots popping up now on every street corner and at every table… of tea bags and tax payers bent on revenge… bent and breaking under the economic stress of poverty, and the realization of a lifetime toil chasing a worthless Debt Carrot.
A carrot dangled at the end of a stick held by the hands of institutionalized hypocrisy, masking the greatest looting of all time, the looting of the last remaining resources.
The social riot has started. Anyone doubting that has only to look at Denny’s today, with sidewalks filled ten people deep and fender-benders in progress at both entrances… with drivers shaking fists flanked by scowling passengers… behind more fender-benders in-the-make from rear-enders into cars seeking entrance, out on the highway… turning lanes be damned… backing up into more people slowing to swoop down for their free tray of slop, today is the day of the Superbowl advertised free Grand Slam.
Our leadership is bracing. Because a people so desperate for one lousy, cholesterol-laden, FREE plate of gut-fill are most assuredly on the doorstep to revolution. Because there is nothing more dangerous than a man with nothing left to lose. Except a hungry man… with nothing left to lose.
The announcement of a six month terrorism parameter, extending through Independence Day, is telling. There can be little doubt, given closing volume numbers on the major indices, that the government has been coming in (again) at the end of every trading day for weeks and months now to attempt to support a market that is finally incapable of such support. The equity markets, and who knows what else, are going to collapse within the next six months… probably sooner rather than later… with a vacuum implosion to match the unbroken run-up of the past twelve months.
The fact that this announcement about an impending terror strike was delivered on a weekend, yet again… all of these such announcements since 9/11 have been delivered after market close on Fridays… is signaling that the markets are hanging by a thread. The closing-bell phone calls, with the open Saturday and Sunday strategy window, have become routine management. And soon to be crisis control spun within the larger framework of the Terror Fabrication.
I wonder which Terror Card they are planning to pull out of the Terror filing cabinet to wave in front of the American Sheeple. I suppose it will depend on the extent of the equity collapse. The bigger the collapse, the bigger will be the advertised conspiracy.
E.
Since “The Great Unpleasantness” in the fall of 2008, the Feds and US Gov’t have worked together to avoid a complete deflationary collapse to the tune of hundreds of billions of dollars to prop up banks, car companies, Fannie, Freddie, etc.
Do you think that the Feds and US Gov’t are running out of financial bullets? Some astute observers believe Japan’s bandoleer is just about empty and they have failed, but compare Japan’s debt to GDP to the US’ now. Krugman is still making print. Former GS employees are still logging into the Fed’s and Treasury Department’s desktops.
I could make the argument that the US and the Fed’s tactics today are similar to Germany’s Gov’t and financiers in the latter part of WWI.
As DG points out, above, nothing works with 90% deflation. I can see the 90% coming, but only after Ben’s helicopters have made many, many “drops” trying to avoid a crash.
I will surely concede that a serious bout of civil disorder could accelerate a crisis, but that will also trigger an earlier deployment of Ben’s choppers and the adding of 000s to Rick’s bank account.
Perhaps lost in the Ouzo margin call reflex countertrend rally:
S&P today put BAC and C on Negative Credit Outlook…
http://www.cnbc.com/id/35314800
Great intelligent discussion points all and the primary downtrend may still be our friend.
Dusty: Rick mentioned and Stockcharts shows a $GOLD print at 1044.80 yesterday. Gold Point & Figure target still 930. Time will tell if $350 works. Senator Chuck Schumer and his Hedge Fund cronies basically triggered a fatal run on IndyMac, the second largest bank failure so far, by depositors with his public letter according to regulators:
http://www.bloomberg.com/apps/news?pid=20670001&sid=aAYLeK3YAie4
DG: With respect for Buffett, Paulson and Soros, Fed and Treasury are trying to create more dollars out of debt, but the defacto defaults are coming faster than they can manipulate markets. Bond vigilantes including Pimco already began to raise rates, the 10 year Note having already doubled yields, not from inflation, but credit risk. Their arguments for GE being worth more than Gold may be a case of Generals fighting the last war. Since 1913, we have mostly had inflation, with the exception of the Great Depression, which WEB is old enough to recall. Since 2000 we have had deflation through credit contraction and Fed Treasury manipulations as Mark Faber points out, went from generating 25 cents of GDP for every dollar of government monetary creation, to -65 cents now. And one look at the various money supplies now shows they are in deflationary mode:
http://www.shadowstats.com/alternate_data/money-supply-charts
Ditto the monetary base, also pushing on a string:
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=BASE&s1transformation=pc1
The key concept is that once gold ceased to become a monetary standard backed by the Fed and Treasury per the Constitution (although Eagles are still legal tender with $50 gold and $1 silver face value), it became just another market subject to inflation and deflation. We had 98% inflation relative to gold since the Fed was rammed through in 1913 by the Jekyll Island European cabal. We had 86% inflation since W had simultaneous drugs and wars. The surprise may be the dollar holds and regains value, although Big4 currently short copper and the dollar while long the Swiss Franc. Followed Dines since the 60s as he went from Inflation to Deflation and back to Inflation. None of us is perfect. He lost a lot of money in 2008 when the inflation hedges went down, and they can again. Totally agree with “The gubment can’t function with housing dropping 90%.”
In terms of gold, cars, real estate and stocks are already down 86%. Newsweek whitewash trying to spin the weak dollar as salvation sounds like another neoKeynesian Samuleson spin from the grave. Our real cost of living is going up 10% versus the 1980 CPI before subsequent COLA revisions kept government entitlement costs down.
http://www.shadowstats.com/alternate_data/inflation-charts
That’s what stealth 0Care was all about, raising taxes on and cutting payments to the little people, while capitalist cronies get our money. Maybe we should hold our all-in economic central planners from Rubin to Summers, Bernanke, Geithner, Greenspan and Paulson accountable for their failures and tax dodges.
FranSix: Great points about increased volatility, lease rates and not leaning on the COT numbers. Trailing Stops work better than being too clever by half. With a -7.3% five quarter contraction in the real GDP, including the preliminary +5.7% GDP estimate of Q$ 2009, real interest rates are already quite positive on the short and long ends, typical of deflation. Gold does not usually rise with positive real interest rates.
http://www.bea.gov/newsreleases/national/gdp/2010/pdf/gdp4q09_adv.pdf
Erich would seem to have it right. War makes markets go down because it breaks and kills more than it builds and births. Wait until Depleted Uranium and 9-11 birth defect and toxic death lawsuits pile up. China, not the USA, got the bulk of rights to Iraqi oil. And with economic slowdown, they may not need it either…
Cheerful Regards All*Rich
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