We’re not keen on market alerts, dear readers, because you probably have far too many of them to sift through already, each with a different and sometimes deliberately outrageous point of view. Even so, we should like to caution you that recent, coincident tops in Comex Gold and the S&P 500 are best not ignored. Although we remain bullish on both of these vehicles, you can infer that the yellow flag is out. This means that bullion and the broad indexes will be receiving more scrutiny than usual in the days and weeks ahead, so that Rick’s Picks subscribers will be better prepared to dodge the avalanche that is increasingly a possibility. Our specific predictions, disseminated to subscribers in the form of daily “Trading Touts,” had called for a shortable top at 1316.75 in the E-Mini S&P, and at 1681.50 in Comex March Gold. In the actual event, the recent high in Gold occurred at 1681.80, three ticks from our target; and in the E-Mini at 1318.25, six ticks from our target.
These targets were derived from our proprietary Hidden Pivot Method, and although they are intended for traders, they can also be quite useful for purposes of forecasting. In this case, if the E-Mini S&P were to rip through the recent high within the next day or two, it would imply that bulls have the power to drive stocks significantly higher. Any sign of this would shift our attention toward a 13085 Hidden Pivot target identified earlier for the Dow Industrials. That’s 409 points above current levels – a good week on Wall Street, although it could take a bit longer, or even abort, if Europe’s financial problems return to prominence in the news.
Why “Abort”?
Why “abort”? For starters, euroheadlines such as yesterday’s – that Greece and its lenders are having more trouble coming to terms than had been expected – tend to weaken the euro. That drives always-crazed “investors” into U.S. Treasurys and the dollar, sapping the flow of dollars into shares. This dynamic is usually referred to by the news media as a “flight to quality,” but as we’ve explained here many times, it is actually caused by a bunch of money managers so absolutely witless they would have had trouble qualifying for CETA jobs. They operate under the assumption that if the global money system were to collapse, the euro would unravel first. Rick’s Picks thinks this will indeed prove to be the case, but not in the way that the benighted, miserably clueless money managers might imagine. In our scenario, those who have fled to the supposed safety of dollars will have a grace period of perhaps an hour or two before their “safe haven” collapses like all the others. We shun predictions about what gold and silver will do on that day, although it seems like a no-brainer to assume that they will fare much better than T-bonds, stocks, or most other types of investable assets. We do not include currencies on our list of endangered assets because we remain firmly convinced that currencies, fundamentally worthless though they be, will continue to circulate and have great utility during and after the extended bank holiday that is surely coming.
***
(If you’d like to have these commentaries delivered free each day to your e-mail box, click here.)
Robert: ““There is not enough gold to solve this problem, and gold is anything but liquid. ”
-Baloney- Read Jim Rickards book.”
I haven’t read that book, but does his argument resemble anything like my replies to AJBAKER on SA?
My argument rests on increasing the velocity of gold circulation, not its relative value, to accommodate its role as money in an economy growing faster than the supply of gold. I believe that the argument that gold can become as valuable as needed in a proportion equal to the size of the world economy divided by the supply of gold to be fundamentally flawed, as gold’s purchasing power does not chance over the long haul.
Gold’s value rests not on its usefulness as money, but, on the contrary, its usefulness as money rests on its intrinsic value as a rare and desirable commodity and some other other convenient properties as enumerated by Aristotle.
If gold’s value had to rise too disproportionately to other things in order to accommodate its role in commerce, then its ability to serve this function would break down or, more likely, create the incentive for other things to compete with and thereby supplement gold’s role as money.
@AJBAKER:
AJBAKER: “All money is fiat: it is essentially a promise to provide (roughly) so many units of reward in return for effort or other value. It doesn’t matter whether the fiat number is stamped on paper, on metal, or exists merely as bits in a computer. As long as people are willing to work to receive it and can expect to receive value in return for surrendering it, it is money.”
REPLY: There are two kinds of fiat money: One doesn’t promise to provide any units of anything; that’s what most people mean by “fiat money”. The other is issued by the fiat form of government called the state; it’s a promise of a measure of something (usually gold) for each monetary unit, but the promise is a fractional reserve Ponzi scheme and likely to be reneged upon by arbitrary decree.
People’s willingness to be fooled by counterfeit money and money of no official value does not make it real money.
AJBAKER: “It is a little more — but not much more — difficult to increase the money supply when needed to ease the wheels of commerce when the money is paper rather than bearing a stated relationship to an amount of gold. But all of the explanations of how gold can be used as money in an expanding economy where more things are produced because its price will increase merely illustrate how completely arbitrary the value attached to a set amount of gold is.”
REPLY: This is wrong: The purchasing power of gold increases during economic contraction and goes back to normal during economic expansion.
Historically, the purchasing power of an ounce of gold has remained surprisingly stable for over a thousand years.
The value of gold does not need to equal the value of all exchanges within a time-frame as gold is simply recirculated as many times as needed within a given period. A certain amount of fluctuation in its value will free up for circulation horded gold that’s needed for commerce and cause it to be saved again when it becomes undervalued.