Dear Extended Family,
I am in London this evening in my room posting as much serious material as possible to help you understand the new nature of gold; a nature fraught with unprecedented volatility. I will deliver my presentation tomorrow. Right now we have to talk.
Gold from $248 to $524.90 was an arithmetic uptrend based on a re-birthing of gold’s currency roll.
When gold broke out above $524.90 I asked you to please cease trading as gold had moved from phase 1 into a runaway price phase 2. It is this phase which has given you prices in excess of $1650.
$1764 has the same significance as $524.90 because it represents phase 3, the point when a runaway price market for gold would gain exponential properties.
Because $1764 is such significant a number you can expect one of the more serious price battles before the price departs to Alf Fields’ and Armstrong’s higher potentials.
To sum up the situation you haven’t seen anything yet.
As strange as it sounds right now, soon you will begin to see the bearish cabal on mining shares looking for cover where gold will be sold for correct precious metals shares.
Keep the faith. $1650 has been the minimum upside since $248, not the most likely top.
Respectfully,
Jim
I am in London this evening in my room posting as much serious material as possible to help you understand the new nature of gold; a nature fraught with unprecedented volatility. I will deliver my presentation tomorrow. Right now we have to talk.
Gold from $248 to $524.90 was an arithmetic uptrend based on a re-birthing of gold’s currency roll.
When gold broke out above $524.90 I asked you to please cease trading as gold had moved from phase 1 into a runaway price phase 2. It is this phase which has given you prices in excess of $1650.
$1764 has the same significance as $524.90 because it represents phase 3, the point when a runaway price market for gold would gain exponential properties.
Because $1764 is such significant a number you can expect one of the more serious price battles before the price departs to Alf Fields’ and Armstrong’s higher potentials.
To sum up the situation you haven’t seen anything yet.
As strange as it sounds right now, soon you will begin to see the bearish cabal on mining shares looking for cover where gold will be sold for correct precious metals shares.
Keep the faith. $1650 has been the minimum upside since $248, not the most likely top.
Respectfully,
Jim
Dear CIGAs,
Very early this morning, gold shot up to another all time record high above the technically significant resistance level near $1680 as sovereign debt fears coming out of the Euro Zone intensified with the worsening news. It did not take long however as trading moved further into the New York session for gold to drop sharply lower as the US equity markets began imploding. The Dollar soared over 100 points, the Euro fell out of bed and the crude oil market was shellacked as investor after investor all began heading to the sidelines and running out of nearly everything out there except for US Treasuries.
Further intensifying the fear trade was news that a large bank (Bank of New Yokr Mellon) was actually charging customers a fee for putting cash INTO their bank! If that was not revealing, nothing was. It showed how nervous investors are becoming and how desperate they are to find a safe haven to park their wealth. THis news helped to further feed into the buying frenzy in the Treasury markets as investors basically shrugged their shoulders as if saying, "What the heck, if they are going to charge me a fee to put money in their bank, I might as well just buy Treasuries instead".
It occurs to me that the overnight intervention by the Japanese monetary authorities was extremely bullish for gold as it was further evidence of the currency debasement policy proliferation that we have been witnessing. We have seen the Swiss also playing that game along with the Brazilians which is the reason that gold has been going on to make one record high after another across a variety of major currency terms. However, all of this was outweighed by the sheer volume of money flows out of the markets in general. Many are attempting to come up with a new strategy to deal with the rapidly changing economic paradigm and prefer to just get out of their trades while they weigh their options. Others are just selling in order to raise cash to meet a plethora of margin calls. There will be more than a few utterly exhausted margin clerks before the closing bells ring on the various markets.
The Euro in particular and the commodity currencies in general were all whalloped today as traders are now coming around to the view that the next move by the ECB in regards to interest rates will be LOWER and not higher. That has led to a general theme of Euro selling along with Dollar buying. All of this mess really started in Europe which it now appears is dealing with its own version of Lehman Brothers and the liquidity crisis that erupted when that institution failed back in the summer of 2008. Their problem is related to their big banks however in the sense of the exposure that these entities have to the sovereign bonds of some of the major countries comprising the Euro Zone. Credit lock ups are what the real fear is.
The commodity currencies were crashed along with the CRB and the CCI (more on those indices later).
One of the few bright spots I can see as far as the consumer goes is that UNLEADED GASOLINE crashed through its recent low today which should eventually provide some relief at least at the gas pump for beleagured consumers. A nice $0.40 drop in the wholesale price will perhaps free up a bit of the little disposable income that consumers have left in their wallets.
There have been a large number of references back to the summer of 2008 today as the deflation trade dominated the markets at that time. This is being reflected in the mining shares once again which are absolutely horrendous today as the HUI is currently down over 5% as I write this while the XAU is down over 6%. Both have violated their 50 day moving averages and are back under their 100 day moving averages as well. There is some support on the price chart of the HUI near the 520 level and 190 on the XAU. Whether or not those hold is unclear at the given moment especially if this fear trade were to intensify further. An awful lot of traders have already thrown in the towel today based on the massive move lower across so many markets so perhaps the bulk of the selling is over. I am simply not sure but what I find rather remarkable is how quickly the "Buy the Dip" mentality in the broader equity markets completely evaporated today. All that happened in the mining sector is that the gold shares became even more undervalued compared to gold than they were before the day started. We will keep watching to see at what level enough value based buyers emerge in the shares to outweigh the hedge fund algorithm related selling that continues in association with that ratio spread trade of theirs.
The S&P 500 has smashed through downside support moving below psychological round number support at 1200. If you look at the weekly chart, you can also see that it is negative for the year and is sitting on the 25% Fibonacci Retracement Level for the rally from the early 2009 low to its recent top. It will need to recapture 1200 quickly to stem the bleeding somewhat or else we will see an eventual move towards the 38.2% level closer to 1107.
Back to gold however – part of the reason it was hit so hard at one point in the trading session had to do with unsubstantiated rumors that were floating around that the CME Group was going to be hiking margin requirements on their gold futures contracts. Traders hit the gold market so hard with selling on that rumor that they knocked the price of gold down nearly $40 off its best level of the session. Later on the CME felt the need to address that and denied the rumor was true. That denial led to a counter rally in the gold market which came nicely off its lows only to run into another wall of selling once the neighboring silver market puked along with the downward acceleration in the US stock markets. While the near term technical price charts look a bit toppy on gold as a result of the margin related selling, considering the carnage across so many of the commodity markets, it was down less than 1%. I want to see how it performs overnight and into early tomorrow morning when we get the payrolls number from the US pencil pushers before I get a better sense of where it might be heading next in the short term. One has to respect the technicals in today’s markets as that is what the computer algorithms are all based on and right now we are looking at a short term negative technical pattern on the gold chart. If Asian comes into to buy overnight or if we see additional gold buying out of Europe when it opens tomorrow, then there is a good chance that today’s action will be negated. For the time being however, one cannot ignore the chart pattern so be careful. I will feel a bit more confident for the short term prospects of gold should it be able to recapture the $1,665 level on a closing basis.
Keep in mind that I am speaking as a trader looking at a short term price chart. Longer term I believe many investors are looking for a dip in the gold price to secure more of the metal. The entire problem in the markets right now is that investors world wide, but particularly investors putting money into the Western economies, have LOST CONFIDENCE in the monetary authorities of those nations and in their political leaders. In effect, the markets have voted and that vote says, "WE DO NOT TRUST THEM TO BE ABLE TO PROPERLY DEAL WITH THE ROOT CAUSES OF THE PROBLEMS THAT ARE AFFLICTING THE NATION". Gold in that sense is the "ANTI-GOVERNMENT" vote as there is no government behind the metal. That will keep buyers interested in gold even in the midst of a money flow issue.
Silver was mauled without mercy as it met with the fate of copper. This is to be expected during times of risk aversion. For all the silver bulls out there, please understand this basic principle – Silver will not outperform gold during a period of risk aversion. Period – Comex silver stocks do not matter. All that matters is that risk trades get yanked off and silver gets hit harder than gold because even though it has an historic role as a safe haven metal, it cannot shed its industrial metal role completely during such times. The Gold/Silver ratio will therefore move in the favor of gold during periods of risk aversion when fear trades are the rule. When the risk trades go back on and traders feel very comfortable taking risk, then silver will outperform gold to the upside.
All our eyes will now turn to that payrolls number tomorrow morning to see where things go next. In the meantime, I cannot tell you how many times I heard the talking heads using the words “OVERSOLD” today. Funny how we rarely if ever see these same financial anchors use the term, “OVERBOUGHT”. One can almost sense just how badly they want the stock market to stop going down.If we get a larger than espected payrolls number tomorrow, they will probably get their wish.
For more articles from Trader Dan be sure to check out his blog at www.TraderDan.net
Market Commentary From Monty Guild
August 4, 2011, at 7:07 pm
by Jim Sinclair
The Debt Ceiling Raised, but Mega Problems Still Unresolved
Congress has voted to avoid a short-term default on its obligations. Thankfully, the operatics are behind us; at least for a while. More importantly, the U.S. is still no closer to finding a long-term solution to its dire fiscal problems. The legislation that was passed does not even attempt to address the structural deficiencies in the tax code, the eroding job market, or the burgeoning and no longer affordable entitlement programs.
Next year’s election shapes up as a referendum between taxpayers and government benefit recipients. We expect the ideological warfare to continue and intensify as the election gets closer.
Your Cost of Living — Don’t Believe the Government Data
We’ve written about this before, but it is worth mentioning again. There’s an election campaign up ahead so be alert to all kinds of economic statistics coming your way — via blogs, airwaves, TV commercials, town hall meetings, and endless speeches — on behalf of government. A consistent theme will emphasize an understatement of the inflation situation.
Governments understate inflation to:
1) calm the public and avoid instituting an inflation psychology because inflation psychology causes hoarding and shortages,
2) control the rising costs of payments by the government to pensioners, Social Security recipients, and other groups whose payments are indexed to the inflation rate.
Historically, presidents from both major parties have authorized the use of statistical trickery to minimize government payments and to understate the inflationary impact upon the consuming public. In this current period of growing awareness and concern about fiscal conservatism and limits on government spending, there seems to be a growing willingness by some politicians to openly discuss the need to control payments through manipulation of statistical measures…something that they had tried to hide in the past.
Government Statistics: Caveat Emptor
As manipulation increasingly becomes the order of the day, it is appropriate to trot out one of Abe Lincoln’s best-known sayings:
“You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”
It seems to us that less and less people these days are being fooled. People, institutions, and governments around the world have in the last few years begun to buy gold, oil, food, foreign currencies, and foreign stocks to protect the buying power of their assets from inflation that is quite real, even if it is not recognized by official record keepers here or elsewhere.
The U.S. has manipulated the way data has been statistically analyzed, and the way it has been included and removed from the Consumer Price Index (CPI) and other indices for decades. Talk about a stacked deck, the CPI is a total statistical stacked deck. Rather than go into a boring analysis of the behaviors of the past, let us point out the most recent proposal to lower the actual inflation rate. A New York Times article published this last weekend discusses how the use of an inflation measure called chained CPI will effectively cut benefits to Social Security recipients. It’s worth reading, so here is the beginning of it:
Muddying the Budget Waters
-By Tara Siegel Bernard
All the political wrangling over the budget in Washington has been focused on one theme: how much the government should cut and when those cuts should take effect.
But for all of the difficulty lawmakers are having now, their
hardest decisions may come this fall when they do battle over which government programs to cut back. And one program that has already been put on the table for discussion is Social Security, even though it has not contributed to the budget deficit.
There is no question the program needs to be tweaked so it can remain solvent for decades to come. And experts say the problem is not that difficult to solve, as long as it is dealt with relatively soon.
The proposed changes would have tinkered with one of the most beloved features of Social Security: the cost of living adjustment, which helps benefits keep pace with inflation so the elderly maintain their purchasing power. The proposed changes would link benefits to a new measure of inflation — one that is projected to rise more slowly than the current index.
“It amounts to a benefit cut,” Alicia H. Munnell, the director of the Center for Retirement Research at Boston College, said.
The proposal, which emerged as a potential bargaining chip earlier in the budget debate, caused Social Security preservationists to cringe. And that is a big reason they argue that any changes should not be fast-tracked as part of the broader deficit debate.
If no changes are made, the program’s reserves are now projected to be exhausted in 2036, a year earlier than last year’s projection. Then the taxes collected would be enough to pay only about 75 percent of benefits through 2085, according to the latest annual report from the agency’s trustees.
The shortfall can largely be attributed to demographic shifts. The coming wave of baby boomers will strain the system, while the number of workers paying into the system is declining. On top of that, people are living longer, and the weak economy is not helping matters.
Changing the cost of living adjustment is just one of several ways to bolster Social Security’s finances. Suggestions have included gradually increasing the retirement age or raising the amount of income subject to Social Security payroll taxes.
The Obama administration’s deficit-reduction commission proposed switching to the new type of index because, members said, it would be more accurate. Unlike the current measure, it takes into account that people tend to change their buying habits when prices rise, substituting cheaper items for more expensive ones. If, for instance, the price of apples goes up, people may instead buy pears, if they are cheaper. The current index assumes that if the price of apples go up, people will just buy fewer apples.
But there is a question of whether the elderly and disabled can make the same substitutions as working people. “If you are down to paying your rent and your food, and the price of your food goes up, you probably just eat less,” Ms. Munnell said.
In addition, the slower rise in benefits would compound over time. That means the older that retirees grew, the bigger the pinch they would feel, especially people who depended heavily on the program. About 43 percent of single people and 22 percent of married couples rely on the benefits for more than 90 percent of their income, the Social Security Administration says. More than half of couples and 73 percent of singles draw more than half their income from the program.
To read the rest of the article click this link to The New York Times: http://www.nytimes.com/2011/07/30/your-money/muddying-the-budget-waters-with-social-security.html
In our opinion, this is nothing less than a managed decrease in the standard of living of the country’s retirees. See for yourself what this does to a Social Security recipient’s benefits.
Please click image to enlarge
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We laughed as we read this particular comment in the article: “The proposal, which emerged as a potential bargaining chip earlier in the budget debate, caused Social Security preservationists to cringe.” They should have been cringing long ago. Decades ago. In reality, this type of manipulation is consistent with what they have been doing for 30+ years. Why the sudden outcry? Because for the first time some U.S. policymakers are openly discussing the manipulation of the statistical measurement of inflation.
It is about time to stop the slight-of-hand applied to paper over America’s declining standard of living. If reducing benefits is now a matter of prime national interest due to the deteriorating fiscal health of the country, then we believe that our leadership should come right out and tell the people the truth.
Guild Basic Needs IndexTM
Due to our concern about the skewed inflation data from the Bureau of Labor Statistics, we decided recently to start publishing the Guild Basic Needs IndexTM. Our regularly updated yardstick tracks changes in the cost of components within four critical consumer areas: food, clothing, shelter, and energy (needed for heating, cooking, and transportation).
As you can see from the following chart, price inflation of these four groups has far exceeded the stated rate of increase of the CPI since the turn of the century — January 1, 2000.
Please click image to enlarge
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To gauge your own standard of living, we invite you to routinely utilize the Guild Basic Needs Index — posted on our website. Check the costs of your basic needs and see where your costs are headed. We do not trust the current CPI, or as the government calls it “CPI-E,” and we trust the “CPI-U” much less.
Some People are Saying That Gold is a Bubble
Is it? We sure don’t think so.
Consider this:
• The central banks throughout the world appear to be nowhere close to stopping their purchases of gold. See the article in The Wall Street Journal entitled “Central Banks Join Rush to Gold.” It was written following South Korea’s first gold buy in 13 years.
Click the link to read full article from WSJ Online.
• Global central bank gold reserves, IMF holdings, and gold ETF holdings total about 32,000 tonnes. That’s equal to about a mere $1.7 trillion at current prices. The U.S. budget deficit for 2011 alone is expected to be $1.5 trillion, which required a big dollar printing exercise to fund. Central banks of many nations are trying to diversify their reserves, but are unable to keep pace with the speed at which the world’s reserve currency is being debased.
• The growth in the supply of gold pales in comparison to the proliferation of other financial instruments such as currency, bonds, and stocks. Here are the comparisons:
Current annual gold production adds only an additional 1.5 to 2 percent per year to the estimated 165,000 tonnes mined globally over the years. Even with the recent strong price moves, the total value of all the gold ever mined is less than $9 trillion.
Global currency in circulation has grown over 10 percent per year since 2000, and exceeds $5 trillion.
Global stock market capitalization has grown to over $55 trillion.
Global bond markets are estimated at about $95 trillion.
As for the unregulated derivative market, it has grown rapidly to some unknowable, but very large number.
The bottom line: The supply of gold is growing at a much slower rate. Given that gold has been a store of wealth by societies around the world for centuries, its current price rise appears quite rational, and far from bubble-like.
There are rumors today that the futures exchange regulators are going to increase the margin requirements for gold. We don’t know when it will happen, but it will. When gold falls on this news, we plan to be buyers on the pullback. Central banks will also be buyers; they are not subject to meeting margin requirements.
Summary
Politicians like to talk about transparency, but their actions are usually anything but transparent. This recent debt ceiling debate was the exception. It was quite a transparent and revealing display of dysfunctionality.
Large bureaucracies everywhere, and not just in Washington, suffer from congenital dysfunction. Big government, business, labor, and military — they are all riddled with it. They are just too big, too unwieldy, and too inefficient. In government, party ideology typically trumps the higher good. Politicians seem no longer to be statesmen or stateswomen. Too many are simply self-interested, and no amount of patriotic rhetoric from them changes the fact that their actions are primarily geared towards their own re-election.
The public’s behavior reflects the fact that people don’t trust their politicians or bureaucracies. They are increasingly drawn to gold, oil, food, currencies of better managed countries, foreign stocks, and stocks in the few industries that benefit from dysfunction in policies leading to a lower U.S. dollar.
The U.S. economy appears headed for a double dip recession. For that reason we are raising cash in the portfolios. We are also recommending that it’s time for investors to take profits in oil, Singapore dollars, and to sell their U.S., Malaysian, corn, and Japanese equities. Slowing economic activity from the over-levered U.S., Europe, and Japan are causing concern about profits. Even though we expect weak economic activity will lead to more money printing from central banks, the markets are going through a rugged period which makes us want to reduce our exposure.
However, we are not changing our bullish recommendations on gold and certain foreign currencies that are likely to keep appreciating versus the Euro and the U.S. dollar at this time. See below for a summary of both our open and closed recommendations.
We thank you for your continued support. To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email guild@guildinvestment.com
When we last looked at
the Bank of America joke of a "non-settlement" settlement for a paltry
$8.5 billion when $424 billion in total misrepresented (530 in total)
Countrywide mortgage trusts were at stake, we said, "we are
confident that the legal process will prevail and that the presiding
judge on this case, and if not him then certainly the New York District
Attorney, will step up and demand a thorough reevaluation of the
settlement process." We were, oddly enough, correct. According
to a just released filing from the New York Attorney General Eric
Schneiderman, Bank of America (and Bank of New York Mellon, one of the
tri-party repo banks mind you), violated New York state law and "misled
investors." In a knock out punch to Bank of America (and Brian Lin who was profiled here previously),
the bank allegedly violated the New York’s Martin Act and misled
investors about its conduct tied to mortgage securitization as Bloomberg
summarizes. Schneiderman said he has "potential claims" against Bank
of America Corp. and its Countrywide Financial unit. As Zero Hedge
alleged all along, "The proposed cash payment is far less than the
massive losses investors have faced and will continue to face." What does that mean? Well, as the countersuit by
the FHLB indicated (which we are certain will be the basis for the NY
AG claims), the likely final settlement is probably going to be about $22 to $27.5 billion.
Which also means that the bank's Tier 1 capital is about to be
discounted by about 25% lower. Which, lastly, means that the stock is
about to plunge due to a massive litigation reserve shortfall which will
have to be plugged with, surprise, a new equity capital raise. Which brings us to our original question: got CDS (which
closed around 200 bps today, roughly 25 bps wider - it is going much
wider tomorrow, especially if the expected Sarkozy-Merkel-Zapatero
meeting achieves absolutely nothing)? Cause this baby is going
down...and it is probably about to be broken up into good BAC and bad
bank, consisting almost entirely of all legacy Countrywide operations.
Said otherwise, it could well be time for a CFC-BAC CDS pair trade.
Being
honest, no one knows. But, using the current road map it appears we
may have a little more selling before a decent move higher. Below is
the updated 2007 "analog" as compared to the current market. Few
interesting points. At some point this market will rally and will rally
hard. Remember there are a lot of participants who view this selloff as
excessive and based on fear. They view the macro data as a soft patch
and see the Fed ready to launch QE3. When this market rallies they will
be very loud in their "I told you calls." Many shorts with conviction
after a day or two of market strength will in fact panic and begin to
believe in the health of the economy contrary to what they know in
their heart. When studying the 2007-08 chart remember Bear Stearns was
"bailed out" by JPM in March 2008 which caused a multi month rally that
preceded the epic selloff. My personal view is we are headed for a
similar epic selloff. I'm not sure when but suspect it is sooner than
most think. BAC breaking down could very well be the modern day LEH
failure. We are surrounded by "black swans" right now from rumors of
Italian run on the banks to failed Spanish auctions and more.
Very early this morning, gold shot up to another all time record high above the technically significant resistance level near $1680 as sovereign debt fears coming out of the Euro Zone intensified with the worsening news. It did not take long however as trading moved further into the New York session for gold to drop sharply lower as the US equity markets began imploding. The Dollar soared over 100 points, the Euro fell out of bed and the crude oil market was shellacked as investor after investor all began heading to the sidelines and running out of nearly everything out there except for US Treasuries.
Further intensifying the fear trade was news that a large bank (Bank of New Yokr Mellon) was actually charging customers a fee for putting cash INTO their bank! If that was not revealing, nothing was. It showed how nervous investors are becoming and how desperate they are to find a safe haven to park their wealth. THis news helped to further feed into the buying frenzy in the Treasury markets as investors basically shrugged their shoulders as if saying, "What the heck, if they are going to charge me a fee to put money in their bank, I might as well just buy Treasuries instead".
It occurs to me that the overnight intervention by the Japanese monetary authorities was extremely bullish for gold as it was further evidence of the currency debasement policy proliferation that we have been witnessing. We have seen the Swiss also playing that game along with the Brazilians which is the reason that gold has been going on to make one record high after another across a variety of major currency terms. However, all of this was outweighed by the sheer volume of money flows out of the markets in general. Many are attempting to come up with a new strategy to deal with the rapidly changing economic paradigm and prefer to just get out of their trades while they weigh their options. Others are just selling in order to raise cash to meet a plethora of margin calls. There will be more than a few utterly exhausted margin clerks before the closing bells ring on the various markets.
The Euro in particular and the commodity currencies in general were all whalloped today as traders are now coming around to the view that the next move by the ECB in regards to interest rates will be LOWER and not higher. That has led to a general theme of Euro selling along with Dollar buying. All of this mess really started in Europe which it now appears is dealing with its own version of Lehman Brothers and the liquidity crisis that erupted when that institution failed back in the summer of 2008. Their problem is related to their big banks however in the sense of the exposure that these entities have to the sovereign bonds of some of the major countries comprising the Euro Zone. Credit lock ups are what the real fear is.
The commodity currencies were crashed along with the CRB and the CCI (more on those indices later).
One of the few bright spots I can see as far as the consumer goes is that UNLEADED GASOLINE crashed through its recent low today which should eventually provide some relief at least at the gas pump for beleagured consumers. A nice $0.40 drop in the wholesale price will perhaps free up a bit of the little disposable income that consumers have left in their wallets.
There have been a large number of references back to the summer of 2008 today as the deflation trade dominated the markets at that time. This is being reflected in the mining shares once again which are absolutely horrendous today as the HUI is currently down over 5% as I write this while the XAU is down over 6%. Both have violated their 50 day moving averages and are back under their 100 day moving averages as well. There is some support on the price chart of the HUI near the 520 level and 190 on the XAU. Whether or not those hold is unclear at the given moment especially if this fear trade were to intensify further. An awful lot of traders have already thrown in the towel today based on the massive move lower across so many markets so perhaps the bulk of the selling is over. I am simply not sure but what I find rather remarkable is how quickly the "Buy the Dip" mentality in the broader equity markets completely evaporated today. All that happened in the mining sector is that the gold shares became even more undervalued compared to gold than they were before the day started. We will keep watching to see at what level enough value based buyers emerge in the shares to outweigh the hedge fund algorithm related selling that continues in association with that ratio spread trade of theirs.
The S&P 500 has smashed through downside support moving below psychological round number support at 1200. If you look at the weekly chart, you can also see that it is negative for the year and is sitting on the 25% Fibonacci Retracement Level for the rally from the early 2009 low to its recent top. It will need to recapture 1200 quickly to stem the bleeding somewhat or else we will see an eventual move towards the 38.2% level closer to 1107.
Back to gold however – part of the reason it was hit so hard at one point in the trading session had to do with unsubstantiated rumors that were floating around that the CME Group was going to be hiking margin requirements on their gold futures contracts. Traders hit the gold market so hard with selling on that rumor that they knocked the price of gold down nearly $40 off its best level of the session. Later on the CME felt the need to address that and denied the rumor was true. That denial led to a counter rally in the gold market which came nicely off its lows only to run into another wall of selling once the neighboring silver market puked along with the downward acceleration in the US stock markets. While the near term technical price charts look a bit toppy on gold as a result of the margin related selling, considering the carnage across so many of the commodity markets, it was down less than 1%. I want to see how it performs overnight and into early tomorrow morning when we get the payrolls number from the US pencil pushers before I get a better sense of where it might be heading next in the short term. One has to respect the technicals in today’s markets as that is what the computer algorithms are all based on and right now we are looking at a short term negative technical pattern on the gold chart. If Asian comes into to buy overnight or if we see additional gold buying out of Europe when it opens tomorrow, then there is a good chance that today’s action will be negated. For the time being however, one cannot ignore the chart pattern so be careful. I will feel a bit more confident for the short term prospects of gold should it be able to recapture the $1,665 level on a closing basis.
Keep in mind that I am speaking as a trader looking at a short term price chart. Longer term I believe many investors are looking for a dip in the gold price to secure more of the metal. The entire problem in the markets right now is that investors world wide, but particularly investors putting money into the Western economies, have LOST CONFIDENCE in the monetary authorities of those nations and in their political leaders. In effect, the markets have voted and that vote says, "WE DO NOT TRUST THEM TO BE ABLE TO PROPERLY DEAL WITH THE ROOT CAUSES OF THE PROBLEMS THAT ARE AFFLICTING THE NATION". Gold in that sense is the "ANTI-GOVERNMENT" vote as there is no government behind the metal. That will keep buyers interested in gold even in the midst of a money flow issue.
Silver was mauled without mercy as it met with the fate of copper. This is to be expected during times of risk aversion. For all the silver bulls out there, please understand this basic principle – Silver will not outperform gold during a period of risk aversion. Period – Comex silver stocks do not matter. All that matters is that risk trades get yanked off and silver gets hit harder than gold because even though it has an historic role as a safe haven metal, it cannot shed its industrial metal role completely during such times. The Gold/Silver ratio will therefore move in the favor of gold during periods of risk aversion when fear trades are the rule. When the risk trades go back on and traders feel very comfortable taking risk, then silver will outperform gold to the upside.
All our eyes will now turn to that payrolls number tomorrow morning to see where things go next. In the meantime, I cannot tell you how many times I heard the talking heads using the words “OVERSOLD” today. Funny how we rarely if ever see these same financial anchors use the term, “OVERBOUGHT”. One can almost sense just how badly they want the stock market to stop going down.If we get a larger than espected payrolls number tomorrow, they will probably get their wish.
For more articles from Trader Dan be sure to check out his blog at www.TraderDan.net
Market Commentary From Monty Guild
August 4, 2011, at 7:07 pm
by Jim Sinclair
The Debt Ceiling Raised, but Mega Problems Still Unresolved
Congress has voted to avoid a short-term default on its obligations. Thankfully, the operatics are behind us; at least for a while. More importantly, the U.S. is still no closer to finding a long-term solution to its dire fiscal problems. The legislation that was passed does not even attempt to address the structural deficiencies in the tax code, the eroding job market, or the burgeoning and no longer affordable entitlement programs.
Next year’s election shapes up as a referendum between taxpayers and government benefit recipients. We expect the ideological warfare to continue and intensify as the election gets closer.
Your Cost of Living — Don’t Believe the Government Data
We’ve written about this before, but it is worth mentioning again. There’s an election campaign up ahead so be alert to all kinds of economic statistics coming your way — via blogs, airwaves, TV commercials, town hall meetings, and endless speeches — on behalf of government. A consistent theme will emphasize an understatement of the inflation situation.
Governments understate inflation to:
1) calm the public and avoid instituting an inflation psychology because inflation psychology causes hoarding and shortages,
2) control the rising costs of payments by the government to pensioners, Social Security recipients, and other groups whose payments are indexed to the inflation rate.
Historically, presidents from both major parties have authorized the use of statistical trickery to minimize government payments and to understate the inflationary impact upon the consuming public. In this current period of growing awareness and concern about fiscal conservatism and limits on government spending, there seems to be a growing willingness by some politicians to openly discuss the need to control payments through manipulation of statistical measures…something that they had tried to hide in the past.
Government Statistics: Caveat Emptor
As manipulation increasingly becomes the order of the day, it is appropriate to trot out one of Abe Lincoln’s best-known sayings:
“You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”
It seems to us that less and less people these days are being fooled. People, institutions, and governments around the world have in the last few years begun to buy gold, oil, food, foreign currencies, and foreign stocks to protect the buying power of their assets from inflation that is quite real, even if it is not recognized by official record keepers here or elsewhere.
The U.S. has manipulated the way data has been statistically analyzed, and the way it has been included and removed from the Consumer Price Index (CPI) and other indices for decades. Talk about a stacked deck, the CPI is a total statistical stacked deck. Rather than go into a boring analysis of the behaviors of the past, let us point out the most recent proposal to lower the actual inflation rate. A New York Times article published this last weekend discusses how the use of an inflation measure called chained CPI will effectively cut benefits to Social Security recipients. It’s worth reading, so here is the beginning of it:
Muddying the Budget Waters
-By Tara Siegel Bernard
All the political wrangling over the budget in Washington has been focused on one theme: how much the government should cut and when those cuts should take effect.
But for all of the difficulty lawmakers are having now, their
hardest decisions may come this fall when they do battle over which government programs to cut back. And one program that has already been put on the table for discussion is Social Security, even though it has not contributed to the budget deficit.
There is no question the program needs to be tweaked so it can remain solvent for decades to come. And experts say the problem is not that difficult to solve, as long as it is dealt with relatively soon.
The proposed changes would have tinkered with one of the most beloved features of Social Security: the cost of living adjustment, which helps benefits keep pace with inflation so the elderly maintain their purchasing power. The proposed changes would link benefits to a new measure of inflation — one that is projected to rise more slowly than the current index.
“It amounts to a benefit cut,” Alicia H. Munnell, the director of the Center for Retirement Research at Boston College, said.
The proposal, which emerged as a potential bargaining chip earlier in the budget debate, caused Social Security preservationists to cringe. And that is a big reason they argue that any changes should not be fast-tracked as part of the broader deficit debate.
If no changes are made, the program’s reserves are now projected to be exhausted in 2036, a year earlier than last year’s projection. Then the taxes collected would be enough to pay only about 75 percent of benefits through 2085, according to the latest annual report from the agency’s trustees.
The shortfall can largely be attributed to demographic shifts. The coming wave of baby boomers will strain the system, while the number of workers paying into the system is declining. On top of that, people are living longer, and the weak economy is not helping matters.
Changing the cost of living adjustment is just one of several ways to bolster Social Security’s finances. Suggestions have included gradually increasing the retirement age or raising the amount of income subject to Social Security payroll taxes.
The Obama administration’s deficit-reduction commission proposed switching to the new type of index because, members said, it would be more accurate. Unlike the current measure, it takes into account that people tend to change their buying habits when prices rise, substituting cheaper items for more expensive ones. If, for instance, the price of apples goes up, people may instead buy pears, if they are cheaper. The current index assumes that if the price of apples go up, people will just buy fewer apples.
But there is a question of whether the elderly and disabled can make the same substitutions as working people. “If you are down to paying your rent and your food, and the price of your food goes up, you probably just eat less,” Ms. Munnell said.
In addition, the slower rise in benefits would compound over time. That means the older that retirees grew, the bigger the pinch they would feel, especially people who depended heavily on the program. About 43 percent of single people and 22 percent of married couples rely on the benefits for more than 90 percent of their income, the Social Security Administration says. More than half of couples and 73 percent of singles draw more than half their income from the program.
To read the rest of the article click this link to The New York Times: http://www.nytimes.com/2011/07/30/your-money/muddying-the-budget-waters-with-social-security.html
In our opinion, this is nothing less than a managed decrease in the standard of living of the country’s retirees. See for yourself what this does to a Social Security recipient’s benefits.
Please click image to enlarge
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We laughed as we read this particular comment in the article: “The proposal, which emerged as a potential bargaining chip earlier in the budget debate, caused Social Security preservationists to cringe.” They should have been cringing long ago. Decades ago. In reality, this type of manipulation is consistent with what they have been doing for 30+ years. Why the sudden outcry? Because for the first time some U.S. policymakers are openly discussing the manipulation of the statistical measurement of inflation.
It is about time to stop the slight-of-hand applied to paper over America’s declining standard of living. If reducing benefits is now a matter of prime national interest due to the deteriorating fiscal health of the country, then we believe that our leadership should come right out and tell the people the truth.
Guild Basic Needs IndexTM
Due to our concern about the skewed inflation data from the Bureau of Labor Statistics, we decided recently to start publishing the Guild Basic Needs IndexTM. Our regularly updated yardstick tracks changes in the cost of components within four critical consumer areas: food, clothing, shelter, and energy (needed for heating, cooking, and transportation).
As you can see from the following chart, price inflation of these four groups has far exceeded the stated rate of increase of the CPI since the turn of the century — January 1, 2000.
Please click image to enlarge
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To gauge your own standard of living, we invite you to routinely utilize the Guild Basic Needs Index — posted on our website. Check the costs of your basic needs and see where your costs are headed. We do not trust the current CPI, or as the government calls it “CPI-E,” and we trust the “CPI-U” much less.
Some People are Saying That Gold is a Bubble
Is it? We sure don’t think so.
Consider this:
• The central banks throughout the world appear to be nowhere close to stopping their purchases of gold. See the article in The Wall Street Journal entitled “Central Banks Join Rush to Gold.” It was written following South Korea’s first gold buy in 13 years.
Click the link to read full article from WSJ Online.
• Global central bank gold reserves, IMF holdings, and gold ETF holdings total about 32,000 tonnes. That’s equal to about a mere $1.7 trillion at current prices. The U.S. budget deficit for 2011 alone is expected to be $1.5 trillion, which required a big dollar printing exercise to fund. Central banks of many nations are trying to diversify their reserves, but are unable to keep pace with the speed at which the world’s reserve currency is being debased.
• The growth in the supply of gold pales in comparison to the proliferation of other financial instruments such as currency, bonds, and stocks. Here are the comparisons:
Current annual gold production adds only an additional 1.5 to 2 percent per year to the estimated 165,000 tonnes mined globally over the years. Even with the recent strong price moves, the total value of all the gold ever mined is less than $9 trillion.
Global currency in circulation has grown over 10 percent per year since 2000, and exceeds $5 trillion.
Global stock market capitalization has grown to over $55 trillion.
Global bond markets are estimated at about $95 trillion.
As for the unregulated derivative market, it has grown rapidly to some unknowable, but very large number.
The bottom line: The supply of gold is growing at a much slower rate. Given that gold has been a store of wealth by societies around the world for centuries, its current price rise appears quite rational, and far from bubble-like.
There are rumors today that the futures exchange regulators are going to increase the margin requirements for gold. We don’t know when it will happen, but it will. When gold falls on this news, we plan to be buyers on the pullback. Central banks will also be buyers; they are not subject to meeting margin requirements.
Summary
Politicians like to talk about transparency, but their actions are usually anything but transparent. This recent debt ceiling debate was the exception. It was quite a transparent and revealing display of dysfunctionality.
Large bureaucracies everywhere, and not just in Washington, suffer from congenital dysfunction. Big government, business, labor, and military — they are all riddled with it. They are just too big, too unwieldy, and too inefficient. In government, party ideology typically trumps the higher good. Politicians seem no longer to be statesmen or stateswomen. Too many are simply self-interested, and no amount of patriotic rhetoric from them changes the fact that their actions are primarily geared towards their own re-election.
The public’s behavior reflects the fact that people don’t trust their politicians or bureaucracies. They are increasingly drawn to gold, oil, food, currencies of better managed countries, foreign stocks, and stocks in the few industries that benefit from dysfunction in policies leading to a lower U.S. dollar.
The U.S. economy appears headed for a double dip recession. For that reason we are raising cash in the portfolios. We are also recommending that it’s time for investors to take profits in oil, Singapore dollars, and to sell their U.S., Malaysian, corn, and Japanese equities. Slowing economic activity from the over-levered U.S., Europe, and Japan are causing concern about profits. Even though we expect weak economic activity will lead to more money printing from central banks, the markets are going through a rugged period which makes us want to reduce our exposure.
However, we are not changing our bullish recommendations on gold and certain foreign currencies that are likely to keep appreciating versus the Euro and the U.S. dollar at this time. See below for a summary of both our open and closed recommendations.
We thank you for your continued support. To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email guild@guildinvestment.com
Guest Post: Where Are The Markets Headed Next?
Being
honest, no one knows. But, using the current road map it appears we
may have a little more selling before a decent move higher. Below is
the updated 2007 "analog" as compared to the current market. Few
interesting points. At some point this market will rally and will rally
hard. Remember there are a lot of participants who view this selloff as
excessive and based on fear. They view the macro data as a soft patch
and see the Fed ready to launch QE3. When this market rallies they will
be very loud in their "I told you calls." Many shorts with conviction
after a day or two of market strength will in fact panic and begin to
believe in the health of the economy contrary to what they know in
their heart. When studying the 2007-08 chart remember Bear Stearns was
"bailed out" by JPM in March 2008 which caused a multi month rally that
preceded the epic selloff. My personal view is we are headed for a
similar epic selloff. I'm not sure when but suspect it is sooner than
most think. BAC breaking down could very well be the modern day LEH
failure. We are surrounded by "black swans" right now from rumors of
Italian run on the banks to failed Spanish auctions and more.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
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