Topic: Gold: I smell a trap - page 43. (Read 90828 times)

just finished reading Ben's speech.  the 2 most important messages i heard was 1. no more direct QE and 2. the need for more fiscal discipline.

comments?

LOL.  Zerohedge is one of my favorites too!

sorry but i had to add to my DZZ at the bottom this AM!!!

Good chart. Overshooting to the downward slope is a possibility, especially considering the similarities between today and the late 1970s. Market participants will obviously be looking first for horizontal support at about 2:1, then 1:1.

@ cypherdoc:

Looks like Roubini has been doing a few too many lines of coke off naked strippers.

Excellent. Thanks for the report link. From a technical perspective, why shouldn't we draw bands somewhat as I have (green) below? Fundamentally, couldn't we see 1980 an undershoot after Nixon's shock wave?

You need to see it in the bigger context.  See the long chart on the first page of this report.

1999 would have been a good time to dump your stocks to buy metals.  Each share of a Dow index would have picked up ~40 ounces of gold.  Right now, a bit under 6 ounces will buy you one share of the Dow.  I expect that to get down to about 2 before the trend reverses.

Of course, you can't really know for sure, so you need to pick your own indicators.  I've decided to go with either a ratio under 2, or a strong upward trend.

I think you just convinced me to trade my metal for the Dow!

sold some gold at 1770 

I don't think this was directed at me, but...  I decided long ago that everyone was wrong about economics, including me.

I mostly read doom and gloom types (Jesse, Mish, Steve Keen, etc) for two reasons.  First, the positive view is ubiquitous, it is permeates every part of our culture.  There is no need to seek out the message that is all around you.  Second, I'm pretty conservative financially, in the sense that I'm more interested in avoiding downsides than gaining upsides.

In the end though, I don't think that either side is much better than the other.  I think that they are both wrong, in different ways, at different times, and for different reasons.

I'm pretty sure that the value of the dollar will approach zero, because that seems to happen to all fiat currencies.  And I think it possible, maybe even probable that this will happen during my lifetime, but I wouldn't care to bet much on exactly when, or even roughly when.  So, I don't want to hold dollars any more than necessary, even if dollars are doing better than everything else at any given moment.

And when it comes up in other contexts, I defend the dollar.  Our fake paper bullshit money is the best fake paper bullshit money on the planet, right now, and reports of its impending doom are certainly premature.

The one indicator that I watch carefully is the DJIA priced in gold.  Chart here.

If that is low and falling, like it is now, I feel that buying gold and silver is a better bet, long term, than buying stocks.  Once that turns around, I'll probably dump my metals and buy stocks (index funds, actually).

The good news for me is that I don't have a lot of assets, so it doesn't really matter much that I also don't have the time to spend watching markets, or learning to be better at watching markets.

he's as bullish as you are

Agreed!

Another gold margin hike imminent? If it does come to pass, I fail to see anything at all legitimate about the move. The gold price has paused and to raise margins while the price is near a low point is absurd, unless you buy into the premise of there not being sufficient unencumbered physical metal at the warehouses.

Jesse always has the best photoshops.  And thank god he wasn't able to keep that awful MIDI player when he changed to a blog.

He'll try, along with those in the private sector trying to keep things from falling apart.

The most obvious way would be to change the rules: price controls. Efforts at capping various rates are along those lines (a la operation twist), though legislative means are sure to follow when they prove insufficient. Capping will keep interest rates down, but won't do much for operational funding. There are numerous other minor methods that can be used together in order to guide/incentivize/force demand to one degree or another. Whether they're used individually or in conjunction remains to be seen.

There's an outstanding article at Jesse's Cafe Americain today which goes into a good amount of detail regarding that very matter.

I think the Repo market tactic will provide the most direct means of getting the banks to start dumping their reserves into the markets instead of holding them. That would kick up dollar velocity and liquidity while also providing operating capital in the form of loans for government without resorting to the typical high-profile QE method. Several of the other methods in the article above would almost amount to strong-arming certain sectors of the economy into demanding dollars.

That's why I agree with you that dollar demand will rise, but it's value will be a much less definite issue. Bernanke is doing his best to bail out a rapidly sinking ship that keeps springing new leaks, so he's got some sympathy from me. On the other hand, he and his ilk dragged us all into this mess in the first place.

At the very least, how can you not die laughing from this?

I see. If you agree that gold's price is currently in uncharted territory, then there are methods to project where potentially significant price levels will arise. One of those is a Fib projection. Others involve trend lines or temporal estimates. Jim Sinclair uses a French curve to project parabolic rises over varying time periods, although I think he's had custom software designed to do that now. It's a simple fact that humans are good at pattern recognition and will come up with all kinds of ways to explain them and recognize more intricate ones.

Just because we can plot projections obviously doesn't mean they're going to be the defining factors. That lies with the basic supply and demand. Sure, the run-up to $1913 touched a Fib projection level, but it wasn't the projection itself that caused everyone to sell.

Why didn't the selling occur at the 161.8% or the 261.8% level? We don't have the position information that the banks, exchanges and various market makers do, so only they can figure out where a break will occur in a timely fashion. Since many of them have trading divisions, who's to say they aren't using that information to game the system, using projection levels as points to attempt a reversal?

Fibonacci retracements are significant and used all over, almost as much as plain ol' trend lines. The projections make just as much sense to use, and it worked very well this time around. There's probably some element of self-fulfillment at work, but how much is anybody's guess. It's kind of chicken & egg with certain discernible influences taking the lead periodically. I hope that answers your question at least a little bit.

miscreanity:

i have a question for you.  what would it take for Ben to drive up the USD and to drive down the price of gold?

please don't say he won't do this.  i'm asking a theoretical question and am interested in your opinion as to how he would do this.

no one knows.

What I mean is (I'll take an example) if the fibonacci trading techniques state that at a certain point an uptrend will reverse and people follow the techniques then it will reverse because people will be selling at that point wether or not there is any proper reason to. Does the market make the fibonacci patterns or do the fibonacci patterns make the market?

When the message was sent on August 8th, gold was around $1700. I had suggested not buying in size, but also not shorting. My intent was to convince you to keep your physical metal holdings, though I could've been more explicit on that. As it so happens, gold rose $200 from where you were getting ready to short. Do you feel lucky now? Are you willing to bet your wealth on luck, or a more measured approach?


Your point would apply if such physical shipments had to occur on a regular basis. They do not.

As I mentioned earlier, the problems arose during a fixed exchange which leverage grew around. Floating exchanges preclude the mass imbalances that were spawned from that.


Did patterns exist before trading?


Sure you do, it's just the timing that's virtually impossible to call right now.

Bonds are an institutional medium. Widespread demand will be for a general transactional medium, such as the Euro or USD or local currency (gold/silver are last resort), leaving the bond burdens to be supported by... ?


Gold is clawing its way back up as well. Do you want to start singing the 'one day does not make a trend' tune on that now? It would apply to the dollar just as readily. Be careful when you jump without looking. Temper the type-A; patience is the greatest virtue.


Indeed, they are. They certainly are not acquiring fiat currencies or buying bonds.

If you are correct in that the federal reserve will stop pumping money into treasuries, which wont happen of-course, then those treasuries will fail eventually and any semi-intelligent person would stay far away.

Around the world people will continue to wake up to the horrid fiat and the safety of gold. Gold is a rebellion against the devaluing fiat currencies and the fiat frauds.

another source is junk and corporate bonds which do poorly in Depressions.  basically everything can get sucked down into the vortex black hole of UST's including gold.  Antal Fekete has great insights into this altho he would disagree on the gold part with me.