Friday, September 24, 2010

Timely Remarks About The Shiny Metal - A Gold Update

We've made some pretty good intermediate term gold calls on here over the years. A few notable calls includes remarking that the next move in precious metals would be down before gold and silver assets crashed in 2008 and that gold stocks were the only attractive equity investment after the crash in 2008. I do believe that last call was the day before gold stocks started their current rally.  Some have now rallied a few hundred percent. And a few months ago when gold was peaking we were rattling our saber about concerns over gold. The shiny metal followed suit with a reasonably large correction. A correction that caused substantial losses by at least one major hedge fund. So what voodoo did we use to make those calls? Well there are quite a few data points but one is below.

Just as everything else on our planet, every financial market has a rhythm or natural cycle to it.  In other words, we see a back and forth of price that happens in patterns or bursts as markets move higher, lower or chop.  I attempt to capture those natural rhythms for obvious reasons.  We have highlighted the algorithm shown below on here a few times when applied to the NYSE.  We highlighted it signaling a bullish call soon after the equity market rally started in 2009 as we used it to point out Nouriel Roubini's wrong way calls at that time and again in February of 2010 signaling the most overbought equity market since 1995.  When reviewing it in early 2009, we also used it as an aid to guesstimate a future turning point for markets.  We wrote back then that the first turning point downward was the second quarter of 2010.  Guess what?  We hit the equity market peak in the second quarter of this year.  Another possible turning date we remarked of is now upon us.  That is September of 2010.  (Interestingly, there is that doggone 1995 pivot point again. Have you noticed how new home builds are back to 1995 levels as well? Haha. 1995 plays a very critical role in our macro analysis.)

Anyway, we can apply this same cycle count algorithm to the gold market. And that is what is shown below overlaid on gold.  As a count condition increases, so does the algorithm, thus signaling a bullish dynamic.   If count conditions no longer increase, the algorithm starts printing negative counts or heads downward.

Notice when we were ratcheting up our remarks about gold back some months ago, the cycle counter was not following gold higher. Eventually gold followed the cycle count algorithm lower in a reasonably large correction. Notice how the action in the cycle counter today is not confirming the price move to new highs as was the case a few months ago. Will the outcome be the same?  ie, Is gold due another correction as it attempts to sustain a breakout to new highs?

I think it's important to understand the dynamics of all financial markets in this cycle. Both Janet Tavakoli and George Soros have since come out with a similar position to ours as it relates to gold. And this past week Max Keiser had a guest on his Youtube channel remarking how the gold market was being manipulated by a handful of very rich people trying to corner the market as we have seen in almost every commodity this cycle. In other words, as financial demand (manipulation) has outstripped economic demand for commodities and other assets.  Of course, Keiser doesn't call it manipulation because he has a vested interest in gold.  But, it is indeed manipulation when gold buyers realize exchanges have more contracts than physical gold and are attempting to force a run on gold.  This has happened numerous times in the last few hundred years and we used to discipline speculators for this type of manipulation.  But given that the trading exchanges are also corrupt in their over subscriptions of gold, the whole system is rotten.   There truly is no rule of law in financial markets.  Financial reform is a ruse perpetrated by a criminal class.

I don't know when the gold bubble will pop, but it will. There have been countless reasons cited by gold bulls as to why gold is going up. Deflation, inflation, a crash in currencies, the Fed printing money, the end of fiat currency, the end of the United States and on and on and on. In the last few weeks I saw someone remark that gold is warning us of coming war. Well, in actuality, they are all wrong. The only reason gold is going up is speculative demand. Speculative demand enhanced by the many new leveraged gold derivative products which allow over subscription or leverage.  As we have remarked, it's the same dynamic that is creating all of the other financial crises.  Action in the gold market is driven by the same corrupt system with the same corrupt players as all of the other corrupt financial markets. You won't read that on most web sites or any subscription services because it doesn't fit with the bullish belief system or the vested interest many have in gold.  Gold is not driven by a search for honesty or legitimacy.  It's being driven by unpure and dishonest financial mobsters. As Soros has recently remarked, there is no safe investment. And that is what we wrote before the crash in 2008 and it still holds true.

We've already remarked on here that the Federal Reserve bailed out the gold market once and they weren't likely to bail it out again. Most people who are ideologically-driven as it pertains to gold would find that remark blasphemous but that is indeed an incontrovertible fact. When gold and silver assets were cratering in 2008 because its primary owners, the corrupt financial system, was unwinding, it was the Federal Reserve who stepped in to save gold speculators. Otherwise, we wouldn't even be talking about gold right now. All of the gold bulls would be panhandling for their grocery bills because of all of the money they would have permanently lost in 2008's collapse. It is only the Federal Reserve's attempts at reflation that is propping up gold.

Because the Federal Reserve is telegraphing their future actions, it is providing cover for the speculators in all markets to ramp up their risk. That includes gold. But in order for all of them to be successful, the Federal Reserve is going to have to back stop every financial market either directly or indirectly. First it was banking. Then housing. Now it is corporates and Treasuries. When does it end? Where does it end? Who does and doesn't get bailed out in this corrupt financial game?  Well, we know most Americans who rely on hard work to make a living aren't getting bailed out comparative to financial gamblers.  Do you honestly believe the Federal Reserve is capable of bailing out all financial markets in the biggest financial bubble in history?

Regardless, the cycle counter on gold made a peak this month just as price was approaching the June highs but speculators have continued to push the price of gold past that. We shall see what happens but how about something else to think about. Gold is close to finishing up a massive bearish rising wedge that goes back well over two years. And while chart patters are anecdotal, longer term patterns often play out to some degree of accuracy as market rhythms based on repeatable human behavior repeat similar patterns.  The longer the patterns are, the more likely they are reflecting measurable repeated behavior.  All of these remarks about gold entering periods of seasonal strength and whatnot are yesterday's news. Years ago we cited seasonality of different markets and sources for that data going back decades or longer at Moore's. We have seen on countless occasions that today's fundamentals throws all of that out the window. I don't know where gold's rise will end but it will end when the bulls don't expect it. You know, like now. And it won't be a happy ending.

posted by TimingLogic at 8:05 AM

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