30/05/2010 by Philinje.

Check out the case of the shrinking US money supply:

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

Shadowstats is an admirable site that tracks such things in an attempt to give an honest appraisal of the economy:

http://www.shadowstats.com/

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30/05/2010 by Philinje.

Those interested in the deep inner workings of the gold market could get a sniff here:

http://www.gata.org/node/8676

And the link on that page to:

http://www.goldensextant.com/commentary37.html

The main point is that the gold leasing activity of central banks, a practice that suppresses the price of gold by allowing nearly riskless shorting by several large banks, may be “improved” (as in, made more effective)by the ETFs GLD and SLV. Other ETFs that have a rigorous backing by physical metal, such as Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS), and the spot price of gold itself tend to be at a premium, or higher than forward prices. There is other strange behavior as well, but what it all means is conjecture.

One conjecture is that central banks are creating a situation is which a fractional reserve gold standard could be used. This gives them, through the help of certain large banks and perhaps the GLD and SLV ETFs, the ability to control the gold price without exposing the huge naked short position that has accumulated in their ongoing attempts to control the gold price.

A further conjecture, and one often espoused by Jim Sinclair, is that the powers that be will eventually establish a reserve currency backed by gold, possibly in a fractional reserve manner. This is the end goal of the dollar’s somewhat managed decline. Maybe a better phrase is, the dollar’s induced decline. If this end goal comes to pass, gold will settle at some stable price, presumably at a level higher than today’s price.

Anyway, all this stuff doesn’t matter much to the small guys, except that the likelihood of price manipulation is high. So you have to be careful, and holding physical gold is a smart idea in general.

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30/05/2010 by Philinje.

Perhaps unsurprisingly, gold promptly made it back to $1210 early this past week and basically just stayed there. The pound showed some strength as the UK government got pieced together and the Euro seems to be stabilizing, despite the Fitch downgrade of Spain’s credit rating. Equities seem weak but exhausted, meaning there may be a short-term bounce into June.

But various analysts devoted to cycle theory are calling for severe equity declines in late June and then August. My feeling is if gold doesn’t promptly head for its projected $1350-1400 top, it might be safer to step to the sidelines after mid-June.

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30/05/2010 by Philinje.

Ever wonder what the Constitution had to say about money? This article is from the Wall Street Journal, re-printed on the GATA website. I found the last paragraph particularly interesting - the historical circumstances at the time of the writing of the Constitution were unusually challenging.

http://www.gata.org/node/8688

A lot has been said about how paper money was created as a whim of government. Well, a whim of many governments over the eons. And it always ends up the same way: worthless. This guy brings up a good point: after the reserve currency of the world goes away, what’s left?

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25/05/2010 by Philinje.

In a nutshell,  the following article is a good one for de-bunking the myth that gold doesn’t do well in deflation. Everyone seems to agree that gold does well anticipating inflation, which is the common argument for its current strength. However, in deflation physical assets decline. Yes but…

For one thing, deflation can hit some assets and not others. For another, deflation can make currency devlautation even worse as governments desperately print their way out of a deflationary spiral. Guess what, that’s what’s happening now.

http://seekingalpha.com/article/206557-deflation-and-economic-weakness-the-best-catalysts-for-gold?source=email

So far this week, gold seems to be doing a bit better than silver in forming a bottom, though both seem stable for now.

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24/05/2010 by Philinje.

Last week smelled of de-leveraging, a la late 08. Gold got taken down or cooled off, depending on how much you believe in market manipulation by large players, but considering equities visited or exceeded the spike low of May 6, gold helpd up pretty well. It’s low of the week seemed to be at about $1166 right at Asian open on Friday. Today gold is already up to $1190 in Asian trading.

This week should be volatile. My guess is markets will try to form a bottom and there is plenty of economic newsflow this week to make that difficult. Also, tomorrow is a futures expiry date in gold so it’s likely we’ll see some more hanky panky by the big guys.

My friend Art has updated his chart and I post that here:

Art’s update

Note that he revised the minor wave 4 down target to $1170 from $1190. I’m proud to say I predicted $1170 when I posted the last version of this chart! This doesn’t mean we are out of the woods yet. There could be plenty more ambushing this week so be cautious.

In addition to the inverse Head and Shoulders pattern, there is another well-know technical pattern called the Cup and Handle. There is a strong case to be made we are forming the handle right now. Check out this article:

http://jessescrossroadscafe.blogspot.com/2010/05/gold-is-in-classic-cup-and-handle.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29&utm_content=Google+Reader

For the big picture, always helpful during corrections, check out:

http://goldscents.blogspot.com/2010/05/focus-on-what-matters.html

This one is also good in global terms with some handy charts:

http://www.theundergroundinvestor.com/2010/05/10-gold-charts-that-commercial-investment-firms-never-want-you-to-see/

Emerging markets have performed surprisingly. We all know that gold has killed equities in the US and Europe, but it also beat China by a wide margin! Brazil is almost even and India beat gold by 20%. Something tells me the BRIC markets will decline significantly if we get another major downturn, and this time gold may do ok.

Here is an excellent summary of the big picture in silver. Personally, silver’s volatile nature makes it less attractive to me, but it’s true there is great upside potential. Right at the moment silver is struggling to get near its all-time high and hasn’t really seen a break-out. But in terms of the big picture:

http://www.moneyweek.com/investments/precious-metals-and-gems/precious-metals-investing-in-silver-02011.aspx?utm_source=newsletter&utm_medium=email&utm_campaign=Money+Morning

This week ought to be a roller coaster but by the end of it we should get a clearer picture if a bottom has in fact occurred.

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20/05/2010 by Philinje.

Here is an update on the chart from Art, showing the projected top at $1350-ish. It’s worth re-visiting in light of the current decline.

Inverse Head and Shoulders update

Note that minor wave 4 down carries to approximately $1190. This being gold, that could mean $1170, but anyway somewhere in the high $1100’s. This morning the decline that started last Friday after the bump into $1250 got as low as $1175. Prices then bounced up to $1190.

Pretty amazing, eh?

Let’s see if a bottom forms at $1190-ish. The decline has been swift and brutal, as they usually are. The big boys have been working hard to scare the small speculators. Clearly the price action has had no relationship to the dollar, and is hard to rationalize in any way, except when you consider the “normal” manipulation that always occurs.

The Euro and pound have been stabilizing. They are due for a bounce. The rumors didn’t pan out but Germany did implement a ban on short selling some financial assets, which caused a capital flight into Switzerland. The Euro got heavily oversold, which makes Germany kinda happy because of its exports, though the majority of its trading partners are in Europe. The pound did not make it to the ridiculous lows of late 08 but has accumulated a heavy amount of short interest, which will likely make its bounce explosive.

Equities could bounce, too, but it does seem the tide has turned. Be very careful with regular stocks.

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15/05/2010 by Philinje.

Friday was very interesting. Gold knocked right against $1250 before NY trading opened and made it through 1000 Euro. Given the nice run up with very little push back over the past few weeks, it made sense that manipulation would rear its ugly head again.

This is speculation, mind you. There are various commentators like Ted Butler and Ed Steer who paint a very detailed picture of how this manipulation works, based on public facts, but that’s not my thing. I just see what happens in the markets. Over the course of this bull market, it’s been painful to experience the thrashing that occurs by some large interests.

And lately, that behavior has been muted if not absent. Maybe the fact that the CFTC is starting to pay attention is one factor. But I suspect that the intensity of buying is just making it harder to play games.

Regardless, one would expect a test of 1000 Euro to be repelled with some profit-taking. Same with $1250 gold. But to see gold drop $30 in about a half hour, while the Euro was crashing and the stock markets were swooning, is just blatant. The manipulators figured that they could play several factors to their advantage - the rising dollar, obvious resistance at 1000 Euro, the line in the sand at $1227, and a Friday when traders naturally take money off the table.

Their game is to run stops on the way down, and as the price cascades the small guys panic. If they time it right, a little push can accomplish wonders. In this case the goal was to make gold close below $1227, causing everyone to assume that gold couldn’t hold its new all-time high as a weekly close.

Well, here are a few noteworthy observations:

1. This manipulation has been appearing less and less frequently. Quite frankly, the total commercial short position is so large that their powder must be running dry, meaning they have to pick their fights more carefully.

2. Lately, it’s not working. After the straight drop down, buying stepped in and gold ended a small amount lower than Thursday’s close - and most importantly, above $1227.

3. Gold mining stocks were not nearly as volatile as one would have expected. Yes, they spiked down a bit, but they recovered nicely and ended slightly up. Considering what was going on generally in equities, that’s mighty impressive. And in the old days, meaning a year or more ago, gold stocks would have reacted violently to a big down spike in gold.

So, in summary, it didn’t work.

Just a note on equities: the bounce up seems very weak indeed. The Euro ended below its spike down a week ago. It seems Mr. Market is turning tide. However, there may be another mild bounce up, then a bigger move down, and then a big move up, taking us out to mid-June, before chaos ensues.

Be careful.

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13/05/2010 by Philinje.

There seems to be a lot of noise about Germany leaving the Euro, possibly this weekend. Here is a comprehensive blog story:

http://www.zerohedge.com/print/134823

In addition, here is an excellent review of gold’s breakout and some good analysis about gold mining stocks:

http://goldscents.blogspot.com/2010/05/breakout.html

Enjoy.

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12/05/2010 by Philinje.

Gold broke through to a new all-time high late in the US session yesterday. It’s now at about $1232. It also broke to new all-time highs in the Euro.

Looking across at equities and currencies, it seems like gold is the only asset with clear strength. We could be at the beginning of a runaway train to the upside. Gold is now officially in the clear with no obvious overhead resistance.

It’s tough to trade this kind of trend because pull-backs can be brief and shallow, and jumping in now or at a higher level could be risky. My plan is to see if we hit the $1350 projected top. At this rate, that could happen quite soon. If we get a parabolic blow-off top, the final high could overshoot $1350 considerably, but catching that exact top is near impossible.

Or maybe government intervention will throw some cold water on this rally, who knows. Fasten your seatbelts!

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