Tag Archives: Gold

Goldzilla

godzilla“History shows again and again how nature points out the folly of man”  –Blue Oyster Cult, Godzilla

I would have written off the gold sector long ago in its ongoing bear market had I thought for one moment that gold’s utility as insurance against the acts of monetary madmen/women in high places had been compromised in any way.  On the contrary, the monetary metal is simply having its price marked down in a bear market while its value, especially given its current price and all that has gone on in the financial system over the last 3 years remains just fine.

Indeed gold, an element dug out of the ground for centuries, once as money and now as a marker to sound money systems will one day be shown to be a calm oasis from the fallout to global monetary shenanigans currently ongoing.  At least it would be an oasis to those who have valued it as such.  It is going to feel like a giant dinosaur (minus the kitsch value) ripping through a city built on paper to the multitudes who have taken the bait on the current too big to fail global inflationary operations.  They will fail.  Timing is the only question.

Despite what many are compelled to believe by aggressive (read: maniacal) global policy making that has turned down to up, right to left and symmetrical to asymmetrical, gold is and has been a lump of monetary value just sitting there, waiting out a phase where monetary policy is working seemingly as intended, to impoverish the working and saving classes and further enrich the asset ownership and investment classes.

I have gone hard on the gold “community” for a few years now because I watched in real time as the dark clouds gathered against the honest money relic and those bullish upon it.  The narrative never changed for many of the most high profile gold “community” leaders and spokespeople, and in the modern financial markets that simply will not do.  In the past, even during the previous bull market, I have likened being a gold investor to being at war.  You are at monetary war in support of ideals and a sense of what is right vs. entities that manipulate and control markets toward desired outcomes.

And do you know what?  They have won every damned battle since 2011.

The most brilliant move made by the US Fed in targeting gold (either directly or as part of the fallout) was Operation Twist, which came on the heels of gold’s flirtation with the $2000/ounce level.  Op/Twist very simply was designed to “sanitize” (the Fed’s word, not mine) inflation signals by selling short-term T bonds while buying long-term T bonds.  It was brilliant, evil and awe-inspiring all at once; genius.  Simply manage paper and digital entries in the bond market so that a long relied upon macro signal (the relationship between short and long-term Treasury yields) will at once show a financial system under diminishing stress (yield curve decline) and a lack of inflationary expectations.

So the US Federal Reserve had the balls to literally paint the macro by turning the out of control 10yr-2yr yield curve (an important gold fundamental) down, sanitize inflation (a less important but sometimes very relevant gold fundamental) and best of all, keep on inflating… and inflating… and inflating… with ongoing ZIRP and QE3 as the global macro pull of deflation put Goldilocks on US markets 24/7 and 365.

Gold bugs would have none of this and why should they?  The average gold bug (the real people, not the pitch men and promoters) is driven by this thing we call honesty and a sense of morality.  To anyone with half a brain and not incentivized to look the other way (like probably 90% of the financial services industry), these macro parlor tricks are ephemeral and will not only not succeed, but one day be looked back upon as a scourge upon future generations.

The problem is that gold is so simple (as a monetary anchor) that eggheads feel a need to make it complex (the old ‘baffle ‘em with b/s’) and those with agendas feel a need to pile on, for example, schooling us over and over again in the media about how gold is a poor “inflation hedge”, when that is not its only utility; not by a long shot.

The post-2011 period has been a veritable Wonderland of possibilities for the printers of paper, enterers of keyboard digits and those who follow their breadcrumbs.

Further, the leadership of the gold “community” have been shown to be little more than dogma spewing robots firmly set in their ideology when maybe what was needed was a more even handed approach that could have helped legions of gold devotees avoid some very unpleasant interim situations before Goldzilla finally rises up and wrecks the cities around the globe made of paper and digits.

The gold sector is rallying as we expected it would from the 2008 lows and a capitulation of at least moderate degree but has not proven much, technically.  Similarly, the fundamentals are not yet fully baked for the sector (ref.  yield curves, gold vs. stock markets, gold vs. certain commodities, intact public confidence in policy making, etc.).  These things will change either sooner or later, but for years now imposing our will upon the market has not worked.  Sit back, relax and let Goldzilla do his thing.

I write the above in the style I used to write as a ‘for free’ public writer (as opposed to the more technical stuff I need to see to now with NFTRH) to hopefully add a level of perspective to the conversation going forward.  The macro is going to change.  It always does.

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Gold Sector Review

Below is a summary of some of the aspects we follow in NFTRH to gauge a future investment stance on the gold sector.  It is much more complex than simply hearing dogma that seems to make sense and then holding on for dear life…

Inflation

The hype is dying.  10 years of inflation hysterics have gone down the drain even as global policy makers pull out inflationary bazookas and use them at the slightest hint of economic trouble.  The BoJ’s recent action was just the latest and most striking in its timing.  Global markets were bouncing within correction mode and the Yen had just pinged a key resistance level.  The BoJ then blew the Yen up with policy designed to at once reward risk takers and asset holders and mercilessly punish the Japanese people, renowned for the ethic of saving.

But the global inflation is dying despite these periodic bazooka blasts.  The US Fed as much as admits it wants inflation.  More accurately, it will do anything to stave off the next deflationary impulse because when that takes hold it is going to unwind the system, and they know it.  Why on earth do you think noted Hawk James Bullard was trotted out the moment the stock market took a routine correction in October?  Here Jim, get out there and eat that mic and calm them down.

Gold is not about inflation and in this cycle it, as a squarely risk ‘OFF’ asset, is about the opposite, the deflationary unwinding of the inflated excesses which now are no longer clustered in commodities and global markets, but in US stocks and the balance sheets of certain corporations set up to benefit.

In a dis-inflationary environment, which is the preferable one for the gold stock sector, the pain comes first and the rewards for those left standing come second.  We have not exited the pain phase for gold bugs and most people still think ‘no inflation, bad for gold’ when they should be thinking ‘no inflation… that means eventual deflationary impulse… bad for the economy and stock markets and one day, from the ashes good for the gold sector when and only when gold out performs other assets positively correlated to the economy’.

tip.tlt

Goldilocks has been in play in the US as the global dis-inflationary pull has dropped the TIP-TLT ‘inflationary expectations’ gauge lower.  At some point Goldlilocks will morph to something less benign for the economy and for stock bulls.  But it has not yet.

Macro Fundamentals

Continue reading Gold Sector Review

Myth #9: Inflation Makes Gold and Silver Go Up

Guest Post by EWI

Don’t Get Ruined by These 10 Popular Investment Myths (Part IX)

Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. — NONE have a reliable effect on the stock market

You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?

And more importantly, will they warn us of a new approaching doomsday, should there be one?

This series gives you a well-researched answer. Here is Part IX; come back soon for Part X.


Myth #9: Inflation makes gold and silver go up.

By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)

This one seems like a no-brainer. The government or the central bank prints more bonds, notes and bills, and prices for things go up in response. Gold is real money, so it must fluctuate along with the inflation rate.

Continue reading Myth #9: Inflation Makes Gold and Silver Go Up

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Negative Feedback 2; Points Proven

A couple weeks ago I wrote a post about some negative feedback (comes with the territory, if I am doing my job well enough) because I wrote about the very real economic performance that has so far come out of what I consider unsustainable and doomed to fail policy (and would be bullish for the gold sector I might add).

So I get to have some people call me a perma bear on one side and certain dogma defenders on the opposite side, both coming down on the writer who, right or wrong, is trying to clear out the b/s and just write the truth.

Now with the Gold Bug Psychology article I unsurprisingly I got the incoming from that camp as well.  Even though I am twice the gold bug some of the dogma defenders are because I am not threatened by my position and am willing to state the truth as I see it.  Nobody that I know of has put in the effort I have over the last decade in trying to describe gold as a value instrument and an insurance policy… and NOT a PLAY or a GAME.

Anyway, I give much credit to the gold websites (GoldSeek, 321Gold and Gold Eagle), each of which published or linked the article after it was submitted.  I’ll reserve comment on some of the readers though, because some of the responses have been all too familiar and are not bullish for gold either.

From GoldSeek comments, the same forum where above noted feedback on my supposed pro-economy stance came from…

The writer has the psychology of short-termism and of throwing in the towel.

The commenter obviously has not read me.  Throwing in the towel, eh?  I am waiting for him to do that and have been for years now.  I am going to become so bullish on the price of gold and especially gold stocks (for all the reasons this post doesn’t have the time to go into… again) when people stop defending their positions and when the macro funda that actually matter come fully in line (they are not).  I am already bullish on the value of gold.

I sum up the author as follows…

Incorrect Groupthink: Gold is money for the individual, and under the control of the individual

Correct Groupthink: Central Banking with paper money, for the greater good, decided by ivory tower wise men

What I find strange, is that he then comes across as being a part of the gold community…

***************************
“Current Situation

So where are we at?”
***************************

All after accusing the gold community of “groupthink”, and following pied pipers as if they were heroes.

This commenter actually thinks I am part of the evil conspiracy, ha ha ha… me!  Biiwii, a site that has proclaimed the virtues of gold’s value proposition for a decade+ and shit all over the Federal Reserve’s policy for that same duration.  Sum me up any way you want my man.  Then after doing so why not go back and read some of the millions of words I’ve written over the last decade.

“The precious metals bear market, beginning with silver’s blow out in early 2011 and the general top in the commodity and ‘inflation trade’ along with gold’s lesser blow out later that summer amidst Euro crisis hysterics, has been all about psychology”

Wrong because of one word. Change “psychology” to manipulation. It is manipulation that is the trigger, and psychology is only the reaction. The ignorant and biased author needs to learn the difference in cause and effect.

And his groupthink comment is just plain stupid. So are all people who do something, who buy the same thing, engaged in groupthink? Are all antique car buffs suffering from groupthink because they all like old cars? How about all the women who buy jewelry? Are all skiers under groupthink because they enjoy gliding down snow covered mountains on two pieces of wood (or fiberglass or whatever)? Or perhaps more relevant, are all homeowners who buy insurance even though their house has never burned down suffering from groupthink?

Terrible article, really written like a jackass.

Thank you for making my case.  When you stop calling names and when position defenders in general at least stop to consider that someone who is on your side (in your perceived war) is actually trying to help, we’ll be ready to move forward.

Sincerely,

Jackass.

 

Gold; Caveat Venditor

Guest Commentary by Bob Hoye

[edit] get a load of the proprietary Vomiting Camel pattern (VCP) in gold!

gold
Click for full report

Gold Bug Psychology Must be Neutered

The precious metals bear market, beginning with silver’s blow out in early 2011 and the general top in the commodity and ‘inflation trade’ along with gold’s lesser blow out later that summer amidst Euro crisis hysterics, has been all about psychology.  Well, every bear or bull market is about psychology, but the intensity of this dynamic has been something to behold in the gold sector over these last few years.

Psych 101

In early 2011 long-term interest rates were rising in response to inflationary pressures, ‘Bond King’ Bill Gross famously shorted the long bond, virtual mobs with pitchforks were storming the Fed’s castle calling for Ben Bernanke’s head and silver went to $50 an ounce, with calls for $100, $200, etc.  All psychology my friends.

While on the subject of the long bond, our ‘Continuum’ chart shows that players did not learn 2011’s contrarian lesson with respect to yields as they took Wall Street’s ‘Great Rotation’ hype hook, line and sinker in 2013.  What did the 30 year yield then do?  Why, it hit our long-term limiter (monthly EMA 100, red dotted line) and has dropped ever since.

tyx

Pigs on the Wing & Sheep

Continue reading Gold Bug Psychology Must be Neutered

Gold, Inflation Expectations and Economic Confidence

Guest Post by Steve Saville

As a result of what happened during just one of the past twenty decades (the 1970s), most people now believe that a large rise in “price inflation” or inflation expectations is needed to bring about a major rally in the gold price. This impression of gold is so ingrained that it has persisted even though the US$ gold price managed to rise by 560% during 2001-2011 in parallel with only small increases in “price inflation” (based on the CPI) and inflation expectations. The reality is that gold tends to perform very well during periods of declining confidence in the financial system, the economy and/or the official money, regardless of whether the decline in confidence is based on expectations of higher “inflation” or something else entirely.

Inflation expectations are certainly part of the gold story, but only to the extent that they affect the real interest rate. For example, a 2% rise in inflation expectations would only result in a more bullish backdrop for gold if it were accompanied by a rise of less than 2% in the nominal interest rate. For another example, a 1% decline in inflation expectations would not result in a more bearish backdrop for gold if it were accompanied by a decline of more than 1% in the nominal interest rate.

Other parts of the gold story include indicators of economic confidence and financial-market liquidity, such as credit spreads and the yield curve.

That large rises in the gold price are NOT primarily driven by increasing fear of “inflation” is evidenced by the fact that the large multi-year gold rallies of 2001-2006 and 2008-2011 began amidst FALLING inflation expectations. These rallies were set in motion by substantial stock market declines and plummeting confidence in central banks, commercial banks and the economy’s prospects. Even during the 1970s, the period when the gold price famously rocketed upward in parallel with increasing fear of “inflation”, the gold rally was mostly about declining real interest rates and declining confidence in both monetary and fiscal governance. After all, if the official plan to address a “price inflation” problem involves fixing prices and distributing “Whip Inflation Now” buttons, and at the same time the central bank and the government are experimenting with Keynesian demand-boosting strategies, then there’s only one way for economic confidence to go, and that’s down.

Since mid-2013 there have been a few multi-month periods when it appeared as if economic confidence was turning down, but on each occasion the downturn wasn’t sustained. This is due in no small part to the seemingly unstoppable advance in the stock market. In the minds of many people the stock market and the economy are linked, with a rising stock market supposedly being a sign of future economic strength. This line of thinking is misguided, but regardless of whether it is right or wrong the perception is having a substantial effect on the gold market.

For now, the economic confidence engendered to a large extent by the rising stock market is putting irresistible downward pressure on the gold price.

A Model to Understand Gold Price Swings

Guest Post by EWI

A Great Model to Understand Gold’s Price Swings

What do the last three chairs of the U.S. Federal Reserve have in common?

Well, it’s not their taste in structured black blazers. It’s the fact that they all see gold as a kind of Winston Churchill-like nesting doll — a riddle wrapped in a mystery inside an enigma.

July 2013: Then Fed chairman Ben Bernanke told Congress he doesn’t “pretend to understand gold prices… nobody does.”

November 2013: At her confirmation hearing, Fed successor Janet Yellen concurred: “I don’t think anybody has a very good model of what makes gold prices go up or down.”

October 25, 2014: At the New Orleans Investment Conference, former Fed “The Maestro” Alan Greenspan explained that gold’s “value as a currency is outside of the policies conducted by governments.” (Wall Street Journal)

Translation: Folks, the highly revered institution I used to work for — the one whose policies are often cited by the mainstream as a “catalyst” for gold prices — doesn’t actually control the marketplace.

But wait! 4 days later, on October 29, Greenspan then told the Council of Foreign Relations that the Fed’s $4 trillion balance sheet is a “pile of tinder, but hasn’t been lit.” Once the central banks stop “sitting on” their reserves, said tinder will ignite, “inflation will eventually have to rise,” and in turn, “gold will move higher, measurably so.” (FXstreet.com)

Translation: Those policies actually do control the gold market — it just takes a while for their potency to kick in. Like, say, 5 years of quantitative easing, 10 rate cuts to 0%, and $4 trillion in “inflation”-producing stimulus.

It makes you think: For those supposedly at the helm of where gold prices are going, they sure don’t seem know how they got there.

But what if you could know? Not only how gold prices got to where they are, but also why and sometimes even where they are headed before they even turn?

Continue reading A Model to Understand Gold Price Swings

Gold & Gold Stocks

Some guy over at some website who we know pretty well just opened up this morning’s premium update for anyone who is interested. ;-)

The discussion was meant to indicate caution about yesterday’s bounce, but there is much more there as well.  General game plans should be worked up now so would-be players are 100% prepared.

NFTRH (Public): Gold, Gold Stock Parameters, Discussion