-- Posted Monday, 15 July 2013 | | Disqus
As the lyrics from the immortal above titled Roger Waters master piece originally performed some 30 years ago now implies, which means we’ve been on this train for some time now, people have grown increasingly debased and debauched to the point complacency rules supreme these days, almost completely detached from reality in terms of perspective and sustainable behavior. But this is what happens when you debase the currency. Not long afterwards a society’s moral fabric begins to deteriorate as well. So it wasn’t long after Nixon went off the Gold Standard in 1971 our decline began to accelerate, where today the ‘new normal’ is measured by how much you can steal or defraud you neighbor for, with the objective of ‘getting more stuff’ (thank you George Carlin) just for the sake of accumulating fundamentally worthless things at the expense of what should be cherished relationships with our families and friends.
It’s true. Unfortunately we have become a society of morally challenged cake eaters, heaped in denial of a false prosperity built on domed premises in the process of blowing up as we speak. Because neither crony capitalism nor socialism work in building a sustainable working model for economic organization, however unhappily these are the basis of our global economy wrapped up in an out of control fiat currency system that is destined to end in some degree of accelerated inflation. You should realize that’s the big ‘game changer’ that will have a material impact on just about everybody. The reserve currency(s) cannot be debased on an accelerating rate forever without such an outcome. Historically no pure reserve fiat currency has lasted longer than 40-years without needing to be replaced, and this is playing out for the USDollar ($) as well given the pace it’s being phased out as hegemony and petrocurrency.
But that’s not what will finally do the $ in. What will finally do the $ in is when ballooning deficits get visibly out of control forcing central authorities to accelerate monetization (QE) programs both in terms of scope and size. This is coming over the next five years. Right now central authorities are playing logistical games with the deficits because of positive carry provided by previous QE (think increasing paper economy momentum), but this will not last forever. That’s because fiat currency economies subject to rapid deterioration because of diminishing returns associated with currency debasement, which is of course why taper talk is a load of bullshit (BS). Soon we will see everything from domestic serial debt bubbles that are ready to pop, to European banks ready to meltdown, to China’s malaise shatter this dream.
And they are extending their BS story to the BIS now in an attempt to give it a ere of credibility, attempting to get moron traders to believe cutting back on money printing is good for growth in fiat currency economies, bringing a new level of ridiculous to the party. And of course we now have a new BS story in the US as well, that being the Fed is actually cutting back on QE. The last time I checked it’s still printing $85 billion a month, so all this selling is misplaced on this basis for sure, designed purge margin players so they can come back in during the Fall when the Fed changes policy comment (jawboning) once again. Because maintaining their BS story will become more difficult as time goes on as the economy begins to show unmistakable signs of slowing, which will bring QE Infinity back into view.
But the propaganda, obfuscation, and mind control come thick these days, which not only has the effect of numbing the mind, but also dumbing down as well. This unfortunate condition is now epidemic, and continues on a systematic basis in our schools, which ensures future generations will be even worse. So, most people won’t see this coming. And some that should know better are still ill prepared. They have been convinced (forced) to think in terms of the ‘new normal’. The masses become happy to eat any BS story that comes their way. Like right now the central banks want you to think they realize the evil of their ways and are pulling back on money printing. This is just a very clever BS story. They will never stop printing money. And make no mistake, when push comes to shove they will be monetizing everything that’s not nailed down.
This is also why central banks, led by the Fed, are hammering precious metals right now – because they want to hide their money printing. And they have done a masterful job at it – not having to actually enact any real policy changes (the Fed is still printing $85 billion per month) – by just jawboning the markets to believe anything they tell them. This just goes to show you just how debased people have become, and the level of mind control central authorities have over the masses these days. That being said, not everyone is an idiot, with other central banks realizing the US will lose it’s reserve currency status at some point due to all the shenanigans, which is why sell record amounts of sovereign debt. You should realize that what this means is that the Fed must make up for this increasing selling by printing even more currency to absorb this selling in order to keep interest rates down or the debt ridden economy goes boom. Add in the likelihood the bond bubble has burst, and again, we have the potential for ‘big surprises’ moving forward, not the least of which should include precious metals eventually going through the roof.
But how will we know it’s hit the fan again, because after all, stocks seem to still be acting well, and heck, 10-year Treasuries are still at 2.5%. That’s a good question, as when it does hit the fan, life as you know it will change fundamentally, where only the truly blind will not notice the effects of all the money printing on living standards, prices, and the economy at large. So again, the question is ‘what should we look for as a sign process is about to accelerate in this regard’, because knowing this might effect people’s behavior in terms of preparing for the eventuality. People might start cutting back on their spending more, start a garden, and all those other things they will be forced to do as a consequence of fiction finally meeting reality. Guess what, I’m going to make easy for you to identify where we are in this process. All you need do is keep track of one ratio that tells the whole story – that being the Dow / Transports Ratio, pictured below. (See Figure 1)
So, which way will this apparent ‘key indicator’ break? While nobody knows for sure, one would think that if the Dow / Gold Ratio is set to top somewhere between present levels and 15 (see previous analysis), the broads and gold maintain their negative correlation, and our assumptions about QE outlined above holds true (the feds are forced to print accelerating amounts of money to thwart collapsing fiat currency economies), then it would be logical to prepare for a break lower, which is why ‘support’ is highlighted in the bottom of a massive diamond in the above plot. As you may or may not know, diamonds are most often reversal patterns and tend to mark meaningful directional changes and secular moves. Based on the size of this diamond, one of the largest you will ever witness, some 7 years in the making, the energy release will profound when it happens, where a break to the downside would imply a move all the way to the bottom of the range once again.
And while some may say ‘so what’, as it’s been trending higher since 2000, which is suppose to represent a period of increased stress in the financial markets, all I can say is ‘but don’t forget we just hit all time highs in the indexes, so a break lower would imply lower absolute prices eventually’. Now this does not mean prices need be lower in absolute terms if the crazy liars down at the bank keep printing increasing amounts of new currency, but it does mean they will have a more difficult time hiding the inflation, which would support precious metals and commodity prices. Along this line of thinking then, it should be noted that all significant measures and indexes put in impressive reversals on heavy volume at quarter end last Friday to mark what should prove to be at least interim bottoms. Just how long those bottoms last however remains the question. (See Figure 2)
In terms of gold, and now that prices have actually fallen into a comparable zone, one cannot help but be struck by the similarity in patterning between the 70’s and the present bull, where gold went from $35 to $200, back down to $100, and then to $850. This time it went from $250 to $1900 plus, back down to sub $1200 so far (possibly testing $1100 in coming days), where if history is to rhyme, it should vex somewhere north of $8,000 within 4 years if the 70's was the template. What’s more, this also implies there should be a major bottom this summer or fall based on these numbers and how fast things are moving, Certainly recent COT data supports this view, along with the fact precious metals shares are now at historical extremes in terms of distance from significant moving averages. (ex. HUI was greater 45% below its 200-week moving average at last week’s lows.) (See Figure 3)
As you can see above however, and as pointed out last week, it should not be forgotten key indicators on long-term charts still appear incomplete, leaving room for further capitulation lower. What’s more, sentiment is also not conclusive for a low, as speculators were out in full force last week still optimistically gaming a bottom in the options market(s), the only true measure of sentiment still available to the discerning mind. Open interest put / call ratios fell abruptly in GLD, AGQ, and of course NUGT, which is still plumbing the lows. This is why both silver and the shares showed no follow-through yesterday, and is likely why price managers will be able to affect another raid in the sector soon.
Although not shown above, the count for gold (and silver) allows for one more sub-wave lower prior to a lasting bottom being put in place. This should occur soon, meaning we should expect further weakness either starting this week with the Employment Report, or as options expiry approaches on the 19th, meaning a week or so earlier. (i.e. think beginning the end of next week.) Perhaps this is when gold will vex the $1100 area as per Figure 2, and the Dow / Gold Ratio will hit 15, my intermediate-term target. (i.e. the 233-month EMA.) The way the Dow / Gold Ratio easily pushed through resistance at 12.5 to vex 13 last week tells you reaching this target is now a far greater likelihood. So, patience should still prove prudent if one is accumulating, which should occur later this month.
Of course most people don’t care about gold, precious metals, and not much of anything else that matters either, because again they have been dumbed down and conditioned not to care. This will change at some point however, likely when the masses have increasingly difficulty putting food on the table. The BS tends to get tossed aside quickly when people are hungry. One only need look at what is happening in Egypt to know this to be true. They are definitely down the food chain compared to Western economies, however hollowed out ‘developed economies’ are themselves only as strong as a ‘popcorn fart’ (thank you Rodney Dangerfield), which means things can change very quickly.
Will the bureaucrats be able to maintain food stamps if interest rates begin soaring, taking up increasingly percentages of the federal budget? Maybe initially, however as time goes on and rates keep rising (and the economy continues to implode), this will become increasingly difficult for increasing numbers, which will eventually pop the complacency bubble, again, which is already accelerating in periphery economies. The knock-on effect of all this should be renewed fundamental interest in precious metals in spite of continued negative propaganda efforts and wrongheaded speculative practices by paper chasers, which again (see above) continues to this day.
Add in factors like average cash cost and record short position considerations and little doubt should remain a reversal in gold’s fortunes are in the works, however again, as dicussed above, don’t be surprised if one more plunge towards $1100 is necessary to set conditions for a more sustainable rally. Because in addition to the factors already discussed, it’s difficult envisioning market conditions remaining depressed for gold if the pace of bail-ins accelerates, authorities lose control of the macro and a crashing credit cycle forces money printing to take off, which is inevitable given Europe’s broken banks are an accident waiting to happen.
Gold is an accident waiting to happen on the upside once the stars are aligned, which based on the above analysis, appears to approaching rapidly. One more dip and we should be ‘good to go’ in this respect.
So, get ready, but please don’t use derivatives because this will only delay process (and empower the machines), along with losing you capital.
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-- Posted Monday, 15 July 2013 | Digg This Article | Source: GoldSeek.com