The Gold Bug

Real Money

noreply@blogger.com (The Gold Speculator) — Wed, 05 Mar 2014 13:26:00 +0000

Scott Silva

3-4-14

The Bitcoin fiasco shows the difference between fiat money, virtual money and the only real money, namely gold. Mt. Gox, the Tokyo private exchange for Bitcoins, filed for bankruptcy last Friday, after the owner shut down its website. Mt Gox account holders, including Mt Gox, lost $425 Million when the virtual exchange went dark. Mr. Gox officials claim over 800,000 Bitcoins went missing from user and company accounts, forcing the company into bankruptcy. Several authorities are investigating the incident.

Mt. Gox is just one of several private exchanges that sprouted up in response to demand for the virtual currency. The value of Bitcoins jumped exponentially since its 2009 start, topping $1200 in December. Bitcoins are trading at $600 or so now.

Bitcoin is virtual, cryptographic money which allows people to transact on a peer-to-peer basis over a network. Bitcoin owners can transact with merchants that have decided to accept Bitcoin cryptocurrency. Bitcoin transactions fall outside traditional banks and banking regulations. Bitcoin.org is the open source foundation that maintains the Bitcoin standard. Private exchanges and application providers allow individuals and corporations and other users to discover the current market price for a Bitcoin in most traditional currencies.

As we know from Aristotle, money is worth precisely what people are willing to exchange for it. Users believe Bitcoins have value, which is why Bitcoins enjoy a higher exchange value now than in 2009. One Bitcoin feature that is attractive is it carries no or low fees for any transaction. As more and more merchants accept Bitcoin payments, demand increases for Bitcoin money, and its exchange value increases. It’s the fundamental law of supply and demand in play.

As we also know from Aristotle, true money is defined by the four characteristics:

` 1. Money must be durable. Money must stand the test of time and the elements.

2. Money must be portable. Money (coin currency) holds it “worth” relative to it

weight and size

3. Money must be divisible. Money should be relatively easy to separate and re- combine without affecting its fundamental characteristics.

4. Money must have intrinsic value. The value of money should be independent of any other object and contained in the money itself.

By these measures, it could be argued that Bitcoin meets Aristotle’s divisibility and portability criteria, but fail to meet the durability, and intrinsic value criteria. The Mt Gox fiasco shows Bitcoins to be vulnerable to internet security threats and hacking. Therefore, Bitcoins are not very durable. By their very nature, Bitcoins have zero intrinsic value. A crypto-coin is only as valuable as its security code. Who would assign value to a Bitcoin account that could be accessed by anyone without even a password?

So why are Bitcoins so attractive? A major draw is the freedom to transact without a bank or government regulation. Unlike fiat currencies, Bitcoins are not subject to devaluation by central banks that can add to the money supply. Bitcoins are not subject to the costs and risks of banking regulation. For example, Bitcoins are not subject to factional banking reserve requirements. Bitcoin transactions do not require any traditional bank, or bank fees.

Last week, Fed Chair Janet Yellen, in a response to a Senate Banking committee member’s question about Bitcoin regulation, was happy to say the Fed has no regulatory authority, responsibility or role in any Bitcoin transaction. Her answer seemed to shock Senator Joe Manchin (D-W Va) who apparently wants to slap some new regulation on the virtual currency.

Whatever the fate of Bitcoin, its emergence and recent difficulties demonstrate why gold is the only true money. Gold meets every one of the Aristoltilian requirements for true money, the most important being intrinsic value. Bitcoins and gold share one important feature: neither is directly subject to the whims of the central bank. The Fed can print trillions in new paper money as it attempts (and fails) to stimulate the economy. Each Dollar the Fed prints debases those Dollars that are outstanding.

But Bitcoins and gold behave differently as the Dollar is debased by the Fed’s monetary actions. Bitcoin prices (green line) appear closely correlated to moves in the Dollar (blue line). Gold (candlesticks) tends to move inversely to the Dollar.

This means that gold tends to hold its value better than Bitcoin as the Dollar loses value.

Gold has survived thousands of years as the world’s only true money. While there are costs for its safekeeping, owning gold is the prudent way to protect wealth against the vagaries of fiat currency and government intervention.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

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editor@thegoldspeculatorllc.com

Golden Opportunity

noreply@blogger.com (The Gold Speculator) — Tue, 13 Aug 2013 14:52:00 +0000

By Scott Silva

Editor, The Gold Speculator

7-24-13

Gold is signaling its next move up in its long term secular bull market. That’s good news for the miners, which are also signaling “Buy, Buy, Buy”. For gold bugs, there is always a good reason to buy gold. As it turns out, now may the opportune time to buy as these bargain prices may not be available for long.

Technical analysts know that price action and trading volume over time establish recognizable chart patterns. Valid chart patterns are reliable predictors of future price levels. Because historical data show that the most reliable patterns are accurate about 70% of the time, many professional traders include technical analysis when making investment decisions. Some successful traders rely almost exclusively on the “technicals”.

As subscribers to The Gold Speculator know, on July 11^th and July 20^th, we issued buy recommendations on gold, silver and selected gold and silver stocks. Today we are gratified to see gold and silver climbing above our identified breakout levels, on their way to higher targets. Also today, respected Wall Street analysts upgraded their opinions of some gold and silver stocks we own in our Model Conservative Portfolio. Welcome aboard, Macquarie!

Here is the analysis that backed our bullish call on gold and gold stocks of last week:

“Gold is trading in a consolidation manner, creating a bullish ascending triangle pattern from the July low. The breakout to the target price of 1427 could happen with a close above 1303 (top trend line level) on volume.

The Ichimoku indicators are bearish at the moment, but these signals are tending toward a bullish bias. For instance, the Tenkan Sen is in bearish territory below the Kijun Sen, but it has moved up toward a bullish cross. Likewise, the Chikou Span is currently in bearish territory, but may emerge above price action by moving sideways or slightly higher over the next several trading sessions. Support is now 1265.90 with resistance at 1337.”

Tuesday’s chart shows the breakout from the bullish ascending triangle pattern. The close above the top trend line is the most significant signal. Also important, but difficult to see on this chart is the bullish cross of the Kijun Sen by the Tenkan Sen from below. Such a cross signals the beginning of a new trend. The Ichimoku indicators will confirm the bullish trend is complete when the three remaining Ichimoku indicators turn bullish, which each appears to be doing. Price action needs to break through the cloud, which can happen with even sideways trading from here. The projected cloud needs to “flip” from bearish to bullish (the cloud is already narrowing prior to such a “kumo flip”). And finally, the Chikou Span (green trace) needs to move above price action, where it appears to be headed. The separate MACD indicator is also bullish. We have found such MACD crosses useful in identifying trend reversals earlier than the Ichimoku indicators. We have referred to these MACD crosses as trade “triggers”.

The bullish ascending triangle was formed by price action beginning in early July. The measured move brings a target price of 1427 for spot gold. If price action on the way up prints higher highs and higher lows, then a price action may form a larger, more powerful ascending triangle pattern dating back to mid-June. This is not uncommon in a strong uptrend. We will be watching for that happy case to play out.

Last week, we recommended clients buy selected gold and silver mining stocks. We had seen similar bullish chart patterns develop for our recommended names. The AMEX Gold Bugs Index (HUI) has some bullish features, although not as well defined as those of selected issues. The HUI gapped up on Monday’s open and continued higher in trading Tuesday. In general, miners are catching the bid. That’s good news for gold bugs everywhere.

The miners have been neglected by investors for a while. Now their stock prices are at very attractive levels for value investors. Mining stocks tend to be more volatile than the price of the underlying metal, so the mining stocks may climb faster in an uptrend. We believe that to be the case for several gold and silver producers right now.

The planets are lining up for the next leg up in the long term bull market for gold and gold stocks. Don’t miss your golden opportunity to profit.

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editor@thegoldspeculatorllc.com

Gold in the Time of QE

noreply@blogger.com (The Gold Speculator) — Sun, 03 Mar 2013 19:35:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-27-13

Within the last two weeks, the price of gold dropped sharply to levels not seen since July 2012 and nearly as low as the lows of December 2011. Spot gold lost 112 points in the ten days from February 11^th to February 21^st, a 6.7% slide.

Just prior to the selloff, many analysts identified an onerous chart pattern as well as a popular technical indicator that appeared to be turning bearish enough to reverse gold’s long standing bullish trend. The worrisome chart pattern is the bearish triple top. The indicator that anxious traders carefully watched for proof of a trend reversal to the downside is aptly named the “Death Cross”.

The price of gold did fall in those ten days. But, did the bearish chart pattern predict a fall in the price of gold, or did traders create the patterns that confirmed the decline?

A look at the market conditions surrounding the sudden selloff in gold shows the bearish chart pattern actually failed, and traders may have had more to do with the selloff than many observers might think.

First let’s examine the bearish triple top pattern, also known as the triple top reversal pattern.

We know the triple top chart pattern can lead to some powerful downdrafts, especially if the successive tops are separated greatly from support levels and the tops are spread over a long period of time. The triple top pattern occurs when price action meets resistance, falls, and retests resistance then falls, twice more. The resistance level of gold recently is clearly established at 1805. The support level is also clearly evident; it appears as the bottom of a trading range. The support level is 1527. The three tops and the support level are evident in the daily chart for gold below. The depth of the trading range between resistance and support in this pattern is 278 points. A reversal occurs when price drops below support with relatively high volume.

But there are two elements missing in the bearish triple top pattern that are required to make the pattern valid. First and most obvious is the fact that price action has not dropped below the support level of 1527, although the drop came close. On February 19^th, gold traded as low as 1554.30 but closed at 1559.60, quite a bit higher than the support level. Price action has yet to close below the support level of the pattern. Second is a lack of confirming higher relative volume, which may be moot without the breakout. Nevertheless, there is no sign of capitulation, or massive selling pressure. The conclusion is the triple top reversal in gold has not occurred.

But what did occur is a sudden selloff. What caused it?

The answer, in my opinion, is the power of the self-fulfilling prophesy. Traders believed that a selloff was coming and so they sold. Selling begot more selling, which continued until there were no sellers left, leaving the buyers in control. What did the sellers see coming for gold? It was the terrifying “Death Cross”, the bearish signal sent when the 50 day moving average drops below the 200 day moving average. It is highlighted by the circle on the chart below. Traders could see steady convergence in the averages days before the selloff. Then, just before the cross, sellers sold hoping to get ahead of the decline. And by selling, more sellers were alerted, all driving the bid lower. The prophesy of a selloff became a selloff. It is a reliable phenomenon. Traders with long positions set their stops at such junctions. And the shorts kick in at these points as well, hoping the decline will be deep. These sell long and buy short orders are made by humans and machines. Nowadays it’s difficult to tell which moves the market more.

The bullish trend for gold remains intact. We can make this statement because technical support has not been breached. In fact, the recent decline was healthy for gold. It has allowed some profit taking, and new buyers to enter at bargain prices. The major trend remains bullish for gold. Tuesday, Chairman Bernanke dispelled any rumors of gold’s demise, when he affirmed his commitment to continued Quantitative Easing, until such time as US unemployment shrinks to 6.5%. The Chairman is referring to the administration’s favorite measure for the out or work. The true unemployment rate, the U-6 measure, is so much higher that it is deemed politically incorrect (a lofty 14.6% for January). At that rate of job growth over the last four years, the Fed will be buying bonds until 2035!

There is no doubt that more QE is good for gold, and evidently, stocks. QE is better for gold because gold cannot disappoint analysts and traders with lower quarterly earnings, which is one trap the ultra-easy monetary policy springs for stock market investors. Stock yields appear attractive compared to negative real interest rate fixed income assets. The Fed has distorted not only the yield curve but also the risk/return balance. This has pushed investors into stocks and in the stock indices higher. We are seeing companies manage earnings well while missing top line revenue expectations. This is not a sustainable growth model for equities. The model collapses as interest rates rise, and margins are squeezed further. Lower sales revenues are a symptom of recession in Europe, a slowdown in China and continued sluggishness in the US. QE Infinity is artificially pumping up stock prices. The forward PE for the S&P 500 Index, for example, is 17.90 compared to 15.78 a year ago. If there were true earnings growth, which only can be sustained by true revenue growth, the forward PE would be much higher. Then, there is the $ 2 Trillion cash trove sitting on company balance sheets here and in overseas tax havens. Companies are not investing in growth. They would rather buy back shares and sit on cash.

So, how have investors fared in stocks vs gold during the time of QE? Since Chairman Ben and the Treasury began their ultra-easy monetary regime, gold has gained dramatically compared to

the broad stock index (SPX).

No one can predict the future, including Ben Bernanke. But he seems intent on continuing his dovish ways. And as he does, those who own gold will be better off for it.

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editor@thegoldspeculatorllc.com

Catching the Bid

noreply@blogger.com (The Gold Speculator) — Wed, 13 Feb 2013 17:44:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-13-13

Stocks are catching the bid again, trading higher. The S&P 500 has topped 1500, a level not seen since 2007. The Dow has also recovered from its lows to pre-meltdown levels, above 14,000. Stock traders shrugged off fiscal cliff fears, to extend the rally into the new year. Small investors are now joining the professional buyers, who have viewed stocks as undervalued assets for over a year. They are cashing in their bonds and emptying the mattresses to put money into stocks.

What has propelled US equity markets? The answer may surprise you.

We’ll we know the presidential election has not pushed the stock market higher. To the contrary, stocks tumbled when the president was re-elected. Stocks had rallied with pre-election hopes of a new, pro-growth occupant in the Oval Office. But alas, that hope vanished when the final votes were tallied. The president could have won over traders by announcing a change in his economic policy to start his second term, but he didn’t, and his plan has consequences. More on that later.

So if the president’s economic policy did not stimulate the current rally, what did? The answer lies in a fundamental principle of free-market economics (and everyday life), namely, substitution. In his 1978 text Microeconomic Theory, Nicholson defines substitute goods as “those goods which, as a result of changed conditions, may replace each other in use (or consumption).” Investors treat risk-free yield as a desirable economic good. The world gold standard risk-free instrument has been the US Treasury bond, or note. Buyers of AAA-rated

10-year Treasury notes would typically collect 4% annual interest with virtually no risk of default. In contrast, equities as an asset class typically return 7%, commensurate with higher risk.

Companies could go bankrupt, products could fall out of favor, or stock prices could fall for any number of reasons. Throughout history, investors searching for yield have committed capital both to stocks and bonds, overweighting their portfolios in one or the other asset class according to their risk profile and investment objective.

But that time-tested strategy not longer holds. That’s because the Federal Reserve has changed the game. In his reverent adherence to Keynesian stimuli, Chairman Bernanke has taken away risk –free yield (or pushed it out to 30 year maturities), by instituting his Zero Interest Rate Policy (ZIRP). This massive credit intervention flattens the yield curve and drives real returns on medium term Treasury instruments (and CD’s) into negative territory. Investors naturally seek other instruments. They look for substitute goods. Many select high-yield dividend stocks, not for their equity value, but for their dividend income. When the buyers come in, stock prices rise.

Many investors have been holding cash since the great financial meltdown. They have lost capital while they held because the Dollar has lost purchasing power since then (and will continue to lose value). This too, is a result of the Federal Reserve’s massive credit intervention.

Big Ben loves to print money. But we know that Gresham’s Law still holds. The Fed debases and devalues the currency each month by printing more money out of thin air in its $1 Trillion/ year Quantitative Easing program.

That’s not all QE is doing. QE is pumping up stocks with hot air. The Fed’s ultra-easy money regime keeps margin rates low, which spurs stocks, and also keeps borrowing rates low for corporate capital investment. Because of investor substitution, incoming stock buyers benefit from low margin rates. But companies are not rushing to but capital equipment at low interest rates. Instead, companies are sitting on roughly $2 Trillion in cash here, and keeping another $2 Trillion offshore and out of reach of Federal taxes. Some companies can think of nothing better to do with their cash than buy back shares. Stock buybacks tend to push stock prices higher (less stock outstanding, higher P/E for the same earnings), but they are a tremendous waste of capital.

Excess corporate cash should rightly go to shareholder dividends or expansion.

In general, US companies are not expanding. They certainly are not hiring. No amount of Federal Reserve QE will force them to do either. Simply put, the Fed cannot create aggregate demand. This is heresy, of course, to the Chairman and the president’s economic team. But the reason that the president’s entire economic team has deserted him is because their Keynesian policies have utterly failed. TARP was a failure. The GM bailout was illegal. The $800 Billion Stimulus Package failed. Cash of Clunkers failed. Mortgage modification failed. The Payroll tax holiday failed. GDP is hovering at low levels, and dipped into negative territory last quarter. Unemployment has not declined since 2009, despite the administration’s spin. It remains stubbornly at 14% (U-6 measure), a level not seen since the 1930’s. We simply cannot print money, tax, spend and regulate our way to prosperity.

So should investors join the buying spree in stocks? Well, the speculator and the aggressive investor may find some gains in equities now. We have been realizing good profits each week in our Model Aggressive Portfolio (MAP), where we focus on near term trade (weekly) setups in stocks, options and futures. In MAP, we have been focused on stocks since November 2011 and our recommendations have made money each week. But the market holds risks for more conservative investors that enter at these levels. That’s because earnings, the mother’s milk of stocks, are beginning to top out for many large cap companies. We are seeing companies meet or beat 4^th quarter earnings expectations and miss revenue expectations. Revenue growth is essential to earnings growth. Many companies are guiding analysts lower going forward. These companies are reflecting lower global demand and the realities of continued recession in Europe, a slowdown in China and slowing demand in the US.

Slowing, low demand in the US won’t be reversed by raising taxes. But raising taxes yet again is exactly what the president intends to do. What is puzzling about the president’s tax obsession is history shows cutting taxes stimulates the economy. The economy jumps when consumers have more discretionary income to spend. What’s more, the Federal government gets more revenue when marginal tax rates are reduced. This happened as a result of the Kennedy tax cuts, the Reagan tax cuts, the Clinton tax cuts and the Bush tax cuts. Reducing federal regulation also stimulates the economy, as we saw most prominently in the Reagan years, the longest period of prosperity and economic growth in our time.

The technical indicators are signaling stocks are reaching major resistance. For the S&P 500 index (SPX), a good measure of the broad equity market, prices has climbed to just over 1500, a key resistance level. Price action of the SPX has formed a bullish inverted head-and-shoulders pattern on the daily charts with a neckline at 1458. The measured move on a bullish breakout above the neckline is 105, which brings a target level of 1563. The SPX made its breakout of the bullish pattern on January 10^th, and has been climbing steadily since. Yesterday, the SPX closed at 1522.29.

This move up can also be seen in the Fibonacci extensions of the previous run up (June -Sept 2012) and pullback (Sept-Election swoon of November 2012). Since the November lows, price action has powered up to the 50% Fib (1448) at circle #1 on the chart below, then fell back to just above the 23.6% Fibo (1398 at circle #2), and quickly jumped past the 38.2% Fibo and surged right up to the 61.8 Fibo at 1472 (circle #3). After five days of consolidation at the 61.8 Fib, the SPX climbed steadily to the 78.6% Fibo at 1507 (circle #4) and appears to be headed higher still.

It is gratifying to see separate technical analyses in such lockstep agreement.

The speculator or aggressive investor that followed our Model Aggressive Portfolio (MAP) Recommendations has done very well with selected stocks, stock options and futures contracts over the last several months. Weekly returns have ranged from 30% to 77%. What choices are available to the conservative investor in today’s investment environment?

The answer certainly is not bonds, especially Treasurys. Treasury bonds yield negative real interest returns. Investment grade corporate bonds don’t offer much more for the added risk.

Conservative and prudent investors choose gold.

The case for choosing gold today is as strong as it has ever been. It can be made efficiently in the form of a parliamentary inquiry, so often used in my own sovereign state of New Hampshire’s General Court:

If you know, as I know, that stocks are full of Fed hot air, and the Fed has fenced off reasonable yields in fixed income instruments by intervening in the credit markets, and,

If you know, as I know, that corporate bonds offer yields only at a significant risk of default, and,

If you know, as I know, that the Federal Reserve is continuing to print money under its Quantitative Easing program, and has stated it will not stop until the unemployment rate is lower than 6.5%, and

If you know, as I know, that unlimited QE has no effect on the unemployment rate, and that

QE debases the currency and its purchasing power, and

If you know, as I know, that gold increases in value as the Dollar decreases in value, and that gold is recognized as the ultimate global currency,

Would you not agree with me that owning gold today will protect your wealth against the ravishing of fiat currency and tyrannical federal overreach?

That’s right. The answer for conservative investors is gold. In fact, aggressive investors should also own some gold to diversify their portfolios. Here’s why any investor should own gold now.

The great bull market for gold is continuing. The fundamentals are in force to push gold prices higher, and the technical analysis supports higher gold prices from here.

First, the fundamental case. It all boils down to central bank policy. The Fed, the ECB and BOJ are all maintaining accommodative monetary policies. That is, they will keep interest rates artificially low and continue to add liquidity by various forms of Quantitative Easing. QE itself debases the currency and drives commodity prices higher. Loss of confidence in the Dollar, the world’s reserve currency, is also reflected in the price of gold. Political instability in sensitive regions of the world affects the price of gold (and oil). We are seeing the war premium boosting oil prices as tensions rise over nuclear weapons development in Iran and North Korea. Even central banks are buying gold. That’s because unlike fiat currency, gold has intrinsic value. Gold is recognized as the ultimate global currency and store of value.

Second, the technical case. QE is weakening the Dollar. As the Dollar weakens the price of gold increases. The traditional inverse relationship between the Dollar and gold is present in today’s market. Global QE and US economic policy is keeping the Dollar weak. The weak Dollar supports higher commodity prices in general and higher gold prices in particular.

We can see this dynamic play out in the chart of gold vs Dollar below. Technical indicators on the daily and weekly basis charts are bearish for the Dollar. On the weekly basis charts, resistance is now 80.74 with support at 77.44. The Dollar is headed lower form here. A move down to the 78 level would command a gold price of 1800, a key resistance level.

What would cause the gold price to drop significantly? Well, if the Federal Reserve were to cease buying bonds (QE), the price of gold would drop. But Chairman Ben has reiterated his commitment to buying bonds at the rate of $85 Billion per month until unemployment is reduced to 6.5%. The January 2013 unemployment rate is 14.4% and the current regime has no pro-growth economic plan. The price of gold would drop if peace broke out in the Middle East and Iran, North Korea and China dismantled their nuclear weapons. Recent events in these tinderbox areas demonstrate there’s not much chance of that happening, particularly when the US is reducing its military strength to the point it can no longer fight in two theaters of operation at once. Gold would fall if real estate became a safe investment asset again. But it will take 10 years to work through the housing overhang of 5 million foreclosed properties that is weighing down home prices. And gold would fall, as it did in the Reagan years, if pro-growth tax reform, and a plan to balance the budget within ten years, which would include entitlement reform, were adopted now. As we saw in yesterday’s State of the Union address, the president is campaigning for higher taxes, more spending and more Federal regulation. No pro-growth agenda there.

So now is a good time to buy and hold gold. Buy gold to protect your wealth against the corrosive effect of ultra-easy monetary policy. Buy gold to maintain a store of value that is recognized universally. Buy gold to diversify your investment portfolio. Buy gold for peace of mind in uncertain times. Buy gold to secure yourself and your family.

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editor@thegoldspeculatorllc.com

Triple Top in Gold?

noreply@blogger.com (The Gold Speculator) — Wed, 24 Oct 2012 13:49:00 +0000

By Scott Silva

Editor, The Gold Speculator

10-24-12

Gold is amazing stuff. Gold has launched wars, destroyed and created whole societies. For thousands of years gold has been the trusted medium of exchange, and for hundreds of years had been the reserve currency of developed nations. Today, there is revived interest in gold. Central banks are net buyers of gold bullion, and more and more individuals are buying gold and silver bullion. That’s because gold has intrinsic value as money anywhere on the globe. Gold maintains its value as fiat currency is debased as central banks print Trillions more paper notes on the pretext of stimulating ailing economies. In fact, these robber-baron governments are implementing their secret agenda to monetize massive national debts, that is, paying interest (rarely principle) with paper currency of ever-diminishing value. Where are the RICO laws for that criminal practice?

Gold has been good for investors to own. Owning gold is an excellent way to diversify almost any portfolio. Hedge funds, banks, and other institutional investors have been buying gold, particularly in the last few years. The price of gold shows the bulls have been in control for years, pushing the price of gold up four-fold over the past ten years.

Some analysts see a triple top pattern in the weekly charts for gold. The triple top pattern typically marks a reversal. Since gold has been in a strong bullish trend for years now, a trend reversal would be strong and steep. The commodity bull cemetery is full of gravestones bearing the inscription, “killed by a triple top”. Are the charts telling us the price of gold is headed for a lethal fall? Has gold formed the bearish triple top that some analysts see? Or are there other technical signs that we can see from the charts that can help us decide to buy, sell or hold gold right now?

Well, we know from technical analysis that a triple top chart pattern is indeed a bearish pattern that typically marks a reversal. We can spot the pattern by its three successive peaks near major resistance, formed over time by successive moves up from the same support level. The three tops should be spaced roughly equally apart. Trading volume should show a declining trend over the three-peak formation period. The weekly basis chart for spot gold displays such features.

So should we sell gold now before its inevitable fall? Well, it might be more prudent to

determine if the bearish triple top pattern displays a break below its support level. At present, weekly price action is 200 points higher than the support level of 1527, so we would need to see a major decline from today’s price. If the price of gold does decline and drops below 1527, the measured move for this pattern shows gold could drop down to 1251. Ouch!

There is another pattern in the weekly gold chart worth considering. It is a large, long term bullish ascending triangle pattern that began to form way back in February. The ascending triangle pattern is a continuation pattern, which at breakout, can result in a powerful move up. We identified a smaller ascending triangle pattern in gold for readers of these pages (“Charting Gold, 8-14-12), which predicted the breakout from 1635 to 1724. The measured move calculated in the larger, longer term ascending triangle pattern if the gold price were to break above 1803 is 221 points, which would bring the bullish breakout target price to $2024/oz for spot gold.

Will gold break above 1803 on its way to 2024? We shall see. Price action is finding support at current levels, and 1803 is just 4% away from last week’s closing price of 1730.40.

The ascending triangle pattern is in the weekly basis chart for gold. There is yet another bullish pattern evident in the weekly chart, namely, the bullish cup and handle pattern. This is a powerful, long term formation that dates back to February. The bullish cup and handle pattern traces out the “cup” by the gradual price decline, then bottoming out, and then gradually returning to the “lip” of the cup. We can see this feature in the chart from February to September for spot gold. We can also discern the formation of the “handle” feature, which is the sideways to slightly declining price action. The measured move for the bullish cup and handle pattern is calculated by adding the value of the depth of the cup portion to the breakout level, which is the upper trend line of the handle feature. The measured move for spot gold in this pattern is 274, which would bring the price target to $2077/oz were gold to close above the 1803 on the weekly chart, the breakout level at the “lip”.

There is good potential for a more upward pressure on the gold price. The Fed meets again this week. Chairman Bernanke could announce he is expanding the scope of his monthly bond-buying program (QE Infinity) in response to yet more disappointing US economic data. More QE will likely push gold higher. Gold could also receive a boost from progress across the pond. If the EU gets closer to a solution to Spain and Italy’s debt troubles, the Euro would gain against the Dollar, which would send gold priced in Dollars higher. Also, renewed violence or the threat of violence in the Middle East or Africa would be reflected in higher gold prices. Finally, the US election outcome will impact the price of gold. A pro-growth president would put pressure on gold prices, as was the case under President Reagan. If the incumbent survives the election process, gold is likely to stay high in price, consistent with ultra-easy monetary policy and massive deficit spending.

So, we will be watching which way goeth gold in the short term, up 4% or down 11%, before the next big moves predicted by the charts take place. At present we do not expect gold to plummet from a bearish triple top pattern. The fundamentals support high gold prices for the foreseeable future. However, we shall stay vigilant as we tip toe past the triple top cemetery.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Breakout in Precious Metals

noreply@blogger.com (The Gold Speculator) — Tue, 21 Aug 2012 23:33:00 +0000

By Scott Silva

Editor, The Gold Speculator

8-21-12

Gold bugs are paying attention to the breakout in the gold and silver today. Could this be the breakout that propels the precious metals to new highs? Or is the bullish buying of the shiny metals a passing summer fling?

Some respected analysts characterize the current bullish interest in gold and silver, as well as the summer rally in stocks is invalid, citing the lack of trading volume, which “is the only way to confirm a bullish trend”. That opinion has led many to short stocks and some commodities. Others have elected to stay on the sidelines, satisfied to stash their capital in Treasurys.

Technical analysis sheds some light on the nature of traded assets. Readers of these pages last week (“Charting Gold”) saw our forecast of the potential breakout in gold based its bullish ascending triangle chart pattern. In that analysis, we identified the breakout level to be $1634/oz.

Soon after the New York open today, spot gold jumped to just over 1640, clearly above the trend line breakout level on high trading volume. To be considered a valid breakout, gold needs to close above 1634 over the next few trading sessions with volume above 110,000. The target price for a valid breakout from the bullish ascending triangle pattern in gold is 1725.

Ichimoku Kinko Hyo indicators show that the 1725 target price has been a strong support/resistance level in the past. We can see from the weekly basis chart the projected cloud is showing 1723.80 as resistance. We saw gold trades close to this level before the run up last August and for several weeks of sideways trading from April through May this year. Another significant feature on weekly chart below is the bullish cross of MACD oscillator. Several traders use MACD crosses to execute trades because it clearly identifies shifts in momentum. Whether or not MACD is used as a trigger for a trade, it is a useful measure for confirming other technical indicators, such as a bullish cross of Tenkan Sen from below the Kijun Sen, which remains intact since it appeared on the July 26 daily Ichimoku charts for gold.

Some traders rely on the TrendSpotter indicator, a popular computerized trend analysis available on most trading platforms and on Barchart.com. The indicator combines elements of wave theory, market momentum and volatility to display the general trend for a given traded asset. Traders read the TrendSpotter “dots” which are graphic codes for more technical analysis going on in the background by computer algorithms. A single dot above the price indicates resistance and a bearish trend. A dot below the price shows support and a bullish trend. When two dots appear, one above and one below the price, the trend is neutral indicating “hold”.

We can see that TrendSpotter dots have followed the upward trend in gold building from late July, and accelerating in the last three trading sessions including sessions.

The study at the bottom of the TrendSpotter chart is a momentum indicator, which shows relative price differences between the current price and the price 10 and 20 sessions ago. The waves above and below the zero line show bullish and bearish price momentum. The height (amplitude) of the wave signifies the strength of the momentum. These data are showing an accelerating bullish TrendSpotter trend for gold, with modest momentum at the moment.

There are a multitude of technical indicators and systems that support informed trading decisions. The important thing to remember about technical analysis is that it works. What works best for one trader or another comes down to personal preference. Ichimoku works well for us at The Gold Speculator. We use it as the basis for selecting gold and silver stocks and futures for the Model Conservative Portfolio (MCP). Ichimoku support and resistance levels tend to correlate closely to Fibonacci retracements, which we find to be very reliable forecasting tools when used in combination. We use Ichimoku along with some “trigger” indicators for our weekly recommendations for traders who trade more frequently across all markets using our Model Aggressive Portfolio (MAD), which returned 77.3% for the week ending 8-17-12. Recommendations for each risk profile are available online to subscribers.

Each set of these popular technical indicators are showing a new bullish trend is building for gold. These same technical analysis tools show that silver has broken out above resistance and may be on the way to new highs this year. Silver has the potential to make much greater percentage gains than gold over the next few months.

The charts are telling us it’s time to buy and hold gold and silver. Sometimes, a summer fling

can turn into “The One”.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

To QE or not to QE

noreply@blogger.com (The Gold Speculator) — Tue, 07 Aug 2012 19:56:00 +0000

By Scott Silva

Editor, The Gold Speculator

8-7-12

To QE or not to QE. That is the question. The markets waited for the Fed Chairman to announce it is time to jump in with another round of restorative stimulus, and had bid up nicely before Big Ben disappointed once again at the conclusion of last week’s FOMC meeting, stating,

“The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

Hardly stimulating. The markets responded by selling off, but not as sharply as usual following a Bernanke punt. Traders held out hope that the ECB might do something bold. But alas, Mario Draghi seemed content to sit on the edge of the bed as well. Apparently, now is not the time for the central banks to begin a new bond-buying binge. The bankers must have insight other do not. Could it be that that they expect economic conditions to deteriorate further, or do they see signs of a sudden turnaround? Most analysts are pessimistic on the prospect that the Eurozone debt crisis can be contained. And many do not see the US recovery happening until a pro-growth president takes the oath of office.

The reason that the Fed policy has failed to stimulate the US economy is that monetary policy cannot stimulate demand. And despite what the Keynesians in charge of Washington believe, government spending does not create demand (except, or course for defense spending). Even if I accept the Keynesian approach, then also I must believe that the US is in JMK’s liquidity trap, that eerie nether region of extended ultra-low interest rates in which no amount of additional money produces any increase in output. Uncle Ben must secretly know that QE3 would ultimately fail, as did QE1 and QE2. And so too, his legacy as an effective Fed Chairman would never materialize.

One example of the failure of Washington central planning policy is the unemployment rate, which has now reached 15% (U-6 rate) for July. We have not had so many out-of-work citizens since the 1930’s. If defense funding sequestration occurs, there will be another 700,000 or so joining the jobless ranks. Despite what some may say, the private sector is not “doing fine”.

The US stock market seems to have discounted the feckless Fed, re-election campaign rhetoric, and the lousy July jobs number to closing above 13,000 last week and continuing its move up this week. The markets seem propelled by some special knowledge that there may be a bridge across the fiscal cliff. Could reason and responsibility succeed where rhetoric and redistribution has failed? We shall see. In the meantime, individuals must remain vigilant and protect themselves against attack by those who would steal their wealth and give it to others more “deserving”. Да, Comrade!

Many know that buying and owning gold is an excellent way of protecting wealth. Gold has been a recognized store of value for thousands of years. Gold has intrinsic value. Gold maintains its value especially in uncertain economic times. The price of gold increases when governments intervene in the credit markets and create more fiat currency than economies demand. This has been the case in the US and the EU for the last several years as central bankers have tripled the money supply through Quantitative Easing and other easy money measures.

Over the past five years, US central planners have distributed more than $4 Trillion of stimulus funding, raising the government share of GDP to 42.3% in 2009 from 35% in late 2007. The Federal spending binge includes add-ons to the agricultural and housing bills in 2007, the $600 per capita tax rebate in 2008, the TARP and Fannie Mae and Freddie Mac bailouts, "Cash for Clunkers," additional mortgage relief subsidies and the president’s $860 billion stimulus plan that promised to deliver unemployment rates below 6% by now.

Since the beginning of the Federal stimulus spending spree, US GDP has fallen 61% and the price of gold has increased 101%. The price of gold is likely to climb higher if Chairman Bernanke ignores his better angels and succumbs to another sip from the punchbowl.

And the price of gold is telling us now that odds are good that the Chairman will fall off the wagon, again, soon. Today, gold is trading above $1600/oz.

There are signs that gold will continue its upward trend for some time yet. Technical indicators for commodities in general are bullish. The CRB index is in an upward swing, climbing to 12% to over 561 since June. Many noted commodity traders are adding to their long positions. In particular, large speculators (the smart money) are accumulating gold. In the most recent Commitment of Traders (COT) report, Large Speculator bullish sentiment jumped 3 points to 79%. The large traders added 5,246 new long contracts and shed 7, 841 short positions on slightly lower open interest of 403,403 contracts. These professional traders are usually ahead of the herd. As subscribers to The Gold Speculator know, we are bullish on the precious metals.

What will happen to the price of gold if Helicopter Ben does not dump more bushels of greenbacks from the sky? Well, the price of gold will still rise. A major reason is the fact that money is seeping in to the economy from a massive store held as “excess reserves” by member banks of the Federal Reserve system. These funds are released into the economy when the banks lend or create new demand accounts. Normally, adding money into circulation stimulates economic activity. But we also know that increasing the supply of money when the demand for money is low, as is the case today at 1.5% GDP growth, leads to higher prices.

Of course, a new round of Fed bond-buying would be a massive dose; the last two rounds were woefully inadequate, according to the Keynesians in charge. “If only the stimulus were larger, say $1.5 Trillion or so, we would have come out of the woods by now.” Or, maybe $3 Trillion, as Paul Krugman has suggested.

Here’s an idea that might work. Take Paul Krugman’s $3Trillion number and rather than spending it on shovel-ready stimulus programs, spend it all on running the Federal government for a year, and declare a 1-year tax holiday for all US citizens and all US businesses. Now that would jump start the economy and end the jobless recession.

'Tis a consummation devoutly to be wished.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Breakout in gold?

noreply@blogger.com (The Gold Speculator) — Tue, 31 Jul 2012 18:05:00 +0000

By Scott Silva

Editor, The Gold Speculator

7-31-12

Last week we examined the bullish symmetrical triangle pattern in gold and identified the potential breakout points in this time-tested technical indicator. We also looked at the Ichimoku Kinko Hyo indicators for gold to see if their trend and momentum signals confirmed the validity of the chart pattern. Were these indicators correct?

Well, time will tell, but there are signs that the price of gold has broken out from consolidation, and may be poised for a move up. Let’s see what’s been going on with gold.

Here is the symmetric triangle pattern we identified last week.

With it, we identified breakout prices of 1612 on the upside and 1559 on the downside. This week spot gold prices broke through 1612 on the upper trend line. So does that mean we are on our way up? As my market making Zen master always told me, “We’ll see.” His words never seemed to satisfy my need for proof of any premise.

Here’s a chart as of yesterday’s close.

Gold began its move up after the printing a hammer candlestick on July 24^th. After strong upward trading the next day, price action broke through the upper trend line on July 26^th, closing at 1614. The spot gold price continued higher last Friday. Trading volume was significantly higher during the bullish trading sessions.

As we know, symmetrical triangle patterns can signal continuation of the preceding trend, or a reversal. That’s why some regard symmetrical triangle patterns as neutral patterns. In the case of gold, continuation would mean a move to the upside. A reversal would indicate the start of an intermediate trend to the downside.

It is important then, to confirm the validity of any breakout. According to conventional analysts, such as Edwards and Magee, a breakout pattern is invalid unless accompanied by significant increase in trading volume. As indicated in the dark oval in the chart above, trading volume was significantly higher during the bullish trading sessions.

Well, wouldn’t that confirm we have a valid breakout? We’ll see, says the Zen Master. Here’s why. Yesterday’s volume was down. And, price action produced a solid hammer candlestick, indicating a tug-of-war between buyers and sellers that ended on the sell side. So the validity of the bullish breakout from the symmetric triangle pattern is not proved by volume beyond a shadow of a doubt.

Nothing in life, much less in trading commodities is certain. So we’ll stick to the preponderance of the evidence here. Again, we rely on the Ichimoku and other technical indicators to give us more evidence of what’s happening with gold.

It’s clear from the daily Ichimoku chart that gold has broken through resistance, and is now trading above the cloud. And the projected cloud has turned bullish (now shaded green). The Tenkan Sen made a bullish cross of the Kijun Sen from below on July 26^th. These are all bullish indicators. The Chikou Span (green line), has moved above price action, which is bullish, but is now in neutral territory (in the cloud). Were the Chikou Span to drift higher or sideways, then all Ichimoku indicators would signal a strong buy for gold. The separate MACD oscillator made a bullish cross ahead of the Tenkan Sen bullish cross, as is typical for the this “predictor” indicator. Support is now 1604, with first resistance at 1642, then 1665.

Edwards and Magee may prove right once again that increased volume confirms a breakout from a symmetric triangle pattern. I think price action provides the best confirmation. And we will see shortly if the price of gold can withstand another bout with the fantastic FOMC later this week.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

How Bad Can it Get?

noreply@blogger.com (The Gold Speculator) — Tue, 24 Jul 2012 18:19:00 +0000

By Scott Silva

Editor, The Gold Speculator

7-24-12

How Bad Can It Get?

Well, that’s the question that the central planners need to answer, but not one seems ready to admit the fact that the US economy is slowing down further despite the rosy outlook of presidential re-election cast of characters, which includes most of the media. Those stubborn facts remain: unemployment is climbing, not declining; consumer sales are down; corporate capital expenditure (CAPEX) is down; energy prices are headed up; food prices are headed up; real wages are down; housing prices are still down; real interest rates are negative; national debt is growing; and GDP is slowing.

So what’s the bad news? The bad news is we are hurdling toward the fiscal cliff, Thelma and Louise-style, with POTUS and Big Ben Bernanke holding hands in their blue ‘66 Thunderbird convertible as it plummets to the canyon floor below. The sad fact is there is a leadership vacuum in Washington, which prevents rational bipartisan decision-making regarding deficit reduction and spending priorities. If the debt limit fiasco of last August is any measure of dysfunction by the Federal government, then stand by for the real fireworks display as the Super Committee cuts kick in, the Bush tax cuts expire (for every taxpayer), and the Obamatax takes hold.

Each one of these Federal bipartisan compromise measures will decimate jobs and grind growth to a standstill. A recent study concludes that the automatic spending cuts mandated in the Budget Control Act of 2011 affecting defense and non-defense discretionary spending in just the first year of implementation will reduce the nation’s GDP by $215 billion; decrease personal earnings of the workforce by $109.4 billion and cost the U.S. economy 2.14 million jobs.

That’s no way to stimulate the economy, which is exactly what Fed Chairman Bernanke told House and Senate Finance Committees last week. The Chairman’s remarks painted a pretty gloomy picture for US economic growth, and he repeatedly pointed to fiscal policy (outside his control) as a major culprit. The markets were hoping he would announce the start of QE3, but Big Ben could only reiterate that the “Fed stands ready to act…when conditions require…” Oh well, Ben and boys will have another chance to make the big announcement when the FOMC meets again Jul 29-Aug 1. Chances are the Wisemen will offer nothing earthshaking after their regular pow-wow.

The markets are searching for a reason to climb, but the threat of extended recession in the US, deepening recession in Europe and a slowdown in China all work against any sustained move. Sideways motion seems to be the trend. Something has to change before investors decide to pour capital into risk-on asset classes. Many are happy to stay in Treasurys and precious metals until there is some light ahead, which is why stocks have taken such a beating this year, and prices of T-Bonds and gold are maintaining their prices.

What are the technical indicators telling us about gold now? We can use technical pattern analysis and the more complete Ichimoku Kinko Hyo indicators to examine trading decisions for gold.

Gold has formed a symmetric triangle pattern evident on the daily basis chart. Symmetric triangle patterns typically form during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. The pattern shape appears as a contracting wedge, wide at the beginning and narrowing over time.

Symmetrical triangles can mark important trend reversals. They can also mark a continuation of the current trend. Whether signaling a continuation or a reversal, the direction of the next major move can only be determined after a valid breakout. A “breakout” of the pattern occurs when the closing price is above or below the narrowing pattern lines. Therefore, the breakout can be to the upside or the downside. Determining a valid breakout can be challenging; price action can return to the breakout point creating a false breakout. Increased trading volume concurrent to the breakout is a reliable confirmation indicator. Other useful confirming indicators include proof of a 3% move above the pattern line and the time-based rule, such as a sustained move over three days.

To determine the price target for a breakout from a symmetric triangle pattern, we can either measure the widest distance of the symmetrical triangle pattern and apply it to the breakout point, or we can draw a trend line parallel to the pattern's trend line that slopes (up or down) in the direction of the break. The extension of this line will mark a potential breakout price target.

Today, price action is between the pattern lines whose breakout values are 1612 on the upside and 1559 on the downside. If price action slides sideways from here, the breakout values converge, creating more opportunity for a breakout without a substantial change in price. For example, if we project sideways movement to August 16^th, then the breakout values narrow to 1598 and 1571. The depth of the triangle sets the price increment at 72 points.

The Ichimoku Kinko Hyo indicators confirm these support and resistance values of the symmetric triangle pattern above. The cloud or moku is the shaded area on the Ichimoku indicators chart below. The cloud depicts support and resistance levels and can be projected forward. For gold, the projected cloud is narrowing. Also, the projected cloud top is flat, which portend sideways movement. The support and resistance levels for the projected cloud out at August 17^th are 1598 and 1590.

The Ichimoku indicators tell us more about price gold than the triangle pattern. Ichimoku, the “one look equilibrium chart”, gives us not only support and resistance, but trends, momentum, and trend reversals in a single, coherent view of its five price-related indicators. Professional traders use Ichimoku indicators to trade currencies, futures, stocks and bonds successfully by tapping into to strong trends. There are well established rules for trading using Ichimoku Kinko Hyo, which we use at The Gold Speculator. Right now these indicators signal “hold” for those that own gold. These same indicators will tell us when the time is right to “Buy” or “Sell” to take full advantage of the new intermediate trend for gold.

So no matter how bad the economy gets, we can stay ahead of the pack by trading hard assets, such as gold.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Greed is good.

noreply@blogger.com (The Gold Speculator) — Tue, 26 Jun 2012 19:22:00 +0000

By Scott Silva

Editor, The Gold Speculator

6-26-12

“Greed, for lack of a better word, is good.” So said Gordon Gekko, the iconic corporate raider in Oliver Stone’s cynical 1987 film Wall Street. Michael Douglas won an Academy Award for Best Actor for his role in the film, now a classic. In the film, Gekko is ultimately imprisoned for securities fraud after years of benefiting from insider trading. Today, many liberal legislators and left-wing politicians associate Wall Street traders and investment bankers with the criminal activities of Gordon Gekko, the fictional film character. Certainly the Occupy Wall Street protesters believe Wall Street is the seat of corporate greed and corruption. Some US Senators conflate securities fraud with speculation, frequently referring to Gordon Gekko, excess and greed in speeches designed to vilify speculators, who after all, “caused the financial meltdown” or, “caused $5.00/gal gasoline prices” with their wonton, unbridled greed.

But speculation in the commodities markets is not illegal. Nor is it immoral. In fact, speculation is integral to operation of free markets. There is a legitimate role for market speculation in efficient markets. Without market speculation, prices would be less stable and price discovery more difficult, making markets less efficient. For example, if there were no speculators in the pork bellies market, the market would consist of producers (hog farmers) and consumers (butchers, and those who prefer to carve up their meat themselves). With just two participants in the market, the market would be thinly traded, leading to large spreads between bid and asked, which distorts prices, and makes capital investment less efficient. As a market participant, the speculator adds liquidity (risks his own capital) and provided a competitive bid which narrows the spread, making the market more efficient for all participants. Because there are two sides to a speculative trade, either the long position holder or the short position holder will benefit from price changes over time.

Usually, speculation in a particular market has a dampening effect on price volatility, but there have been periods of “irrational exuberance” where prices are bid up in exponential fashion, creating a market bubble. Speculators may participate in the development of a market bubble, as they did in the real estate market boom of 2000-2008, but it takes more than speculation to cause a market bubble. In the case of the US real estate bubble that burst in 2008, decades of easy money and government intervention in the home mortgage industry via the Community Reinvestment Act laid the foundation for the irrational boom and its ultimate bust.

Recently, speculation has been blamed for high gasoline prices. “The oil speculators have bid up the price of oil, so you are now paying $5.00 per gallon at the pump!” complained a US Senator who proposes to ban speculators from trading oil futures. “Only producers and commercial consumers who need to hedge should be allowed to trade oil futures contracts,” say proponents of strict regulation of the oil futures markets; “Speculators are greedy, and greed is bad.” But studies show that oil prices have increased steadily since 2000, with commercial and non-commercial (speculators) holding net long into the extended bull market for oil. Even during the period of strict regulation and position limits on the commodities futures market, prior to the Commodities Futures Modernization Act, oil prices tended to climb higher year after year.

Although speculators have represented a growing percentage of open interest since 2003, the Commodities Futures Trading Commission (CFTC) concluded in its own investigation of the oil futures market that there is no evidence that the market was influenced by the trading behaviors of any large group of participants. In fact, CFTC chairman Walter Lukken told a committee of the U.S. House of Representatives in 2008 that CFTC analysis “did not find direct evidence that speculation was driving up (commodity) prices.” The fact is, global the oil market was tight, leading to the peak price of WTI at $147/bbl in mid 2008. The futures price was a prescient leading indicator.

If speculators did not cause the bubble in the oil market, what did? One explanation that makes sense is the weakening Dollar. Because oil futures settle in Dollars (or physical delivery), it takes more Dollars to buy a barrel of oil, for a given supply, when the Dollar is weak. Conversely, the stronger Dollar purchases more barrels per Dollar, driving down the price in the global market. The value of the Dollar has been trending down ever since the Federal Reserve has been printing more of the stuff in the name of US economic stimulus. It is the time-tested economic principle known as Gresham’s Law that bad money drives out good. Printing more money out of thin air debases the currency and devalues Dollars in circulation.

We can see the inverse relationship of oil (West Texas Intermediate, WTI) and the US Dollar Index (USD) in the chart below. WTI peaked just as the US Dollar bottomed in 2008 just as the Federal Reserve added the first $700 Billion of the $3 Trillion it would add to its balance sheet under its economic stimulus policy. The anticipated effect of spurring the economy into robust recovery has proved elusive. But there are unintended negative consequences of the Fed’s money printing spree, which include higher prices for commodities. As we know from Milton Freidman and the recently departed Anna Schwartz, may she rest in peace, inflation is always and everywhere a monetary phenomenon.

We also know that the price of gold reflects the strength of the Dollar. The Dollar’s drift from 2002 to 2008 helped propel the price of gold up over $1200/oz. Of course, there are other factors that contribute to gold’s rise. Gold is the traditional safe-haven asset that investors seek out in times of economic uncertainly, turmoil and war. Gold has intrinsic value, and it acts as a store of value. Unlike fiat currency, gold maintains its value and is recognized as viable collateral for transactions in markets around the world.

Today, oil prices have subsided a bit from the highs of over $110/bbl earlier this year. WTI is now trading down below $80/bbl with no added supply. Some analysts believe that the war premium has been wrung out of the price. Iran is no longer openly threatening to close the Strait of Hormuz. Maybe so, but the primary cause is softer demand. Double dip recession in Europe, a slowdown in China and the continuing slow-motion, no-growth, jobless recovery in the US has dampened demand for energy. And by the way, the Large Speculators have been cutting back their long positions on WTI and adding short positions; last week’s Commitment of Traders report showed bullish sentiment for oil has dropped to 63% down from 96% in February when WTI was trading near $110/bbl. No one seems to complain about speculators when prices go down.

Gold is also trading below $1600/oz. But more poor US economic data is coming for sure, and the Fed will jump in with more quantitative easing, adding more to its balance sheet which will further devalue the currency. So, in today’s market, take a page from Gordon Gekko’s playbook. Buy, buy, buy gold. Because, as we all know, “Greed is good.”

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Eurobomb Ticking Down, II

noreply@blogger.com (The Gold Speculator) — Tue, 12 Jun 2012 13:13:00 +0000

By Scott Silva

Editor, The Gold Speculator

6-5-12

Last January, we warned readers of these pages of the “Eurobomb Ticking Down”, which forecast financial chaos across the Eurozone would come as the result of continued deficit spending, massive accumulated sovereign debt and growth of entitlement program spending to unsustainable levels. http://www.kitco.com/ind/Silva/jan182012.html

Today, the G7 is holding emergency meetings to deal with the imminent collapse of Spanish sovereign debt in the bond markets, even as Germany considers funding a bailout package for Spain, or possibly changing its position in favor of the Eurobond solution to the regional banking crisis. As Papa Hemingway once observed, bankruptcy happens two ways, “Gradually, then suddenly.” Today, Treasury minister Cristobal Montoro said that at current borrowing costs financial markets were shut to Spain. If the bond market were suddenly no longer available to Spain as it struggles to refinance its debt, without restructuring, Spain’s financial system would collapse, pushing its battered economy further into recession, then likely, depression. Already, one in four is out of work in Spain. Yet the government is unwilling to accept terms of any EU rescue plan.

Greece is faring no better. Standard & Poor's announced today there is 1/3 chance that Greece will exit the Eurozone in the coming months, following the elections on June 17^th. The credit agency further stated a Greek exit would “seriously damage Greece's economy and fiscal position in the medium term and most likely lead to another Greek sovereign default.” Another Greek default would impact other Eurozone economies which would also face credit rating write- downs-- a vicious downward spiral.

The emergency conference call of G7 members today is not likely to result in immediate action. The G20 is scheduled to meet June 18-19, immediately following elections in Greece. A major topic will be the path to financial stability for the Eurozone. All G20 members, including the US and China have a stake in the summit outcome.

But the bond market is not shutting Spain out. At least not yet. Yields for Spanish 10-year notes are coming down in today’s trading. Apparently, the bond vigilantes did not get the Montoro memo. Although rates for Spanish 10-year note have risen steadily and approached the 7% danger zone leading up to the G7 meeting, yields declined 1.3 basis points to 6.4% in today’s trading. The market is discounting a coordinated effort by the ECB, EU and the IMF to stabilize the Eurozone and keep it intact. Last week, the EU offered to extend the deadline a year to 2014 for Spain to bring its deficit down to the EU limit of 3% of GDP. The Commission has also suggested that the ESM could provide direct funding to Spain, although that measure would require a change to the existing treaty and ratification by all 27 members. Even if these life-line measures were adopted, they may prove only to delay inevitable default.

Some near term relief may come from the ECB. Many analysts expect the ECB to cut its refi rate below its current 1% level within the next few weeks. A near-zero interest rate policy would ease pressure on those countries most in need of cheap refinancing. The ECB could also opt for another injection of liquidity into the entire region via long-term refinancing operations (LTROs), or some old fashioned bond-buying. But these steps would also firmly establish a liquidity trap in which no amount of added liquidity to the banking system provides marginal output. This is the problem with the Keynesian obsession with too much money. It is simply impossible to print your way to prosperity with more and more fiat currency. But that is precisely what progressive central bankers tend to do when facing an economic downturn. Apparently, the urge to ease is powerful and overwhelming.

But intervention fails. It has always failed. And it will always fail. Fed intervention failed to reverse the economic slide in the 1930’s. In fact, according to Friedman and Schwartz, Federal Reserve actions deepened and extended the Great Recession. Today, near-zero interest rate and quantitative easing by the US central bank has failed to reverse the economic slide of the Great Recession. And the ECB has failed to ignite any economic recovery in the Eurozone. For example, the leading European economies, Germany, France, Italy and Spain account for 77 per cent of total Eurozone GDP, but in the past four quarters, Germany posted average quarter-over-quarter growth of 0.3 per cent, yielding an annualized rate of expansion of just1.2%, while most of Europe remains in recession. France posted average quarterly growth of just 0.1 per cent in the year up to April, an annualized rate of expansion of just 0.4 per cent. France recorded zero quarterly growth in 1Q2012. Spain and Italy have been a drain. Spain is officially in recession with an average quarter-on-quarter decline of 0.1 per cent since the second quarter of 2011. Italy is in its third consecutive quarter of negative growth, with an average quarterly rate of minus 0.35 per cent over the year to April 1. Utterly underwhelming.

So what does the continuing saga of the Eurozone debt crisis mean for investors? Well, for one thing, the markets will remain volatile for some time yet. There will be more gnashing of teeth as European welfare state economies contend the realities of long term unsustainable deficit spending and oppressive tax regimes. The options for countries with 150% debt/GDP become fewer and worse. The central planners will resort to ever more debasement of the currency at the expense of individual purchasing power and increased demand. Weaker demand in Europe for American exports will dampen the sluggish (and jobless) US recovery. Funds will flow out of the Euro and out of stocks and into “safer” assets and currencies such as the Dollar, the Swissy and gold.

We can see that the concerns over the Euro crisis and also concerns over an uptick in the latest US unemployment rate have caused the ‘Fear Index” for stocks to jump. The “Fear Index” is the CBOE Market Volatility index, which trades by the symbol VIX. The VIX is quoted in percentage points and translates to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized. The VIX has an inverse relationship to stock prices. That is, when the VIX trades up, stocks tend to decline. The higher the VIX climbs, the lower go stocks. The VIX is indicating we are in for some more volatile times in stocks.

We can also see that gold has outperformed the S&P 500, and is less volatile than the broad stock index. Recent volatility has erased earlier gains of the S&P 500. The VIX is portending rougher weather ahead for stocks. At the same time, gold has regained some luster. Gold will climb higher if the ECB decides to resume its bond-buying program.

So where will the smart money go as the European debt crisis plays out? The smart money will buy gold. Gold is a store of value. Gold benefits from government intervention in the credit markets. Gold increases in value as new fiat money is printed. Gold appreciates in times of economic uncertainty. At today’s prices, gold is a bargain.

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Another Hike for Gold

noreply@blogger.com (The Gold Speculator) — Tue, 22 May 2012 18:19:00 +0000

By Scott Silva

Editor, The Gold Speculator

5-22-12

Things may be looking up for gold bugs. The sellers are gone, and the bargain hunters have returned. Is this the reversal gold bugs have been waiting for? Or is it a short term bounce only to be followed by another leg down? Technical analysis says we may be seeing the beginning of another powerful upswing for the precious metals and gold and silver stocks.

Gold and silver stocks have been under pressure over the last several weeks. But we now are seeing signs of a bullish reversal. A look at the technical indicators for the HUI gold stock index gives us the first hint. The indicators we will examine here are Ichimoku Kinko Hyo, candlestick analysis and Moving Average Convergence/Divergence (MACD). Taken together, these technical indicators provide a degree of corroborated information from which to trade.

So let’s look what these three technical indicators are telling us about the HUI. We can see from the daily basis chart that on May 16^th, the HUI halted its slide begun earlier this month, and has traded up in the last several sessions. Price action on May 16^th produced a doji candlestick. The doji typically marks a reversal in an established trend. The doji candlestick has a long shadow and a small body, which traces out the push and pull between buyers and sellers, and reflects the fact that neither buyers nor sellers dominated the day’s trading. We can see that the May 16^th doji in fact marked a bullish reversal at the 376.86 level. The long white candle on May 17^th and following sessions pushed the HUI up to 412 or so.

The next set of indicators to examine is Ichimoku trend and momentum. Today, most Ichimoku indicators are bearish, but there are some bullish signs. Price action is below the cloud, which is bearish. The projected cloud is bearish (shaded pink) with Span A below Span B. And the Chikou Span (green trace) is below price action and the below the cloud, which is a bearish signal. Yesterday, price action climbed briefly above the Kijun Sen (red trace), which is a bullish sign. The Chikou Span, the momentum indictor, has made a move up, and could climb up to the breakout area covering the 420-470 price levels. In this area, the Chikou Span would be above price action, which would be a strong bullish indicator. From there, price action could break above the cloud at 444, the projected resistance level. By then, the projected cloud would be bullish as well.

The near term dynamic displayed by the MACD shows that the breakout scenario may in play already. The MACD shows the HUI to be oversold, with an index bottoming out at -20.0 on May 16^th, then making a bullish crossover on May 21^st.

Aggressive traders use MACD crossover signals to buy and sell. More conservative traders are happy to wait for the trend to develop fully, as indicated by all five Ichimoku indicators before committing capital. There are trading rules and strategies that combine Ichimoku with other technical indicators that work well in volatile markets. Aggressive and conservative investors alike can benefit from technical analysis of gold and gold silver stocks. Our analysis of the HUI is telling us we may be seeing blue skies for gold and silver stocks soon.

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editor@thegoldspeculatorllc.com

A Rainbow for Gold?

noreply@blogger.com (The Gold Speculator) — Thu, 17 May 2012 16:40:00 +0000

By Scott Silva

Editor, The Gold Speculator

5-15-12

Woe is me! The market is falling! When will it all end? Many who own gold and silver are losing sleep over the current downturn in precious metal prices. Some are ready to sell their long term holdings, for fear the market has yet to bottom and prices will continue to fall. The abyss seems bottomless. All hope is lost.

Well, things may not be so dire. The end of the world may not be so close at hand. There are forces building that will serve to propel gold and silver prices to new highs. Gold and silver are at attractive prices for bargain hunters who may be more cool-headed than the throngs of amateurs that rush to sell at the intermediate low.

It is human nature to want to conserve what a person has earned. For most retail investors, the immediate reaction during market downturns is to sell. Fear overtakes reason, and selling begets more selling. Prices tend to change much more quickly when the electronic trading algorithms take over, followed quickly by the cowardly crowds. These are the same retail investors, by the way, who tend to pile in at market tops, afraid to miss out on the big score. But most retail investors get it exactly wrong. They sell low and buy high, the certain way to go broke.

Why do so many people give their money away to the markets? It has as much to do with training, specifically the lack of training and discipline, than psychology. Fear and greed may be the great motivating emotions that drive the market, but control of fear (and greed) through training and discipline allows the investor and speculator to profit in the markets while others fail. This is true for any market. The trick is to learn to act apart from the crowd, move contrary to the path of the mob. The mob is motivated by fear and greed. The contrarian investor takes advantage of the untrained mob by selling to them when they jump in at the market top, and buying from them when they are compelled to sell at the market bottom.

The rise in gold to $1900/oz last year, and the fall in gold to $1550/oz this year are good examples of this dynamic. We can see from the gold futures chart how gold climbed in price, and more recently, how gold has come down in price. What’s important is the trading volume associated with these moves. Volume tells us the relative ratio of buyers and sellers who are acting in the market. When prices rise, there are more buyers than sellers. Trading volume (left scale) climbed to over 400, 000 contacts when the buyers came in to run the gold price last August. Trading volume also spiked above 400,000 contacts during the sell-off of late September of last year. When prices decline, it is because there are more sellers than buyers acting. We can see a similar relationship, but at the 350,000 contract volume level in the moves up and down so far this year. To make money from these moves, the trader must act against the market. That is, the successful trader sells into rallies, and buys the dips. Most professional traders then can be characterized as contrarian. They act precisely opposite of the herd.

We are seeing a market bottom in gold and gold stocks now. Many institutional advisors are telling their retail clients to sell gold and gold stocks just now. But we are not seeing a spike in selling volume. We may be running out of selling pressure. When there are no more sellers, the momentum will shift to the buyers. But some of us will have already bought, and will be ready to sell into the next rally. If there are more storm clouds on the horizon for gold, then let it rain. After all, there cannot be a rainbow without the rain. So let the sellers sell and sell. I’ll buy and buy.

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May Day in Paris

noreply@blogger.com (The Gold Speculator) — Sun, 13 May 2012 17:59:00 +0000

By Scott Silva

Editor, The Gold Speculator

5-8-12

It’s May Day again in Paris. Over the weekend, French voters elected Socialist Party leader François Hollande who promises to repeal all austerity measures in favor of a robust Keynesian spending program. This development is a setback for EU fiscal stability, and will likely undermine Franco-German cooperation and may spell the end of the Eurozone. What effect will the new socialist regime in France have on us here in the United States? Is socialism the answer to our economic problems? What affect will socialist Europe have on my portfolio?

May 1^st is celebrated traditionally in most socialist, Marxist and communist countries as Labor Day and International Workers' Solidarity Day. It is commonly marked by organized street demonstrations, parades and marches by working people and their labor unions throughout most of the world. In the heyday of the Soviet Union, May Day in Red Square included a parade of the latest military equipment, a feast for cold war intelligence analysts and NATO war planners. Nowadays, May 1^st is a national holiday in more than 80 countries. It is also celebrated unofficially in many other countries.

The United States has attempted to counter the left-wing May Day tradition. In 1921, following the Russian Revolution of 1917, the Veterans of Foreign Wars and other conservative groups promoted May 1^st as Americanization Day. In 1949, the holiday was renamed Loyalty Day. In 1958, Congress declared May 1^st Loyalty Day a national holiday. Popular recognition of labor-centered May Day has largely died out in the US. No longer do labor union-led crowds gather as thousands did in Times Square every May 1^st during the Great Depression. Last week, fewer than 100 Occupy Wall Street protesters showed up at Bryant Park in midtown Manhattan as part of the planned nationwide Occupy General Strike.

It’s no wonder that May Day and its modern day Occupy movement has failed to take hold in the United States. Collectivism has failed everywhere it has been tried. Communism failed in the Soviet Union. It failed in Cuba. It failed in South and Central America. It failed in communist China and North Korea. And the welfare state is failing today in Greece, Spain, and France.

Collectivism may show early signs of success. But economic prosperity in the collective state is fleeting and deceptive. Sooner or later the fundamental flaws of central planning reveal themselves. Price control, production control and “fairness” give way to corruption, graft and shortages. The central planners create the illusion of success built on a body of lies. The hint of prosperity for all provided by a benevolent government hand gives intervention its pernicious, seductive appeal. In the long run, collectivism in all its forms has always proven to be the path to tyranny and misery.

As Margaret Thatcher observed “"The problem with socialism is that eventually you run out of other people's money [to spend]." Apparently, citizens of France and Greece have yet to learn this lesson. In elections over the weekend, voter backlash to strict austerity regimes in the debt-ridden Eurozone countries toppled conservative French president Nicolas Sarkozy in favor of anti-austerity Socialist Party candidate François Hollande, and fascist anti-austerity factions defeated the centrist coalition Greek government which had negotiated the EU/IMF bailout based on massive budget cuts. The radical reversal presents a new existential threat to Eurozone and to the Euro as a currency.

Socialism does not work because it is inconsistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. The welfare state seeks to replace incentives with “entitlements”. The government that delivers “free” goods and services expects to gain voter loyalty and remain in power. We can see the flood tide of welfare state entitlements swirling in to swamp federal budgets and submerge the nation into unprecedented debt. Any thinking person knows that 100% debt/GDP is unsustainable. The demise of Eurozone economies under the weight of crushing national debt and an aging, dependent population should provides a clear, real-time example.

But Washington central planners are blind to the failure of the European welfare state. The current Washington regime clings to the notion that the Federal government has the solution to every problem. Government intervention is the answer to any ailment. The snake oil comes in many flavors: “Free” healthcare for all; Social Security retirement benefits for all and forever; affordable mortgages through federally mandated load modifications; low cost, subsidized college loans for all, with no repayment after 10 years!” And on and on. It doesn’t matter that budget cannot support current federal spending. And it matters not that we must borrow 40 cents of every Dollar the federal government spends. Will foreigners buy US debt when the US debt reaches 120% of GDP? Or 150%? Will anyone buy US debt when entitlements consume 100% of federal revenue?

Well, to be fair, socialism would work if central planners could anticipate demand and control production and distribution perfectly. We need only look at the Chevy Volt to conclude that government has great difficulty in judging demand for even one product, never mind the millions of products and services that make up the US economy. The genius of capitalism is that it accounts for demand, price, production and distribution of every product and service through the “hidden hand” of the free market and the incentives that accrue on through private property.

Free markets operate most efficiently when government intervention is minimal, or as Thoreau wrote in 1849 in his Civil Disobedience, “That government is governs best which governs least”.

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter. Capitalism works because it is aligned with the principles of human behavior. Adam Smith recognized the driving force of economics to be self interest. Individuals act in their own self interest, and respond to incentives of the marketplace. Capitalism is the best hope for the individual liberty and prosperity.

How can we tell that the current path towards the all-encompassing welfare state is failing? We can ask ourselves a simple question: “Are we better off today than we were four years ago?”

There answers are clear and stark. Real wages are lower than they were four years ago. Prices are higher than they were four years ago. Gasoline prices have more than doubled. Bread, eggs and coffee prices are higher. Mortgage rates are down, but 22.8% of all US mortgages are underwater. Unemployment remains at Great Depression levels- 14.2% including those unemployed, underemployed or no longer looking for work. Taxes are high and will be higher yet if the Bush tax cuts expire at the end of the year and new taxes kick in to support national socialized medicine. Education costs continue to rise by 7% or more each year.

May Day in Paris (and Greece) marks a return to socialist and fascist economic policy. Similarly, current White House economic policy is based on principles put forth by John Maynard Keynes and Karl Marx, namely, the font of prosperity is government redistribution of wealth and government intervention is virtuous.

So what can investors expect from the socialist revival in France and return to fascism in Greece? We are seeing the dynamic play out in the markets today. Stocks are selling off for the second day in a row. The Euro is trading down below the $1.30 mark, and funds are flowing into US Treasurys. The stronger Dollar is pushing commodity prices down; oil is trading below $100/bbl and gold is testing the $1600/oz support level.

Gold bugs see strong support at the $1600/0z level, the price that typically brings in the bargain hunters. The reason for this is longer term prospects for gold are bullish. New government spending sprees in the Eurozone will further debase fiat currencies which is bullish for sound money. The US economy continues to struggle; White House economic policy and US monetary policy have failed to stimulate robust economic recovery. Additional poor economic data will tempt the Federal Reserve to enter into a third phase of Keynesian Quantitative Easing later this year, which will weaken the Dollar and push gold prices up.

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editor@thegoldspeculatorllc.com

Gold Stocks Ready to Rise?

noreply@blogger.com (The Gold Speculator) — Wed, 11 Apr 2012 22:52:00 +0000

By Scott Silva

Editor, The Gold Speculator

4-10-12

Some are calling the bottom for gold mining stocks. One popular measure for the gold miners is the NYSE Arca Gold BUGS Index, trading on AMEX under the symbol HUI. The HUI Index was developed with a base value of 200.00 as of March 15, 1996. The AMEX Gold BUGS Index currently consists of 15 of the largest and most widely held public gold production companies. Other gold miner indices include the Philadelphia Gold and Silver Index (symbol XAU) comprised of sixteen precious metal mining companies. The HUI and the XAU each contain several of the same mining companies, so the indices tend to move together. The HUI and the XAU are the two most watched gold indices on the market. Let’s look at the HUI from a technical standpoint to see if the gold mining stocks have bottomed.

Some analysts rely on crosses of the 50-day and 200-day moving averages as indicators of a trend reversals. We can see the bearish cross back in early December on the daily basis chart and the subsequent bearish price action in the HUI then and later in March. The daily chart gives no sign of change to the bearish trend. According to this indicator, the HUI looks to be headed lower yet.

The monthly basis chart is not so bearish. In fact, according to the 50-day and 200-day cross, the HUI has been in bull trend since November 2009. The March 2012 decline seems to have halted 440, precisely at the 200-day moving average support level. A break below 440 on the weekly chart would be significant, indicating a further decline to the 375 support level. So, the daily chart and the weekly chart yield conflicting views of likely future price action for HUI.

This is not uncommon for the 50-day and 200-day moving average indicators, which is why many

traders use Ichimoku Kinko Hyo technical indicators to guide their trading decisions. As you have read in these pages before, Ichimoku analysis gives the trader a more accurate view of trends and momentum of any traded security than other technical trading tools. We use Ichimoku indicators combined with other technical tools to make trading recommendations for the Model Conservative Portfolio in The Gold Speculator investment newsletter. So what does Ichimoku tell us about the HUI?

We can see from the “one look, equilibrium chart” above, all Ichimoku indicators for HUI on the daily basis are bearish. The index has been driven down to support levels four times this year, with the most recent decline in March and April.

The Ichimoku indicators for the HUI are bearish on the daily basis chart above and bearish also on the weekly chart. Price action is below the cloud, which is bearish. The projected cloud is bearish. The Tenkan Sen made a bearish crossover of the Kijun Sen March 3rd. And the Chikou Span is below price action and below the cloud which is bearish. The separate MACD oscillator made a bearish crossover on April 4^th.

For the conservative investor, selecting specific gold stocks has been more effective than buying the index this year. Shorting the index, on the other hand, has proved effective for the more aggressive speculator. Bottom feeder speculators may see an opportunity at current price levels, but the technical trend is bearish, and there is no technical sign of a reversal in the established bearish trend for this broad gold stock index.

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editor@thegoldspeculatorllc.com

None so Blind

noreply@blogger.com (The Gold Speculator) — Tue, 03 Apr 2012 17:22:00 +0000

By Scott Silva

Editor, The Gold Speculator

4-3-12

It seems the administration can never see the realities that stifle economic growth-- the hard realities right before their eyes that most of us see and must deal with every day. The terrible trio at the controls of the US economic engine is driving us not into a ditch, but over a cliff. The Fed Chairman is flooding the economy with too much liquidity. The Treasury Secretary believes the best way to recovery is through more government spending, taxing the rich and forcing broader redistribution of the nation’s wealth. The president’s vision for prosperity is government control of production and economic equality. Our elected leaders pander and deceive in full-time re-election campaign mode, with Newspeak and misdirection to mask the realities of high unemployment, high consumer prices, falling wages and slow economic growth.

The scorecard for the last three years is clear and bleak. The US credit rating has been downgraded. The Dollar is weak. Unemployment is at Depression-era levels. 46 million Americans are on food stamps, an all-time high. 2.6 million people slipped into poverty last year, bringing the total in America to 46.2 million, a 52-year high. Housing prices continue to fall and the number of foreclosures continues to rise. Commodity prices are high. $4.00/gal gasoline prices are forcing consumers to cut back. Corporations are not hiring, opting instead to hoard $1.7 Trillion in cash that would otherwise go to capital investment, expansion and new hires.

The simple fact is economic policies put forth by Washington today have never created wealth or prosperity anywhere or any time in history. No one has ever become wealthy by taxing the rich. Socialist redistribution has always failed. And the majority of hard-working citizens know just how out-of-touch the Washington ruling class is.

In the 1700’s, the Age of Enlightenment, the field of economics was known as the “Political Economy”. Political Economy originally referred to the study of production and commerce and their relation to law, custom, and government. It also referred to the distribution of national income and wealth through the political budget process. Political economy is rooted in moral philosophy, the ethics of right and wrong behavior. Since the 1900’s, the study of such relationships adopted some elements of scientific method, and became known as the science of economics. But economics is not a science bound by the laws of physics, which is why most political economic theories such as communism, socialism and fascism largely fail, save one, namely laissez-faire capitalism.

The economic policies of overarching Federal government control, Fed intervention, crony-capitalism, growing entitlement class, and massive wealth redistribution are morally bankrupt and injurious to individual liberty and happiness. All free citizens should resist tyranny and plunder forced on them by out-of-control Federal government. And here is how.

Own True Money. Gold has been the only true money for over 3,000 years. Buy and own gold as a store of value to protect your wealth against the vagaries of fiat currency.

We have seen the unprecedented debasement of the Dollar by ultra-easy Fed policy and the printing of $3Trillion out of thin air. The growth of the money supply has outstripped growth in output which has caused prices to climb and the purchasing power the Dollar to fall.

Deleverage. Eliminate consumer debt. Invest in hard assets.

Be Vigilant. Stay informed on current legislation that may impact your financial wellbeing. Take action to protect your individual liberty and private property against incursions from federal, state and local governments.

Be Prepared. Make preparations to protect yourself, your family and your property for an environment Without the Rule of Law. Read Atlas Shrugged by Ayn Rand.

Vote. Vote for pro-growth candidates who respect and will defend the Constitution.

The difference between ultra-progressive economic policies and pro-growth economic policies are clear in our history. Plymouth colony nearly perished under its first government, which was based on the communist principles of central planning, labor classes and government owned property. The fledgling colony only survived by later recognizing that its members tended to work harder to generate healthy crops and individual wealth by cultivating their own private land, rather than working the “common land for the common good.” In the 1930’s the “common good” became the rationale for massive government intervention in the labor markets, in which the federal government taxes the labor of young workers to support retirement “entitlements” for the elderly. But demographics have changed such that Social Security will be bankrupt in ten years without massive reform. Perhaps the best comparison between progressive vs. pro-growth policies is a look at the Reagan years and today’s administration.

As did Reagan, Obama came into office during recession. In the current recovery, real GDP has averaged 3%. Employment as defined by nonfarm payrolls and reported by the BLS has edged down from 10.2% in early 2010 to 8.3% in March. Actual unemployment today (BLS U-6 measure) is 14.9%, up from 14.1% when Obama took office. During Reagan's recovery real GDP averaged 7.7 percent annually while nonfarm payrolls rose by 5.3 million. Reagan reduced inflation from 12.2% when he took his first oath of office as president to 4.4% in his last year of office. Today, inflation is negligible at 2.1%, according to the Fed, yet everyday citizens pay much more to live this year than last year, and the years before that.

Why are there such major differences in US economic performance under Obama and Reagan? Reagan saw free market, private-sector enterprise as the road to prosperity. Obama has chosen massive expansion of the federal government as the way forward.

Obama's first act was an $835 billion government-spending package. One of Reagan's first decisions was to cut $50 billion (($100 billion in today’s dollars) from domestic spending. Obama focused priorities on nationalized health-care, energy cap-and-tax-and-trade, and pro-union card check. Reagan focused on free market measures; he ended wage and price controls, deregulated all energy prices and fired the striking federal union air-traffic controllers.

Reaganomics spurred growth through limited government, a strong dollar and lower taxes. Reagan slashed marginal tax rates from 70 percent to 28 percent. Reagan’s lower tax rate policy (attributed to the Arthur Laffer) actually raised tax revenues from $300 billion to $450 billion.

The current administration seeks to raise tax revenue, particularly for the nation’s highest earners. In his fiscal 2013 budget, released earlier this month, the president would allow the Bush tax cuts to expire for income above $200,000 for individuals and $250,000 for couples and charge a new 3.8 % tax on net investment income above those levels.

Under Reagan, overall federal spending dropped from 23 percent of GDP to 21 percent. Obama has grown the size of government to 25 percent of GDP.

Reagan ran a budget deficit of about 3 percent of GDP, the same percentage left by Carter. Obama’s 2011 budget deficit was $1.6 Trillion or 11% of GDP.

Reagan believed in sound money and a reliable currency. It was Reagan’s pro-growth tax cuts and counter-inflationary monetary policy that ultimately reversed the 15-year decline in the US Dollar. Since 2009, the Fed and central banks have flooded the world with more and more paper money. More dollars, Euros, Yuan and Yen have steadily pushed up commodity prices at the expense of currency values. The US Dollar, for instance, has fallen 17% since February 2009, when the $838 Billon American Recovery and Reinvestment Act of 2009 was passed.

GDP priced in gold gives us further insight. We can see the upswing in gold-priced GDP in the post WWII boom, the decline in the Carter years, the resurgence under Reagan, Bush ‘41, Clinton and Bush ‘43, and the fall under Obama.

Overall, Reagan's free-market, pro-growth policies created 21 million new jobs as real GDP averaged 3.5 percent annually for seven of his eight years in office. The unemployment rate dropped by over 50%. The stock market doubled, and household net worth expanded by $8 trillion.

The Obama administration believes that increasing the size and scope of government is the path to prosperity. In 2009, rather than allow large banks, insurance companies, mortgage companies and Detroit automakers to fail due to market pressures, Obama nationalized them using taxpayer dollars to bail them out. That same year, the administration projected its new stimulus package would “create 3 to 4 million jobs.” But most of the funds went to state governments that used the windfall funds to close their own budget gaps. Few permanent jobs were created. The private sector jobless rate actually increased.

So which is the path to prosperity? Gold and silver prices give the answer. Gold had quintupled during Jimmy Carter’s recession; gold and silver hit new all-time highs under Obama. Gold prices fell 40% (from $750/oz to $450/oz) under Reagan’s 8-year presidency.

The price of gold has nothing to do with political ideology or government reports on the status of the economy. The gold market sifts through the myriad of economic data, investor sentiment and global events to measure reality with crystal clarity. Gold is trading at all-time highs, in direct contradiction to reports of sustained growth in the world’s largest economy. It just might be that massive deficit spending and easy money policies have little or no stimulative effect on the economy and that government spending does not create jobs in the private sector. Because the government must tax or borrow in order to spend, it takes money from citizens and businesses that otherwise would go to consumption, savings or investment to produce more wealth.

Likewise, the gold market shows government reports of low inflation and growing employment to be false. We have seen on these pages before that actual US inflation is closer to 10% than the reported 2.1%, and the actual US unemployment rate today is 14%, a rate not seen since the 1930’s.

Re-election campaign politics from the bully pulpit further distort economic realities. The administration cites an increase in US oil production, while it thwarts added production (and new job creation) by rejecting new drilling permits and the XL Pipeline project. The administration cites 2.3 million new jobs were created through its renewable energy initiatives, at the same time that government-backed alternative energy companies Solyndra and Fisker Automotive go bankrupt, and GM suspends Chevy Volt production for lack of demand for the expensive, short range electric car, having wasted billions of taxpayers’ dollars. Last week the Supreme Court took up the constitutionality of the individual mandate and other provisions of the Patient Protection and Affordable Care Act (Obamacare) while earlier last month the CBO reported that the cost of implementing the federally mandated universal healthcare program has nearly doubled to $1.76 Trillion over the next ten years. More distortions in the name of re-election are surely coming our way. As Diogenes, one must lift his lamp and be ever on the search for an honest man. There are none in power in Washington today.

Fed Liquidity: Good as Gold

noreply@blogger.com (The Gold Speculator) — Tue, 20 Mar 2012 17:10:00 +0000

By Scott Silva

Editor, The Gold Speculator

3-20-12

We all have experienced that sinking feeling when in difficult times; we seem to have run out of options. Sometimes our frustration gets the better of us as we lash out at anyone or anything however innocent. But kicking the dog is no solution to our problems.

Chairman Bernanke is acting beyond reason lately. He has realized what others have known for some time--his monetary stimulus has failed to jump start the economy. The Fed is now grabbing at straws, hoping that “increased visibility” into Fed forecasts, and “closer communication” with the public will somehow reverse the ebbing economic tide. The Fed chief seems at ends, ready to point the blaming finger at unsustainable fiscal spending and Congressional gridlock, and phantom “headwinds” as the culprits for the stalled economy.

But increased visibility into Fed forecast models is not helping. New economic data is inconsistent and contradictory. Much of it is biased by re-election campaign politics which mask actual data with much more optimistic numbers. Actual US unemployment for February, for instance, was 14.1% (U-6), not the 8.3% that the administration touts. Likewise, the Fed understates inflation, and forecasts optimistic inflation “central tendencies”.

The fact is, Fed monetary policy has been ineffective. Monetary policy cannot fix unchecked deficit spending, massive Federal debt and oppressive federal taxes and regulation. Rather than allow market forces to correct, the Fed is overwhelmed by the urge to take action. The Fed action is limited to maintaining its zero interest rate policy and buying more bonds. So Wall Street hangs on every word. When Bernanke does not mention QE3, as he did in his last public meeting, the markets plummet. When the Wall Street Journal reports the Fed is considering a new “sterilized” bond buying spree, the Dow jumps 200 points. This is no way to build the foundation for sustained economic recovery.

What we can rely on is more of the same from the Fed. As new uneven economic data emerges, the Fed will fall back to a third dollop of Quantitative Easing. Most bank economists have already trimmed GDP estimates for 1Q2012 down to 1.7% from 3.0% last quarter. Higher oil and gasoline prices are already slowing economic activity. Last week, consumer confidence fell below expectations. Friday, Chicago Fed president Charles Evans called for the Fed to take additional action now to “accelerate the pace of recovery”.

The EU is fully aboard the QE bandwagon. It will add another €1Trillion to combat the debt crisis. China is also easing. Election-year politics are likely to muddle things further. The president needs to show some improvement in the economy to be re-elected. So far his record has been dismal on that count. So his economic team will be pushing the Fed to buy more bonds. What this means for investors is more volatility and more QE is on the way.

QE, the Dollar and Gold

We have seen the effect QE has had on the value of the Dollar and the price of gold. QE weakens the Dollar and boosts gold prices. This is because adding to the money supply debases the currency which reduces its purchasing power. When the Dollar is weak, it takes more Dollars to buy an ounce of gold, so the price of gold in Dollars rises. That is why people over the centuries have stored their wealth in gold.

One of the primary stimulus measures implemented by the Federal Reserve over the last three years has been the injection of cash into the economy by giving money to the banks. The scale of the cash injection is unprecedented– officially, the Fed has pumped over $2.3 Trillion into the banks. The Fed also pumped more than $16 Trillion into banks in secret loans recently uncovered by Congressional audit. In 2009, the US economy was in a deep recession, with the potential, it was thought, to slip into the Second Great Depression. The Fed and many demand-side economists believed that adding liquidity during a period of deflationary recession would have a stimulative effect on the economy. With more credit from the Fed, banks would lend more, making more money available to consumers to spend and businesses to expand to meet the increased demand. Recession would then give way to broad economic expansion and prosperity, with low unemployment, rising wages and strong GDP growth.

The idea that increasing the money stock increases aggregate demand has been around for decades. In 1936, John Maynard Keynes first presented the idea in The General Theory of Employment, Interest and Money. Keynes believed that government is more effective than the private sector at stabilizing the business cycle. In his model, control is applied by central bank monetary policy and government fiscal policy. Keynesian theory served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion. Japan implemented Keynesian policies in the 1990’s; the “Lost Decade” resulted. Since the financial crisis of 2007, the US, the UK and much of the EU have relied on Keynesian stimulus programs as the basis of their recovery efforts.

Quantitative Easing (QE) has weakened the currency in every case. We can see the effect QE on the Dollar.

We have seen the effects of Fed monetary policy on the US Dollar. The Dollar buys 17% less today than it did in 2009 when the Fed increased its balance sheet with bonds paid for by printing money. The new “sterilized” bond-buying of QE3 will further debase the Dollar, shrinking its purchasing power for all who use the currency.

Many see similarities to the 1970’s in the today’s economic conditions. The US economy was failing during the Carter years. The 1970’s were characterized by “stagflation”, that debilitating mix of high inflation and slow growth. Double digit inflation, single digit growth and lack of leadership forced Carter out after a single term as president.

Today oil prices are high, prices for food and other necessities are high, unemployment is high and the economy is limping along, barely growing. The misery index, coined in the 1970’s, has returned as a measure of popular dissatisfaction with the nation’s economic policies.

Chairman Bernanke’s Fed policies are similar to Fed policies in the 1970’s. In both periods, the Fed responded to recession by expanding the money supply, although the scale of monetary expansion in the recent case is unprecedented. Under Fed Chairman Burns, monthly money growth, which had averaged 3.2 percent in the first quarter of 1971, jumped to 11 percent in the same period of 1972. The money supply grew 25 percent faster in 1972 compared to 1971. Money supply growth under Chairman Bernanke has been nothing short of remarkable.

Debasement of the Dollar has made many eager to shift out of Dollar denominated assets into hard, commoditized assets precisely because dollars are losing value. We have seen this trend in history. Gold prices tripled in 1980-1981; gold has double in price since 2009. Prior Fed QE policy has boosted the price of gold, and QE3 at $1Trillion will likely push gold above $2000/oz.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

Stealthy QE3

noreply@blogger.com (The Gold Speculator) — Wed, 07 Mar 2012 18:58:00 +0000

By Scott Silva

Editor, The Gold Speculator Follow @TheGoldSpec
www.thegoldspeculatorllc.com

3-7-12

Today, there are new reports that the Federal Reserve is planning to inject more cash into the ailing economy though another round of Quantitative Easing (QE3). You have read in these pages before that More QE is on the Way (1-23-12, The Gold Speculator). The new bond-buying program would be “sterilized” by coincident selling of short-term instruments in an effort to control increased inflation that would result from the addition of another $1 Trillion or so to the money supply. This approach is not new; the ECB has used large, “sterilized” bond purchases over the last year in its attempt to stimulate the Eurozone economy and provide bailout funds to ailing European banks.

The Fed bond-buying program would be the third attempt to jumpstart the US economy through aggressive monetary policy. The previous cash injections added $2.3 Trillion to the Fed’s balance sheet. The results of Fed stimulus efforts have been underwhelming. US unemployment has actually increased since QE1 was implemented in 2009 and the larger QE2 in 2010. Today, the US Labor Department, Bureau of Labor Statistics reports US unemployment at 15.1% (U-6), up from 14.1% in January 2009. And GDP continues to limp along at 1% to 3% since QE2 went into effect.

Milton Friedman instructs us that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” (The Counter-Revolution in Monetary Theory, 1970). The Fed policy of extended accommodation has increased the money supply (M2 measure) to $9.8 Trillion. M2 includes demand deposits (M1) plus small time deposits, money market funds and the like. M2 is considered money available to the transactional economy. These levels are unprecedented, and we can see supply has increased almost $1 Trillion in the last twelve months.

The Fed reports inflation is modest at 2.0%. But as anyone who buys food or fuel knows, prices for everyday goods have increased by multiples since the Fed first implemented Quantitative Easing. The problem is the growth of the money supply greatly outstrips the growth in output, the sum of all production of goods and services. When more money chases the same amount of goods, prices rise.

We can see the rise in prices in the rise in the CRB commodity index. Higher commodity prices, particularly oil-based energy products, dampen economic activity, and slow economic growth. This is another example of Bastiat’s “unseen” effects. The Fed’s policy, in fact all government intervention, is counterproductive to true economic growth. So as more and more poor economic data emerges, it is no wonder that the Fed is now preparing to revert once again to the only tool in its “stimulus” tool bag: additional Quantitative Easing (QE3).

With every new Dollar the Fed prints, the value of each Dollar in your wallet declines. And the price of any commodity priced in Dollars increases. We can see that dynamic play out in the CRB index, and in particular, the price of oil. Certainly there is a “war” premium priced into oil, as Iran threatens to close the Strait of Hormuz. But the more fundamental reason for high oil prices over the last few years has been the decline of the Dollar. After all, the Iranian threat to oil transportation in the Persian Gulf has only recently resurfaced.

But some say that the US does not rely on imports of Iranian oil. Well, we do feel the effect of the Iranian war premium. Oil is traded in the global market, and oil is fungible. That is, a barrel of oil from Saudi Arabia can be substituted for barrel of similar quality oil from Iran or Venezuela at the same market price. Because the US is a net importer of oil, we pay the global price. Unfortunately we are likely to be a net importer for some decades yet.

We can see the inverse relationship of oil (WTI) to the value of the Dollar in the chart below.

WTI has jumped from $95 bbl to over $110 bbl as the Dollar dipped from 82 to 78. Gasoline prices have jumped in turn, to over $4.00/ gal in some states. Higher energy and transportation costs eventually find their way into the prices of most consumer products, acting as a tax on the consumer. This causes many consumers to pull in their horns and puts a damper on consumer demand which slows economic activity. Higher oil and gasoline prices are additional examples of the unintended consequences of the Fed’s ultra-accommodative monetary policy.

Stealthy QE3 would pump up the stock market, particularly bank stocks. But QE3 would also mean higher prices in general. QE3 would further debase the Dollar and reduce purchasing power. QE3 means more inflation. QE3 means there is more reason to guard against inflation and artificially inflated assets. QE3 means higher gold and silver prices. To the prudent investor, QE3 means buy more gold and silver. The way to preserve wealth is to own and hold sound money.

Following the Trend

noreply@blogger.com (The Gold Speculator) — Tue, 28 Feb 2012 19:24:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-28-12

Gold and silver are headed higher propelled by a powerful bull trend. Gold is climbing on its way to new multiyear highs, buoyed by massive government intervention in the capital markets. We will see gold exceed its 2011 highs this year. Silver will also soar to new highs.

What is behind this bullish prediction? Can we pinpoint the cause and effect relationship to the rise in the precious metals? Is now the time to buy gold and silver?

The answers to these questions come with a firm understanding of the dynamics of the business cycle, and the power of market trends. As we know from Mises and Hayek, interest rates have a profound effect on capital investment. Left to the free market, interest rates are determined by the supply of credit (a proxy for the savings rate) and investors’ willingness to risk placing capital in the market (a proxy of the return on capital). And as we know from Adam Smith, because investors act in their own self-interest, capital is allocated in free markets very efficiently. Investors tend to put more capital in “winners” and are quick to cut the losses in “losers”.

But if free markets are so efficient, how can there be downturns in the economy, ranging from recession to depression? The cause of most economic downturns has been manipulation in the markets, typically by government agencies that seek to “manage” one or more segments of the economy by controlling interest rates, prices or both. Governments use coercion under the color of law to achieve their ends. Government intervention distorts natural interest rates and spoils price discovery, which leads to malinvestment and market bubbles. Downturns and displacement occur when economic bubbles burst.

The Federal Reserve has been one of the chief market manipulators. By setting interest rates and controlling the availability of credit and money, the Fed distorts the natural demand for money and credit, which obscures purposeful capital investment and contaminates prices for labor and commodities, often with disastrous results. When the Fed feeds artificial credit into the economy by lowering interest rates, it spurs investments in projects that eventually fail. The high-tech and dot com and housing manias all were fueled by decades of easy Fed money and credit. In each case these artificially induced booms collapsed with massive loss of wealth and devastation of the general economy.

The data support the theory of cause and effect. The dot come run up coincided with a money supply run up which began in 1995. The money supply slightly flattened in 1996 and then zoomed up again in 1997, peaking at a 15% increase in January of 1999. The rate of increase began to fall precipitously thereafter, which popped the dot com bubble. The housing bubble, created by easy money and social engineering in the 1990’s popped in 2007, creating the Great Recession. The Fed and the Treasury added an unprecedented $2.3 Trillion to the money supply in 2008-2010 in the name of economic stimulus. The Fed’s MZM money supply measured $907 Billion in 1980 and is reported to be $10.8 Trillion as of this month. The MZM does not reflect the $16 Trillion in bailout loans the Fed provided to large US banks in 2008-2011. There is no doubt that judgments of investors and entrepreneurs are distorted by massive injections of money and credit by the Federal Reserve.

So what does easy money and credit from the central bank have to do with the price of gold? Well, every Dollar the central bank creates out of thin air debases the value of Dollars already in circulation. That is the nature of fiat currency. Because gold is priced in Dollars, it takes more Dollars to buy the same amount of gold with every new weaker paper Dollar printed. We have seen the price of gold climb along with the money supply, accelerating its climb in 2002 coincident with the fall in the Dollar.

We are now seeing technical breakouts in gold and silver. Last week, gold broke out of a bullish head-and-shoulders pattern dating back to November 2011. The price target from this pattern is just over $2000/oz. Silver followed last week, with a breakout from its own bullish head-and-shoulders pattern indicating a return to its September 2011 highs.

The trend in precious metals is up from here. Now is the time to buy gold, silver and selected gold and silver stocks.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and growing inflation? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the Dow and the S&P 500 by more than 3:1. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Charting Gold

noreply@blogger.com (The Gold Speculator) — Wed, 22 Feb 2012 20:31:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-22-12

The charts are displaying new strength in gold and silver. We will see new highs in gold and silver this year. It’s not too late to buy the precious metals at bargain prices.

Technical analysis is a powerful tool for understanding the market for a traded good. Technical analysis employs time-tested techniques for predicting future price levels. The successful technical trader uses a combination of indicators to support the decision to take a long or short position in a given commodity. The planets are lining up in favor of another leg up in gold and silver. Let’s examine what the charts are telling us about gold today.

First, gold has broken out of a bullish falling wedge chart pattern dating back to September 2011.

The falling wedge pattern can be a continuation or a reversal pattern. It this case, it is a reversal pattern, signaling a reversal of an intermediate bearish trend. The falling wedge is a bullish pattern that begins wide at the top and narrows as prices gradually move lower. This price action forms an extended cone shape that slopes down as the reaction highs and reaction lows converge. The pattern is defined by the down-sloping upper resistance line and the lower, converging base support line. The bullish breakout occurs when price action closes above the resistance line (upper descending tend line) with confirming volume. The point count for the pattern is calculated by adding the magnitude at the widest span to the price at breakout.

We can see the falling wedge reversal pattern in the daily basis chart for April COMEX gold above. The intermediate bearish trend began in early September 2011. The price at the break above the resistance line was 1674.40. The point count is 321 which sets the price target at $1995/oz. The breakout is confirmed by significant volume at the breakout day, January 25^th.

We can see the same breakout in gold using Ichimoku Kinko Hyo indicators.

Here we see spot gold on a daily basis with Ichimoku indicators. The January 25 breakout above resistance on higher volume is highlighted in the oval. Today’s chart shows all Ichimoku indicators are bullish for gold. Price action is above the cloud, which is bullish. The Tenkan Sen made a bullish cross (from below) the Kijun Sen back on January 17^th. The projected cloud is bullish (shaded green). And the Chikou Span is well above price action and above the cloud, which is a strong bullish signal.

Silver is displaying similar bullish patterns and indicators. So are selected gold and silver stocks.

Now is the time to own gold and silver.

Trading Above the Clouds

noreply@blogger.com (The Gold Speculator) — Tue, 14 Feb 2012 19:44:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-14-12

Technical analysis is replete with analytic tools, techniques and systems all designed to provide insight into the future price movement for a traded security. The technician relies on price and volume history to predict future outcomes. Can looking at the past be a reliable guide to divining the future? Can anyone drive a car by looking only at the review mirror? Amazingly, in trading securities, the answer is yes.

This is because the markets for stocks, bonds, commodities and virtually any traded good is driven by human behavior. In the search for profit, buyers and sellers act in their own self interest. The buyer always buys at a discount to his perception of the security’s value. Likewise, the seller always sells when he perceives value is realized, or his capital is better used elsewhere. When a transaction occurs, the buyer and the seller each believe they have struck a bargain at the mutually agreed sum. As Adam Smith instructs us, this is the magic of price in a free market.

So how does price history guide the investor? Well, it turns out that price movements develop distinctive patterns of human behavior in the markets. When a stock or commodity is considered undervalued, the buyers step in, bidding the price up. Likewise, when prospects for the commodity diminish, then sellers rule. It the dynamic pressure between sellers and buyers over time that creates the peaks and valleys we see depicted in the charts. Price history creates repeatable patterns. Understanding chart patterns is the key to predicting future price action.

You have seen in these pages before, I believe one of the best analytic tools for predicting future commodity prices is Ichimoku Kinko Hyo. It provides “equilibrium at a glance”- all we need to know about the state of the traded good as well as its likely future price. Let’s examine gold using Ichimoku Kinko Hyo, to see if we should buy sell or hold gold today.

Here is the Ichimoku chart for spot gold. Most trading platforms and chart services include this indicator set. I use the Thinkorswim trading platform from TD Ameritrade. It provides excellent technical analysis tools and Level II access to stock, option and commodity futures markets in a single, integrated platform.

We can see immediately that gold is in a bullish trend on the daily basis. The Ichimoku Kinko Hyo chart feature that signals the bullish state is price action above the cloud (“moku” in Japanese) represented by the pink and green shaded areas. (Conversely, if price action were below the cloud, the trend would be bearish). The cloud represents support and resistance levels. It is constructed by traces of two leading lines, known as the Senkou Span A, and the Senkou Span B. Together they form the complete view of longer-term support and resistance. One of the kumo's most unique aspects is its ability to provide a more reliable view of support and resistance than that provided by other charting systems. Rather than providing a single level for support and resistance, the kumo expands and contracts with historical price action to give a multi-dimensional view. Also, the kumo projects support and resistance levels into the future. We can see the cloud is projected into the future, and that in early March, the cloud changes color form pink to green. This reversal is a bullish indicator. Without the cloud predicted cloud reversal, we would not make a long trade today. The projected cloud tells us that resistance level changes to 1710.89 (top of the projected green moku) and support is 1645.50.

The next set of Ichimoku indicators important to our trading decision is the relation of the Tenkan Sen (blue line) to the Kijun Sen (red line). These are trend lines, similar to short-term and longer-term moving averages. A strong buy signal occurs when the Tenkan Sen crosses above the Kijun Sen from below. A strong sell signal occurs when the Tenkan Sen crosses from above. We can see the Tenkan Sen made a bullish cross on January 17^th when gold opened at 1635.80. Together with the price action/kumo bullish indicator, the bullish projected kumo indicator, the bullish cross by the Tenkan Sen remains intact, so we are not prohibited from taking a long position as yet. We are close to deciding, however.

The last an perhaps the most important Ichimoku indicator we need to check is the Chikou Span (green line) in relation to price action and the kumo. The Chikou Span is current price projected back 26 periods. The Chikou Span gauges the strength of the current trend. The bullish trend is strong when the Chikou Span is above price action and above the cloud. The bearish trend is strong when the Chikou Span is below price action and below the cloud. The trend is neutral or week when the Chikou Span touches prices action or is in the cloud. We can see that the Chikou Span is above price action and above the cloud for gold, another bullish signal.

Together, the five Ichimoku indicators show gold to be in a bullish trend. Ichimoku trading rules all indicate it’s safe to enter a long position in gold today, or to hold a long position in a portfolio.

The Ichimoku indicators tell me it’s safe to buy silver at today’s prices as well.

Trading precious metals above the clouds using Ichimoku indicators is an excellent way to increase the value of your portfolio.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

By the Numbers

noreply@blogger.com (The Gold Speculator) — Tue, 07 Feb 2012 20:19:00 +0000

By Scott Silva

Editor, The Gold Speculator

2-7-12

We all know that numbers don’t lie. Numbers are objective. There is nothing that numbers do except represent some value. In this sense, mathematics is pure, and therefore reliable and repeatable. Mathematics is one of the foundations of science. Physics is nature expressed in numbers. The world has come to respect numbers. From ancient weights and measurements, to architecture, chemistry, astronomy, agriculture, engineering, trade and commerce, and many other human endeavors, numbers provide universal understanding of every aspect our existence on the planet.

The Federal government, however, has trouble with some numbers. When numbers don’t represent its policy, agenda or campaign strategy, then the administration changes the numbers. They manipulate the numbers. They “smooth” the numbers. They ignore the offensive numbers. They even make up their own numbers. They outright lie about the numbers.

This is the case of the most recent US unemployment numbers.

Friday, the stock market jumped and gold declined on the release of January jobs and unemployment data from the US Labor Department’s Bureau of Labor Statistics (BLS). The government reported that 234,000 new jobs were added in January, bringing down the national unemployment rate to 8.3%.

This would be great news...if it were true. But the BLS is not reporting the actual unemployment rate. If the BLS reported truthfully, the headline unemployment rate would be 11% for January, much worse than the number reported, and certainly not a continuing upward trend. This is an intentional deception, motivated the

administration's re-election campaign strategy.

Here’s why the true unemployment rate is grossly understated. The January data does not account for 1.2 million qualified workers who dropped out of the job market last month. This is the largest monthly reduction in the available workforce by the dropout of “discouraged” workers ever. The labor participation rate declined to 63.7% in January, down from 65.7% when the president took office. Many qualified workers have simply quit looking for jobs. When the BLS ignores them, the U-3 unemployment rate appears to improve. The broader, U-6 measure of unemployment which includes the discouraged plus underemployed part-time workers is 15.1%. Quite a difference.

We have not seen US unemployment at these high rates since the Great Depression.

It is clear from the U-6 numbers that the employment situation is declining, not improving. It’s fair to say that based on the high unemployment rate, the administration’s economic policies have clearly failed. It’s no wonder that the economy continues to lag. US GDP growth is forecast to decline further in 2012. Clearly, the US has not turned the corner in its economic recovery. The BLS uses the “discouraged worker” data in a deceptive way in an attempt to paint a rosy picture of an improving economic recovery. This is not the first deceptive BLS report. The BLS has been understating unemployment since the president was inaugurated. So the BLS reports are fake-a snare and a delusion. The mainstream media picked up on the January bogus report as if it were real; stocks jumped and the president took immediate credit over the airways. What a travesty!

Well, not everyone is fooled by the bogus BLS report. Several knowledgeable sources have spoken out including the editorial staff of the Washington Times, FOX News and Larry Kudlow, to name a few. The Congressional Budget Office also sees things differently than the administration’s spin machine. The non-partisan CBO is forecasting unemployment at 8.3% for 2012 and 9.2% for 2013. That’s not a positive trend.

Bogus BLS unemployment reports affect the markets. They give an artificial boost to stocks, and impact gold and silver prices. Because the truth will eventually emerge, and because there remain fundamental risks in the European debt crisis and increasing threats to stability from Iran and Syria, gold and silver have not collapsed. In fact, the pullbacks in gold and silver present new buying opportunities.

Today, gold is telling us that it is not fooled by the bogus jobs report. Gold is headed up again, continuing its breakout from a bullish falling wedge chart pattern. There are several technical indicators that we see calling for gold to retest the $1900/oz level over the next few months.

The price of gold is one of the numbers we can appreciate.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Golden Cross

noreply@blogger.com (The Gold Speculator) — Tue, 31 Jan 2012 19:09:00 +0000

By Scott Silva

Editor, The Gold Speculator

1-31-12

Technical analysts define the “Golden Cross” as the chart feature that occurs when a security's short-term moving average (such as the 50-day simple moving average) breaks above its long-term moving average (such as the 200-day simple moving average) or resistance level.

Long term indicators carry are considered to have more weight, so crossing the longer-term average by short-term average price line is a significant indicator of a change in momentum. The Golden Cross indicates a bull trend may be starting and is confirmed by higher trading volume. The long-term moving average becomes the new support level in the rising market after a Golden Cross.

The S&P 500 index is approaching a Golden Cross now. If it happens, some analysts will forecast a new bull market for stocks. And they will have the numbers on their side.

The S&P 500 has produced 16 “golden crosses” since 1962, 75 percent of which were followed by positive returns in the next six months, with gains averaging 4.4 percent, according to historical studies. There were 26 instances in the past 50 years when the S&P 500’s short-term average crossed above the long-term measure. The data show the index rose 81 percent of the time with an average increase of 6.6 percent in the next six months.

We can also see the Golden Cross in the great bull market for gold. The last occurrence of the 50/200 crossover can only be seen on the monthly basis chart. It occurred back in 2005. Since then, the price of gold on the spot market has moved up from $348/oz to $1734oz today, a 398% percent increase.

Investors who spotted the start of the great bull market in gold early on have done very well.

But what about now? Is there more profit to be had in gold and the precious metals going forward? Can I determine the best time to enter the market? I say yes, and we can use the Golden Cross concept to pinpoint profitable trading opportunities.

Here’s how. We use technical analysis tools which are based on momentum, the best of which, in my opinion, is Ichimoku Kinko Hyo combined with MACD. The Ichimoku Kinko Hyo is a well established technical trading system developed by Goichi Hosoda in the 1930’s. Today, it is used by almost every securities trader in Japan, Asia and a growing number in Europe and North America. The indicator can be found on most trading platforms. Ichimoku Kino Hyo translates from Japanese to mean “one glance equilibrium chart”. It gives the analyst, at once, the trend and momentum of the market, and a good forecast of future price action, as if he could see everything at an instant.

The key to Ichimoku Kinko Hyo is crossovers. That is, four of the five components that comprise the system are comprised of short-term and long-term moving averages. Two establish support and resistance levels and are represented by the “cloud”, or moku. Two others (Tenkan Sen and Kijun Sen) establish trend. The fifth component, known as the Chikou Span, is not an average, but measures momentum.

Like the Golden Cross, crossovers by Ichimoku Kinko Hyo indicators signal changes in momentum. But the Ichimoku Kinko Hyo indicators provide much more information than the cross by a short-term simple moving average and a longer-term simple moving average. Ichimoku Kinko Hyo provides valuable trading information. It can tell the speculator when to enter the market with the best chance for profit.

So let’s examine the case for gold using Ichimoku Kinko Hyo and its trading discipline.

A look at the daily spot gold chart with 50/200-day moving average indicators shows no Golden Cross events over the last year. Also, support and resistance levels are not evident. Price action suggests the long-term trend is bullish, but more recent price action shows some consolidation. There is little information here to support a decision to trade.

Now let’s see what Ichimoku Kinko Hyo says about spot gold.

There is much more information here. To the uninitiated, it may seem confusing. But to the skilled trader, it provides almost everything needed for profitable trading.

Here’s what I see from this single chart. There have been two high probability buy signals and one high probability sell signal over the last four months for spot gold. These correspond to crossovers of the Tenkan Sen (blue line) and the Kijun Sen (red line) moving averages. The trading rule is momentum turns bullish when the Tenkan Sen crosses the Kijun Sen from below.

We can see this buy signal with a bullish crossover on October 26th and another on January 17^th.

Likewise, momentum turns bearish when the Tenkan Sen crosses the Kijun Sen from above. This sell signal occurred on November 29^th.

High probability trading requires confirmation by other indictors. Ichimoku Kinko Hyo provides these by the Chikou Span (green line), and price action in relation to support and resistance levels, displayed by the cloud, or “moku” (shaded areas of the chart). There are trading rules associated with each of the five Ichimoku indicators. Trading volume and the MACD are two separate indicators that support the decision to trade. We can see that crossovers of the MACD tend to lead Ichimoku crossovers. The aggressive trader can act on MACD crossovers for timing trades. The conservative trader will use Ichimoku to trade into the meat of a momentum move.

Using the technical trading tools Ichimoku Kinko Hyo and MACD has produced excellent results in trading gold, silver and other commodities. These are golden crossovers that work.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

More QE on the Way

noreply@blogger.com (The Gold Speculator) — Mon, 23 Jan 2012 20:11:00 +0000

By Scott Silva

Editor, The Gold Speculator

1-23-12

There is an old saying around Wall Street: “So goes January, so goes the year.” Many traders believe that if the stock market is up in January, then the stock market will finish for the year in the black. Actually, there is some truth to the old saying. Data collected on the S&P 500 over the 65 year period of 1940-2004 show that the broad market closed higher for the year 69% of the time when stocks were up in January. Well, that’s better than flipping a coin, but it is hardly a basis for a successful trading strategy.

Fortunes are made by selecting the best investment compared to others. We have seen, for example, in 2011, stocks fared poorly compared to precious metals, investors in Treasurys lost capital and real estate values continued to decline. Many investors simply gave up and retreated to cash, which turned out to be a losing proposition as inflation cut into purchasing power of every dollar stashed away.

But there seems to be a change in sentiment in the air now. Despite massive debt, political gridlock, numbing high unemployment and turmoil abroad, there are some faint signs of optimism. The manufacturing indices have ticked up a bit, productivity has improved and even wages have inched up a bit. Consumer confidence is improving, and corporate profits may bring good news as the earnings season unfolds.

Even the Fed appears to be more optimistic. Last week, the Fed signaled it would hold off on new bond buying (QE3) for now, even though it trimmed its estimates for GDP growth for the New Year.

But not everyone is so sanguine about Fed restraint. Most traders and some economists believe the Fed will step in with another round of Quantitative Easing (QE3) in the first half of 2012. This round would be huge, as much as $1 Trillion and targeted to support the ailing housing market. Under QE3, the Fed would purchase Mortgage Backed Securities (MBS), the derivative instruments that bundle thousands of home mortgages into a single, collateralized package. Many MBS’s were considered “toxic” assets because they contained subprime mortgages that defaulted, making them very difficult to price in secondary markets. When enough MBS’s failed to fetch a bid, mark-to-market rules rendered them worthless, which destroyed many bank balance sheets and created the financial meltdown of 2008.

The next FOMC meeting is scheduled for this week, but there is little chance that the Chairman will announce the new round of bond-buying. But listen for Bernanke to list the continuing woes of the housing market, and its drain on the economy and growth. Housing will be the new demon. And Ben will excise it with a Trillion dollar dose of his favorite restorative quantitative elixir.

But the Fed has already injected $2.9 Trillion into the banking system through expanded credit. The unprecedented credit expansion has failed to turn the ailing economy around. GDP is limping along at 2% or less. Unemployment remains at record highs. Capital is on strike, or out of the country. Adding another $1 Trillion to the Fed balance sheet is not likely to make a positive difference. The technical reason is we have been stuck in a liquidity trap, where no amount of additional easing is effective.

Austrian economics gives the answer why. Fed intervention created a bubble in the housing market by artificially depressing interest rates. This encouraged malinvestment in housing assets by homeowners and speculators. Federal social engineering embodied in the Community Reinvestment Act, permitted unqualified applicants to receive taxpayer guaranteed mortgages, many of which ultimately defaulted. Government intervention in the markets is the cause, not the cure for our economic problems.

More QE would be welcomed by the Keynesians in Washington. More QE would pump up the stock market, particularly bank stocks. Higher stock prices give the impression that the US economy can’t be that bad, after all. But more QE means higher prices in general. More QE debases the Dollar and reduces purchasing power. More QE means more inflation.

More QE means there is more reason to guard against inflation and artificially inflated assets. To the prudent investor, more QE means buy more gold.

One indicator cuts through the conflicting themes that affect the markets and the economy: the price of gold. The gold price is telling us that we are not out of the woods yet, and that there are many risks facing the US economic recovery. Gold continues to move up in price. The gain in gold is telling us to expect more volatility in the equity markets and to expect more pain from the European debt crisis, and maybe a military showdown with Iran.

The bull market for gold has a long way to go yet.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Eurobomb Ticking Down

noreply@blogger.com (The Gold Speculator) — Tue, 17 Jan 2012 20:29:00 +0000

By Scott Silva

Editor, The Gold Speculator

1-17-12

When the ball dropped on New Year’s Eve, 2011 ended not with a bang, but with a soft ticking sound. Despite the fireworks and the merriment of joyous revelers ringing in the new year, a hidden clock continues its countdown. Tick, tick, tick. At the fateful hour, the bomb, buried deep under the global financial infrastructure will detonate, bringing down economies one after another. If you listen, you can hear the tick, tick ticking right now.

It is the sound of European sovereign debt interest rates ticking up, the sure sign that the European debt crisis has not been contained by the new EU financial regime.

The forces of economic meltdown in the European welfare state simply overpower the last minute rescue measures by the ECB. Sooner or later Greece will default, then maybe Spain and Portugal. By then even Italy could succumb as its bonds also are rendered worthless as the bottom drops out of the debt market.

The bond market is showing several EMU countries are facing interest rates of 7% or more on their long term debt instruments, a level deemed unsustainable.

The market is also signaling that the Greek default is imminent. The price of Credit Default Swaps on Greek sovereign notes is spiking.

The rating agencies recognize the coming financial storm in the Eurozone. Friday, Standard and Poor’s downgraded the credit ratings of nine of the seventeen Eurozone nations, including France and Austria to AA+.Monday, S&P downgraded the AAA rated European Financial Stability Fund (EFSF) one notch, based on the downgraded status of its major guarantors.

The major destabilizing force in Europe is the belief that the public sector is font of prosperity. Indeed, the European welfare state supports more than half of its citizens directly. The problem is, today there are fewer and fewer workers to tax and the costs of government supplied services continue to rise, particularly healthcare and retirement costs. In Italy, for example, Italian women have on average 1.2 children, putting the country's birth rate at 207th out of 221 countries. And, 20% of Italy’s 60 million citizens are 65 or older; they make expensive claims on state-paid pensions and other entitlements. It’s a death spiral that cannot be solved by hiking tax rates or imposing strict austerity measures. In fact, these “cures” produce precisely the opposite effect by removing the incentives for productive economic growth. To make matters worse, the ECB debases the common currency with every bailout it hands out.

The question now is: “How do I protect my wealth against the coming economic storm?” Many investors are moving out of European assets and into US Treasurys in an effort to preserve their capital. Is this a wise move?

But the facts show that there is a better safe haven available to investors. We can see that gold has outperformed Treasurys over the last few years, even as many investors fly to Treasurys in periods of risk-off trading. As we can see, Treasury prices have been much more volatile than gold prices over the last several years. Treasury prices have bounced up and down while gold has marched steadily higher since 2009.

Today’s market is characterized by negative real interest rates for Treasurys. That is, Fed monetary policy has kept near-zero interest rates for bank-bank borrowing, which has driven the yield curve down to the point where the 10-year coupon rate (nominal yield) is 2% or so. The real interest rate accounts for inflation, which is reported to be 2.5%, which pushes the real rate into negative territory. The Fed policy distorts the market for money, which distorts the natural interest rate that reflects the demand for money. This type of distortion drives investors to other instruments in the search for yield.

The central bank also creates inflation by printing more and more paper money. More dollars chasing the same goods drives prices up. As we know from Uncle Milton, inflation is always and everywhere a monetary phenomenon.

But the Fed cannot print gold, so it is powerless to control its price directly, as it controls the value of paper money. Printing more fiat currency actually boosts the price of gold. Gold is a store of value. Paper money is not.

It should not surprise the prudent investor, then, that gold has outperformed dollar-denominated assets. Technical analysis of the gold charts now shows that gold is preparing for another major move. Will you be prepared to benefit from it?

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty? We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055