08 October 2009

Gold: Until the Banks Are Restrained and Balance Is Restored

Gold has apparently broken out of a big inverse Head and Shoulder formation, possibly an ascending triangle if you prefer that for reliability. In combination, as they often are, this is a powerful sign of buying pressure, accumulation and a sharp rise in price.

The targets we saw on the Gold Long Term chart posted here on September 15 call out a range of targets for this leg in the bull market from 1310 to 1350 level.

Here is a closer look at an updated chart showing the successful breakout from the Inverse H&S pattern. The target of 1310 now seems more confident for this leg of the gold bull market.

The formation will be in play as long as the 'secondary neckline' is not violated on a weekly close.

It is always more difficult to move from the charts to a more fundamental macro analysis and ask, "What does this mean? What is the market telling us with these sharp moves higher in gold and silver?"

And of course there is the most common question of all, "How far can it go?"

This is where the controversy begins, because gold is stepping on the toes of those who misunderstand the existing forces of demand deflation and monetary inflation in the United States, who fundamentally do not understand money and wealth, and their differences.

It is also bothering the financial commentators and analysts who, in addition to mouthing the words and sentiments that other people provide for them, sometimes have a thought of their own and must wonder, "Is what I am saying true? And if it is, why is gold doing this? Should I be fearful of my position if the markets fail?"

We have tried to portray some potential causes for the sweeping move in gold. One must first remember that this is nothing new. Gold is in an obvious and sustained bull market, that has it roots when the Federal Reserve under Alan Greenspan decided to print its way out of a series of crises beginning in the mid 1990's, and started rising in earnest with the Fed's monetary and regulatory errors in 2002.

Gold, despite the obvious efforts of the monied interests to disparage it publicly while accumulating it privately, is rising because the US dollar is being used badly, is being weakened by the failing schemes of a corrupt combination of the government and financial interests.

This is why there has been no serious reform, no meaningful investigations or indictments in what will surely be remembered in history as a financial fraud of a magnitude with the South Sea Bubble in England and the Mississippi Bubble in France.

There are going to be more crises, more dislocations associated with this, despite the best efforts of the financial engineers to paper it over, and the captive media to cover it up, dismiss it, and move along to the next asset bubble, this time in stocks.

This is what gold is telling us. It is saying that the era of the US Dollar as the world's reserve currency is over, with all that this implies in the balance of power in the world as it has existed since the end of the Second World War. And it is occurring for some very good reasons which the US media and the Congress seem to prefer to ignore.

Gold is where people put their wealth when they are confronted with uncertainty, with asymmetric information, when they are afraid; when the statists and the crony capitalists are preying on the savings of the people. Gold is a refuge, a safe haven, when there is good reason to be concerned about your currency, your wealth, and your future; when lies are in the ascendancy and truth and justice are scarce commodities.

This is because gold is one of the few stores of value that is compact, universal, portable, and contingent upon the full faith and credit of nothing but itself.

And so the rally in gold will likely continue until the banks are restrained, the financial system is reformed, and balance is restored to the economy. When the media once again speaks freely and truthfully and openly, when justice is done and the guilty are judged, and when the people can more reasonably place their confidence in the words and actions of those who hold the stewardship of their nation under the Constitution which they have sworn to uphold.

Or, when the Constitution is tossed, and freedom is extinguished, because it is no longer convenient to a people given over to self-deception, egoism, greed, mere anarchy, and nothingness.

"In Egypt's sandy silence, all alone,
Stands a gigantic leg, which far off throws
The only shadow that the Desert knows:
I am great Ozymandias, saith the stone,
The King of Kings; this mighty city shows
The wonders of my hand.
The City's gone,
Nought but the leg remaining to disclose
The site of this forgotten Babylon.

We wonder, and some hunter may express
Wonder like ours, when thro' the wilderness
Where London stood, holding the wolf in chase,
He meets some fragments huge, and stops to guess
What powerful but unrecorded race
Once dwelt in that annihilated place."

Horace Smith, 1 February 1818