Gold Attempting To Break Out to New Highs

Gold is attempting to break out and confirm its cup and handle formation. It moved sharply higher on increasing volume right after the PM fix ($1,215) at the LBMA in London. If it can surmount resistance just above it may do a breakaway gap higher some evening and keep going. I will be a little surprised if it can break out quickly and in one move. Backing and filling the breakout is more likely, unless there is some sort of default in progress, or a heightened risk of a failure in the paper markets somewhere. I thought it was interesting that the rally was triggered off the PM fix in London, the 'fractional reserve' bullion market.

Some accuse me of being too conservative in my gold forecasts. Or at least they do when it rallies. Others think I am far too optimistic, but from economic theory most appropriately described as faith-based, but profanely so.

Let the charts speak for themselves. But however it develops, I will say that what we are witnessing is a generational monetary phenomenon, at least for those who have the eyes to see it. This is one of the few things of which I have been certain, and looked for it starting in 1999 when it became obvious that the dollar could not sustain its role as a gold substitute with the stability that is required of the world's reserve currency.

I am getting more anecdotal information of panic buying of physical bullion especially from substantial holders of 'old money' and amongst some of the average investors in Europe and Asia. I do not think that the public by and large has even started to buy bullion in the States. When they do the Comex will be overwhelmed and simply default, and then the situation will intensify as even more financial frauds and semi-official corruption begins to be revealed across many markets and institutions that have been operating in secrecy.

"Every thing secret degenerates, even the administration of justice; nothing is safe that does not show how it can bear discussion and publicity." John Emerich Lord Acton

For the most part Americans, and perhaps it would be fair to say even most of the English speaking peoples, are still moving through life blissfully and largely unaware of the global currency crisis and its implications for them, with a few notable exceptions. The trust they have placed in their politicians and institutions is being badly abused, and they will be shocked if the extent of its breadth and depth, the secret dealings and corruption, are ever exposed.



The details of each chart are unique, as is every breakout. So far the gold action suits the overall framework, but it would be a mistake to look for a perfect duplication, particularly in markets that are tainted with paper manipulation and semi-official fraud.

The Great Recession

Employment figures clearly show that this is much more than a cyclical recession. It is the breaking of an historic credit bubble, made worse by the Fed's policy responses and recommendations on banking regulation since 1994.

If you look closely at the chart below, you will see that if you subtract the temporary government hiring for the Census, there is no recovery in employment. It is flat. With all the trillions spent so far, why is there such a weak response?

You cannot kick start something with a quick blast of stimulus if it is still broken. So any stimulus to the economy or subsidies to the banks that are being applied are essentially wasted, until the system is significantly reformed and restructured. That is the problem.

Worse than wasted really, because it robs future governments of the ability to engage in constructive action. Like a third world country, the pigmen were the first to the trucks, with the help of corrupt politicians, and are stealing the aid intended for the public and have been hoarding it.

Stimulus. Reform. What we have seen so far from the Congress, the Fed, and Wall Street is simply white collar looting, and ironically in a crisis which they created.

And when the investigations and trials come later, which they will, watch how the pigmen claim complete ignorance of any wrongdoing even in their own companies or at most a few sincere errors in judgement, just like the CEO's and bankers and the financiers have been doing already in front of the Congress and the FCIC.

Hyprocrites and liars playing the public, whom they secretly despise as their inferiors, for fools. This is the prevailing attitude in Washington, the mainstream media, and on Wall Street.



This excellent chart is from Calculated Risk.

And as an aside regarding purported sources of our troubles, an Economic Chupacabra sighting in the People's Republic...

"Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US.” China Youth Daily

Silver Charts and a Look at the SP 500 Long Term Cash Chart

Several readers have asked for thoughts on the silver charts.

Silver normally functions as both a monetary and an industrial metal. This provides it with a higher beta (risk variation both on the upside and downside) than gold, and a stronger correlation to the SP 500.

So if one is looking at silver, one first has to ask, what do we think the SP 500 will do next, and then, what will gold do next?

SP 500 Long Term Cash Chart

The SP 500 is at a point where it will either find a footing and break back high according to its longer term bull trend, undoubtedly with serious assistance from the monetary authorities and their banking cohorts, or it will break down further and activate a more serious decline and a H&S topping pattern.

My bias now is for further weakness to the downside, possibly even a false breakdown, and then we will look for the turnaround to gain traction IF volumes remain light and there is no panic selling.

If there is a further decline, let's see if it can hold the 1000 area where there is a long term bottom of the bull trend channel.



Silver Daily Chart

In the short term silver appears to have further downside. How much is a very open question.

If and only if the SP 500 falls out of bed and there is a general liquidation of assets, silver may trigger a short term H&S top and fall down to the target area in green. There it is likely to be a singularly attractive trading buy, but we would have to look at the overall market landscape and the Fed's monetary actions.



Silver Weekly Chart

The weekly chart appears much stronger than the daily chart, suggesting that if there is a breakdown it might be short term, and look much worse on the daily chart, an intra-week spike down on the longer term chart. Again it is hard to say because the SP 500 is such an important variable in this.

I doubt very much that silver and the SP 500 will diverge. Gold however is more likely to diverge from stocks if it comes to that.

I have some confidence in Ben's and Timmy's willingness to sacrifice the dollar and the bond for stocks in the short term, and the US bond appears to be topping. The dollar DX index is looking toppy, but as I have repeatedly said this index is badly out of date, being so heavily weighted to the euro and the yen.

The way I will play this is in the obvious paired trades with little leverage and a short term bias until the situation clarifies. There is a distinct possibility that stocks, gold and silver all go up from here. These market are being driven by artificial liquidity, largely based on thin volumes, carry trades, and technical gambits by the big hedge funds and trading desks.

When you are playing in a rigged casino, don't be all that surprised if your 'systems' and indicators do not produce the usual, or even normalized, results in the short term. The intelligent individual response is to stick with the primary trends, based on fundamentals and the longer term charts, and tighten your leverage and lengthen your investment timeframes.

Or even better, stay out of trading altogether. It is a con game these days, especially in the English speaking countries.

Here is a news piece from the City that is worth reading: Why Rothschilds Is Piling Into Gold

This tracks closely with some information I had from some big private money people in the States, particularly in the old money northeast US.

US Total Government Debt Reaches 130% of GDP

Here's a postcard from off-balance-sheet country.

This includes only current debt and not future unfunded obligations.

I like to call this US debt chart "The Last Bubble," but it could equally apply to a chart showing the representation of this debt - the US bonds, notes, bills and of course dollars, which are really nothing more than Federal Reserve Notes of zero duration in the modern fiatopia.

It all adds up, eventually, and must be reconciled. It is easier to print money and accumulate debt when you own the world's reserve currency. For a while the dollar might even flourish, despite the printing, as the international savers flee ahead of the economic hitmen, from country to country, and crisis to crisis.



Chart compliments of the Contrary Investor.