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The US has maladie monétaires, a money sickness, and it may spread to the rest of the world. Unless treated properly it is a sickness unto death. The problem as always is those who carry it and spread the infection, the perversion of public policy and economic thought. Western capitalism is slowly destroying itself. This is my diagnosis, and the outlook is not good.
Gold gained $40 to 1660 and silver was up $1.56 to 40.86 as traders fled out of US equities, selling the news of a faux debt deal, and the prospects of a slumping US economy.
Part of the trigger was the decline in consumer spending, but rest of it was a flight to safety, with money going out of stocks and riskier assets, and into gold, silver, the dollar and Treasury bonds.
I think the short term trend may have reached its nadir today, but we probably will not have any clear indication on this until the Non-Farm Payrolls number comes out on Friday. ADP Jobs tomorrow, but its a flaky indicator.
I expect that gold will undergo a consolidation and correction somewhere between now and 1700, and have indicated some rough parameters on the gold chart. It may not, if the crisis deepens. Silver will remain volatile. The silver futures market is an accident waiting to happen, and a scandal of major proportions, in the process of slowly unfolding.
As much as one can be, I was a little impressed that the NDX reached down to hit the support level I had drawn last Friday, some distance from where it had been. And the SP has also fallen to clear support.
These short term trends are now a bit extended, but the eyes will be on the economic data, especially the NonFarm Payrolls on Friday, and not the buffoonery in Washington with the Tea Party and the bought and paid for politicians.
There really is only one solution, and the prerequisite is political campaign reform. Partisanship is poison. But change cannot occur in times of influence peddling, bribery and corruption. So things must get worse before they get better.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.
Here is the chart of the results for various stores of wealth Year to Date. And a second chart shows the results for the past three years.
As a side note, I do not include currency investments. The Swiss franc has been a spectacular performer, but like the metals it pays little or no interest. The average person loses money in currency arbitrage based on my own observation. They tend to overleverage, and panic at sharp moves. I have been fortunate in it, remarkably so, for which I am grateful. But that appears to be an exception.
The 10 Year Treasury does not include interest obtained for the 1/2 year. TNX was around 3.8 percent in January, so we can tack on about 1.9 percent interest bringing the total return on the Ten Year Treasury to about 5.9 percent.
Notice the variance of risk, that is, the deviation of a return from a steady trendline. This is why trading in and out is only for the professionals, and why some investment returns may be more 'risky' than others.
The swings in silver are particularly notable in the three year chart. It is a 'riskier investment.' Gold has had the steadier and more reliable returns.
So, one obviously should consider their time frames and risk tolerance when crafting their portfolio.
But one can sometimes find a fundamental trend, and if proven valid, then hold fast to it no matter what, until that fundamental trend changes in its character. It is especially effective if one has some specialized knowledge in that area, and some natural affinity to follow it as a complement to their chosen profession or intellectual inclinations.
That is the way to the growth and the preservation of wealth. Charts are useful for testing and validating, a sort of a roadmap that sorts facts from fiction, and for the selection of entry and exit points.
But a trend based on well-reasoned fundamentals is the thing.
They'll print money until we run out of trees."
Jimmy Rogers
Gold was hit hard, then rallied, then hit into the end of day again, pretty much in the manner which I had expected it would be.
So what next? I think the metals will continue to be capped and under pressure, since the deficit deal, as bad as it might be, provides a rallying point based on fear of discovery for the paper mongers.
As shown in the Gold/US Debt chart over the weekend, the longer term trend is obvious and understandable. The denials of those who do not wish to see it will become increasingly bizarre as the fundamental trend progresses and the world monetary system evolves.
Change is occurring. And it does not matter whether you accept it or not. It is unfolding even as we speak.
