Gold Daily and Silver Weekly Charts - Did We See A Bottom In Gold Today?

"Quite unexpectedly, except perhaps among a handful of long-time gold advocates, gold is quietly and gradually moving back to its centerpiece role in international reserves. Stretched and threatened financially, nation states have begun accumulating gold for the same reason private individuals do -- as portfolio insurance to cover a wide assortment of economic uncertainties.

What's more, this restoration has not occurred formally as a result of an international agreement as has so often the case in the past, but informally as a natural evolution in the way nation states think about and react to the long-term value of currency reserves. As such, it suits the times and suggests an authenticity that is likely to transform the gold market at its core.

In my view, this swing in the supply-demand fundamentals will come to be recognized in future years the most important gold market event since the Central Bank Gold Agreement (CBGA) of 1999 -- the accord that many believe kicked-off the secular gold bull market."

Michael Kosares, The Most Important Gold Event Since 1999, USA*Gold

Quite a few of the uncivilized entered the markets today, and sparked a rally in gold and silver in what appeared to be an obvious 'flight to safety' and also a powerful relief rally after the awful pounding the metals and the miners had taken into the Comex expiries and delivery dates. 

Some of the dividend paying gold and silver stocks had impressive gains even moreso than the metal, with at least one royalty trust up 11 percent or so.   Yes I flipped one from yesterday, and even trimmed my entirely outsized bullion positions bought on the dips back to something a little more 'normal' and comfortable. Of course I never touch my long term holdings in place since 2000. It is not raining nearly hard enough yet.

During hard times a solid dividend paying miner is hard to beat, unless you get lucky with one of those lottery tickets known as junior miners.  When the right time comes I hope to be there.  But for now I will play it a bit more safe. I see more potential downside in stocks until the banks step up and print it up harder. No telling how well they will fare against the splash from across the sea.

After a triple spiked test of support, the gold market went vertical today, marking perhaps what might be regarded by some of the more astute as a well-rounded bottom. I live for days like today.  Much of this was due to a reversal of the sheer manipulation for short term gains, that broke in the face of the unfolding global currency crisis.  Bam!

Never underestimate the power of the CFTC to stand idly by while the markets, taken in hand by the titans of Wall Street, degenerate into something that resembles a round of golf at the Piedmont Driving Club, or an impromptu fight club meeting at the New York Athletic Club.

Well, boys will be boys, in proportion to their toys. 

Chart-wise follow through is everything. Yes we have a short term rounded bottom, and the potential for much larger formations including a broad cup and handle the likes of which we have not seen in quite some time.  But do not underestimate the baseness of desperate men accustomed to having their way.

But first things first. We must see if gold can break the intermediate downtrend and then establish at least a broad trading range, which will form the lid of the potential cup.  It could happen in a rush, given some exogenous trigger event and the right convergence of circumstances, but I suspect it will be a long and arduous climb, fought in stages and levels. 

Chart porn-wise, the cup and handle, should it work, would take gold well over $2,000 by year end or so, and probably set up a new leg into the 3000's.

But that is all speculation. Time to do the hard climbing work for now, one day at a time.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Something Wicked This Way Comes

"The yield on the 10-yr Treasury is at a record all-time low and the yield on the 30-yr Treasury - the Big Daddy - is below it's lowest point during the Lehman crisis. That's not just warning signals flashing, that's the equivalent of financial nuclear air raid sirens going off.

What this means is that the liquidity is being sucked out of the global financial engine and is going into Treasuries and precious metals."

Dave in Denver

It's getting ugly out there.

Is the beach growing larger, or is that just the ocean of world liquidity receding dramatically ahead of something else?

A snapback rally here and there will not surprise me.  So be careful about leaning too hard on any shorts, if you should be one of those nickel chasers. 

The economic outlook is fairly poor and unlikely to get better. The Republicans certainly would not like to see a recovery this year. Anyone who does not think so please smoke your Jimson weed outside. So the US is standing on a one-legged stool, propped up largely by monetary inflation without significant reform and restructuring.

This is not your father's recession, more like your grandfather's depression. But the children ruling the world capitals have not quite gotten that yet. Or perhaps they do understand it, but just have not yet figured out how to play it for their greatest personal advantage.

These pampered princes and princesses who are talking austerity, and stop whining, and other such posturing (Madame Lagarde for example) are playing with fire, but just do not know it.

It may not take long but that will change, and become a whole other story and a turn of the page of history.

Dude, Where's My Deflation? Yes the Fed Has Lowered Rates and Grown Money Supply But...

My email box pretty much exploded today as the metals rally and divergence from stocks woke up the audience. And the action in my own accounts tended to be diverting, and not unhappily so. Sorry if I have been slow in getting back to you all, and in answering your questions.

Let's take a look at the monetary scorecard and a few ancillary measures to see how Ben and His Merry Pranksters are doing.

While GDP remains very sluggish, growing at less than 2 percent rates, the money supply growth is pegged around 10 percent in M2, with the broadest short term measure MZM hanging in just below that.

CPI remains elevated, and some say and probably correctly understated, with CPI Urban running at 5 percent year over year, which is rather high given all the fundamental metrics of the economy.

Most surprisingly the 10 Year Bond continues to hit new lows as people pile into all Treasuries across the curve.

As you may recall, the purpose of Operation Twist, or QE2ish, is to LOWER the yields of the long end of the curve. And especially with the winds of global financial crisis at their backs, the Fed has certainly done this if one bothers to look at the Ten Year Note Yield chart below, with a big hand from the little lady (Merkel).

Yes rates tend to go up a bit during the Fed operations, as the wiseguys front run and game the Fed's purchases, but they always come down sharply soon afterwards. These are just a few of the many ways that the Fed is quietly passing enormous sums of money to their member banks.

At some point interest rates may have to start increasing again, as the Fed will have to deal with inflation. But it won't be by using QE, quite the contrary. To raise rates the Fed must reverse QE, and gently drain from the system as the economy begins to create its own sustainable growth. That has not happened yet, as is clear from various measures like the Velocity of Money.

So, is the Fed 'successful?' In its purely monetary objectives yes, but not at the end of the day, because the primary measure of their success, besides keeping the markets liquid, is to stimulate the real economy.

Benny is in trouble here. With GDP growing at near recession real rates, and even the long end of the curve priced at NEGATIVE real interest rates depending on how one measures inflation, he is caught in a liquidity trap.

A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.

The problem is not interest rates, but a more anomalous situation such as war, in this case a class war and a currency war. Demand will not pick up until the median wage rises faster relative to overall economic growth, and global trade becomes equitable and orderly. And of course, when the money flow is not being continually hijacked and taxed by an outsized and predatory financial system that does not allocate so much as confiscate wealth through fees, frauds, and the mispricing of risk.

Contrary to election year rhetoric, the growth of government spending has been flat under Obama. The deficits have ballooned because the revenues (taxes etc) collected by the government have been shrinking due to economic contraction, the Bush tax cuts, etc.

Bernake can only do so much with his monetary hat on. The Fed and Treasury need to get behind financial reform, and restructuring the American economy to stimulate the median wages and jobs, and stop promoting activity that is little more than wealth transferal from the bottom 95 percent to the top.

That is not likely to happen before the end of the year.

I am not a 'fan' of Bernanke, even when he was first appointed to George W. Bush's Council of Economic Advisors in 2002. I thought Obama made a tactical error in reappointing him in 2010, probably to keep from roiling the markets. Besides, Obama himself is more a moderate Republican, in the manner of Herbert Hoover, than a real progressive like Roosevelt, and he is certainly no hard core Keynesian or socialist, no more so than Richard Nixon.

I am concerned that the continuing deadlock in Washington, fostered to a large extent by a Republican policy bloc that refuses to compromise, will prompt Bernanke to pull something even more 'unconventional' from his bag of tricks. That might not be pretty.

Do I really need to say it again?

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.

Joe Stiglitz On the Price of Widening Inequality - The Tsar Nicholas II Syndrome

"Is there a greater tragedy imaginable than that, in our endeavour consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?"

Friedrich Hayek

I don't know if I would call that a great tragedy, or a greater irony. It most likely depends on the spirit with which one undertakes that endeavour to shape the future, rather than the words that express the ideals. Words turn into mere slogans, and people are often fooled, but God will not be mocked.

I like to think of the tendency of people to destroy themselves through excess as the 'Tsar Nicholas II Syndrome,' the drive to continue to hold and expand your grasp on unsustainable wealth and power for its own sake, even as it leads you and your family to a cruel death in a cellar, but with jewels sewn into the children's clothes. Winning.

It is the very basis of tragedy. Those traits and circumstances that make a person successful, and raise them to great heights, when taken to an excess that causes them to lose the sight of true value and balance, hamartia, becomes the very instrument of their own destruction.

I think Joe Stiglitz is attempting to put this in economic terms, to show the impracticality of the continuing deterioration of the American social fabric through public and tax policies with their roots in the 1980s.

Simon Johnson has recently written something similar from a slightly different perspective: Jamie Dimon and the Fall of Nations.

This long developing imbalance and erosion of equitable economic justice has led to a chasm of wealth and power, a distortion of the political system, and dangerously unstable social conditions in the developed world more usually seen in the Third World.

And this is a recipe for disaster.  But even so, the monied interests may again make the offer that they think cannot be refused: 'Do as we say, or everything burns.'

I don't think the arguments of Stiglitz and Johnson will be successful in their appeal to reason, but I hope for it. At least the effort is being made in the States. When I watch the televised news I see people utterly possessed by insatiable greed and madness, who will say and do anything to get what they want.  The current crop of political leaders throughout the Western world is a freak show. Europe and the UK may be a lost cause already, ready to heave themselves into the abyss with a spasm of despair.

One cannot reason someone back to rationality when they have been taken to a mad place through an excess of unrestrained desires.

And madness breeds madness, and will serve none but itself.

Vanity Fair
The One Percent's Problem
By Joseph Stiglitz

Let’s start by laying down the baseline premise: inequality in America has been widening for dec­ades. We’re all aware of the fact.

Yes, there are some on the right who deny this reality, but serious analysts across the political spectrum take it for granted. I won’t run through all the evidence here, except to say that the gap between the 1 percent and the 99 percent is vast when looked at in terms of annual income, and even vaster when looked at in terms of wealth—that is, in terms of accumulated capital and other assets.

Consider the Walton family: the six heirs to the Walmart empire possess a combined wealth of some $90 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society. (Many at the bottom have zero or negative net worth, especially after the housing debacle.) Warren Buffett put the matter correctly when he said, “There’s been class warfare going on for the last 20 years and my class has won.”

So, no: there’s little debate over the basic fact of widening inequality. The debate is over its meaning. From the right, you sometimes hear the argument made that inequality is basically a good thing: as the rich increasingly benefit, so does everyone else. This argument is false: while the rich have been growing richer, most Americans (and not just those at the bottom) have been unable to maintain their standard of living, let alone to keep pace. A typical full-time male worker receives the same income today he did a third of a century ago.

From the left, meanwhile, the widening inequality often elicits an appeal for simple justice: why should so few have so much when so many have so little? It’s not hard to see why, in a market-driven age where justice itself is a commodity to be bought and sold, some would dismiss that argument as the stuff of pious sentiment.

Put sentiment aside. There are good reasons why plutocrats should care about inequality anyway—even if they’re thinking only about themselves. The rich do not exist in a vacuum. They need a functioning society around them to sustain their position. Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable. The evidence from history and from around the modern world is unequivocal: there comes a point when inequality spirals into economic dysfunction for the whole society, and when it does, even the rich pay a steep price.

Let me run through a few reasons why...

Read the rest here.