Buy Gold & Wear Diamonds!

"We inflate our paper currency, we repair commerce with unlimited credit, and are presently visited with unlimited bankruptcy." - R.W. Emerson, The Young American, 1844

Joseph Goebbels was Germany’s Minister of Propaganda from 1933 to 1945. He once said that if you tell a big enough lie and keep repeating it, people eventually come to believe it.

World governments, together with their media lackeys, seem to have taken Goebbels’ comments to heart. They omit facts and distort the truth to suit their agenda, while a completely different point of view is presented by highly qualified, intelligent analysts through blogs, websites and Internet articles.

Marc Faber reminds us that while Gold has been a miserable performer since 2011, it’s up more than four times since 2000: “Gold hasn’t done that badly, it has done actually better than stocks.  But I’m telling you I want to own a lot of Gold and silver because I no longer trust the financial system.” In answer to a question about Goldman Sachs’ negative outlook on Gold, “I would say Goldman Sachs is very good at predicting lower prices whenever they want to buy something.”

Jim Rickards, economist and best-selling author of Currency Wars, says that his target price for Gold is in the range of $7,000 to $9,000 per ounce. “That’s not something that will happen tomorrow, It’s a 2 to 3 year forecast, for the price to rise by about five to six times.” According to Rickards, there are two means to restore confidence: You flood the world with liquidity (highly inflationary), or you return to a Gold standard. “I’ve done the math on that and the non-deflationary price for a Gold standard today is about $9,000 per ounce.”

As you all well know, I have been calling for Gold to hit $6,250 by 2017 since 2003, based strictly on Elliott Wave and Fibonacci theory. In the area of economics and finance, the manipulation, distortion and outright lies should be obvious to anyone who cares to do even the slightest amount of self directed research outside of the normal channels.  At the root of the coming economic disaster is Keynesian economic philosophy of increasing debt implemented by Western Governments and their central banks, all pushed on by the world’s Socialist educational institutions that will not tolerate free speech, free market economics or the Bible on their campuses.  The experiment that started in 1933 and peaked in 1971 with the abandonment of Gold convertibility has gone into the hyperbolic stage with Japan being the poster child of an economic system gone completely mad. The printing of Monopoly Money only keeps working until someone wakes up and realizes that the Emperor has no clothes. Then the house of cards comes crashing down. We are fast approaching that time. We are now in the biggest bubble of all time and God help those who get caught holding the “Bag” when, like every bubble, it eventually bursts. Just make sure you are not one of the BAG HOLDERS when reality finally SETS IN.

A LOOK BACK

I am really not that much interested in commenting on the obvious, especially when all it’s doing is reaffirming my past predictions. Unlike most economists, I enjoy looking over my past writings to either examine my mistakes and try to figure out where I went wrong or to pat myself on the back and now seeing where I had been right, asking that most important of all questions: Where to now?  To that end, I think it would be a good idea to re-examine an article that I wrote back in 2005.

FIAT CURRENCY: GOLD & INFLATION

According to the Chambers Dictionary of Etymology, the verb “inflate” means increasing the money supply. “The US currency has been increasing at a rate of 10% above its GDP growth rate for more than twenty years.” There is a continuous spread of inflationary damage now creeping soon to be galloping in to the world's currencies and its happening not only to the dollar, but to all paper currencies, which while nobody appears to be watching, all seem to be engaged in a race to the bottom. Continuous monetary inflation is uniquely a late 20th and 21st century problem that is most assuredly reaching its breaking point in the not too distant future.

Prior to central bank controlled monetary systems, money consisted of commodity-backed money. Inflation, then, was most often a product of temporary suspensions of the commodity standard, usually occurring during wars or panics. At times, inflation occurred as the supply of Gold and Silver grew sharply (the discovery of Gold in America).There were spikes in some countries and regions during certain periods of time when the supply of Gold jumped due to new discoveries (California during the 1849 Gold Rush). But, by and large, a dollar in 1900 had held its purchasing power with the dollar of 1800.

The 20th century American had a vastly different experience. A dollar bill put under the mattress 106 years ago would today have less than 2 cents of purchasing power. That is, two cents in 1900 had the same purchasing power as $1 in 2015. Put in another way - that's a loss of more than 98%. Furthermore, the pace of price increases was much greater in the period subsequent to 1971 (after Nixon broke the US Dollar’s link to Gold) where, annual prices rose at an average 5.1% clip compared to 2.4% for the first seventy years of the century. Makes you think how and why today’s FED thinks 2% per year of rising prices is not inflation.   What is particularly scary about the dollar is that it has been the third-best-performing currency in the world. Only the Swiss franc and the Dutch guilder have held up better. In the UK, for example, the rate of price increases over the same full 106-year period was 4.5%, compared to the 3.5% in the U.S. - a seemingly small difference. And yet, compounded over time, U.K. prices increased 55-fold, a factor more than 2 times that of the U.S.! Keeping in mind, that the dollar has lost 96% of its purchasing power...  it still beats almost all of its rivals, sometimes by very large margins.

The performance of fiat currencies in the past century has been dreadful. So what has changed? If anything, the monetary setting of today is much worse than that of the 20th century, for at least in the earlier part of that century there was still a Gold Standard in operation. From 1947 until 1971, there still remained some semblance, of an international Gold Standard. The monetary restraints on today's central bankers are now non-existent. Hence, the threat of inflation is far more probable. As horrid a performance as the dollar turned in for the 20th century, the 21st might make it look pretty good in comparison. Paper monetary systems have a tendency to blow up into what is commonly referred to as hyperinflation. They are really not so rare. Looking back at the 20th-century experience, who has not heard of the famous German hyperinflation of 1922-23, where price inflation was 3,422% in 1922 alone (in January 1923, a dollar could buy 20,000 marks - but by early November, it took 630 billion marks to buy that same dollar). The numbers are simply staggering and hard to comprehend. Yet, Hungary's hyperinflation of 1945-46 was even more spectacular, with price inflation of 19,800% per month. Phillip Cagan wrote, in the 1950s, what many consider to be a classic study of hyperinflation, in which he set the definition of the term hyperinflation at an arbitrary inflation rate exceeding 50% per month. Even so, Cagan still manages to find seven hyperinflations meeting his definition, the limiting factor being that these seven were the only ones where monthly price data was available. They include the great German hyperinflation, two in Hungary and also hyperinflations in Austria, Greece, Poland and Russia. These all occurred between 1921 and 1946. Witness, then, that the phenomenon was not a rare thing. To update Cagan, the more recent hyperinflations were mostly in emerging markets like Argentina, Bolivia, Brazil, Peru and the Ukraine and that is just a partial list since it is about to expand into Europe. Other examples of devastating hyperinflations occurred in Zimbabwe (recently printed the 1st billion unit note), Zaire, Georgia and Nicaragua. Large inflations, but not quite hyperinflations have occurred since 1998 in Malaysia and other Far East emerging countries as well as Russia and now about to engulf China. I suspect there are many more, but they did not keep records. The most interesting part of the IMF researchers' essay was their conclusion. They wrote: "The benign inflation environment of recent years may lead some to believe that chronic high inflation and hyperinflation have been eradicated for good. History suggests that such a conclusion is not warranted." Indeed, that is precisely the point. Do not be deceived by only the most recent experience. Structurally, all the pieces are in place to experience very high levels of price inflation, even though here in the good old USA, it was only 2% last year or so the Government reported. Don’t forget the magic of compounding; it works both for and against you. I don’t have a crystal ball, so predicting the precise timing or final outcomes of monetary systems remains extraordinarily difficult.

Hyperinflation is imminent in the U.S.; it may take a little longer to develop than it does in every other country because the U.S. dollar is the world’s only reserve currency. However, with the EU now expanded to ten countries (with roughly the same GDP as the USA), the Euro could possibly either take the dollar’s place (which I highly doubt) or become a dual reserve currency. It seems to me that the Chinese Yuan is much more likely to become part of the Dual Reserve currency, just as the British pound was for a while in the early to mid 1900’s. Or of even greater danger is China’s call for the expanded use of IMF special drawing rights, which is made up of a basket of currencies and to include Gold would pose a real danger to the reserve currency status of the US dollar. That, in conjunction with the re-emergence of Gold and the Gold Dinar, give emphasis to the dangers of central banks with printing presses. All point to the eventual weakness of the dollar - or any other paper currency - as a long-term “Store of Value.”

To be Forewarned is to become Forearmed. In spite of what I think of Greenspan as an economist, he has been one hell of a FED Chairman, prolonging and forestalling what I had thought to be the inevitable for more than five years. In January 2006, Greenspan was replaced by Bernanke, the question being will he have the same acumen and worldwide trust to carry on successfully.  Even if Ben Bernanke, Greenspan’s replacement, was every bit as flamboyant as Greenspan was, how much longer could one central banker go on manipulating and fooling the whole world, let alone just us lowly Americans? And now we have Janet Yellen. Will she be able to carry on the charade?

Unless every definition and every book ever written on INFLATION is completely wrong, rampant monetary inflation followed by deflation and depression is inevitable. The only question remaining is not if, but when does the big charade begin to unravel?

Don’t let the extensive Gold price consolidation fool you. After a 7 year 400% ($750) surge in prices, it is only normal for Gold or anything else for that matter to have both a time and price consolidation. So far, we have witnessed an approximate 38% Fibonacci price consolidation. But time wise, the Gold Market has only been consolidating for a little over 3 years. I think that a likely additional 3 to 6 months of sideways to downward movement may be necessary to set the stage for Gold’s Next Wave III price explosion.

The FED’S Conundrum is not a conundrum at all. A continuing series of straight Discount Rate decreases down to ¼% to zero% interest in conjunction with an attempted exploding money supply expansion is the world’s Keynesian Central Bankers way of forestalling the inevitable. But the emphasis is on forestalling, not on the inevitable which is still staring us in the face. 

The Bible teaches us that there is a “Time and a place for everything.” Well, I think the day of that long Suffering Gold Bug is awful close to having it become our day “every dog has its day”. And the “time and the place” for Gold will be upon us shortly as the whole world comes to fully recognize Gold’s rightful place in today’s finances.  I suggest that you go back and re-read my previous articles, “The Bull Market in Gold that Few Believe”  “Riding the Golden Bull” and “21st Century Gold Rush” especially since all those things that I have been warning about have been unfolding over the last 8 years almost exactly as foreseen.

When will the Gold explosion begin? When we see a completed Elliott Wave consolidation. I am confident that I will be able to recognize it when Gold’s time has come. The reason that I have been warning you all NOT TO SELL your core positions but to only write out of the money calls against your open positions is because just like the “end times”, Gold’s price explosion could start tomorrow.

Will it start tomorrow? One cannot force or rush the onset of the fear and panic that will precede Gold’s price explosion nor can one predict the exact time that it will begin. Especially if the government continues to try to manipulate both the Gold (down) and Stock Markets (up). But the Natural Laws of Economics always will out in the end.

SO WHAT DO WE DO NOW?

The same thing that I have been recommending for the last 6 months. Buy Gold and Silver coins to make sure you have an acceptable currency on hand when the shit hits the fan! Then do your homework and buy quality Gold and Silver mines, starting with FNV and SLW. Instead of trying to pick Solid Junior Miners, you can by a basket of them, GDXJ. My favorite Silver Junior that has the potential to become a major producer is MVG.

Now For The Short Side: Short the S&P 500 ETF (SH)

Since I am expecting the biggest crash in history Bigger than the 1930’s and I think the major banks are technically bankrupt, they are short $700 trillion in Derivatives and haven’t been marking to market since at least 2007’ which will all come crashing down as soon as interest rates start to rise by more than 1%. You can start with buying 6-9 month calls on reverse ETF on the banking system and/or PUTS on individual banks: BAC, JPM, DB, and C. That’s enough to keep you busy for awhile.  

Stocks fell sharply again on Monday, January 12th. There have been a lot of sharp reversals up and down over the past few weeks: Which has also whipsawed my key trend indicators a few times. Experience tells me that when this happens, it usually means the stock market is tracing out either a Triangle or Wedge pattern. I lean toward believing that both the Industrials and S&P 500 are tracking Rising Bearish Wedge termination top patterns. If so, these five wave overlapping patterns are in the latter stages of formation. It would mean stocks may have one more rally leg for the final wave “e”-up, left to track, which could give us one last manipulated upside targets of 18,300 to 18,500 in the Industrials and 2,125 to 2,175 in the S&P 500. A decline in the Industrials below 17,067 and below 1,972 in the S&P 500 would eliminate this possibility and confirm that the Major Down trend is underway.

If my short term analysis is correct, a rally may soon start toward the above levels. Then a major top would be in. I maintain high confidence that stocks are going to fall sharply in 2015, especially later in the year.

A third Hindenburg Omen observation for 2015 occurred on Monday, January 12th. There are been more than one H.O. observations within a 30 day period; there were three from January 5th, 6th, and 12th, 2015. This supports a probable market plunge occurring sometime within r the next two or three months. What is strange is that I also had several H.O. observations in the first half of December 2014. The close proximity of the January observations with the December observations is unusual. The December H.O. is valid through April 2nd, 2015. The January H.O. is valid through May 6th, 2015. That is three months of overlap from two independent official H.O.s. That tells me the stock market remains in a very precarious condition at this time and for the first third of 2015.

The NDX issued an Enter Short positions signal Monday, January 12th. The NDX 10 Day Average Advance/Decline Line Indicator triggered a Sell signal Monday, January 5th, and again on Monday, January 12th.

The past few days' decline was strong enough to move the intermediate Secondary Trend Indicator to a new Sell signal Monday.

Mining Stocks and Precious Metals

As for Gold and Mining stocks, the HUI indicators remain on a Buy signal, telling me that upside momentum has the power it needs to generate a sustaining rising trend. The HUI Indicator generated a new Buy signal Tuesday, January 6th, 2015.

The HUI 10 day average Advance/Decline Line Indicator was showing a large Bullish divergence with HUI prices, suggesting a strong rally trend is coming, Gold and Mining stocks were both higher on Monday, January 12th.

Gold's pattern since November 5th as represented by GLD, formed a five wave rise since its bottom arrived on November 5th, 2014. The pattern is a textbook Ascending Broadening Wedge, with at least three well-defined touch points for both the upper and lower boundaries which have stopped all rallies and declines during this choppy rally. The decline since December 9th is wave ii-down, which may have now be completed. Gold should rally hard once Wave iii-up is underway and new Buy signals suggest wave iii-up may have started. However GLD could still drop toward 115.5 for wave 2's bottom. If this is correct, GLD should rise sharply toward 122ish once wave 3-up takes over.

To put everything into proper perspective: We are sitting on the cusp of a major worldwide Stock and Bond Market crash on the one hand, while at the same time we are clearly at the climax of  a 4 year Precious Metals BEAR MARKET that is about to explode to the upside.  The way I see it, we are about to embark on at least 4 of the greatest money making opportunities of all time.

The question is that since the HUI 10 day average Advance/Decline Line Indicator was showing a large Bullish divergence with HUI prices, is it suggesting that a strong rally trend may be near at hand?

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GOOD LUCK AND GOD BLESS

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UNCOMMON COMMON SENSE

Aubie Baltin CFA, CTA, CFP, PhD.

2078 Bonisle Circle

Palm Beach Gardens FL. 33418

uncommon@aubiebaltin.com

This letter/article, like all my others, is for education purposes only and is designed to help you make up your own mind; not for me to make it up for you. Although I include recommendations from time to time, being a bi-monthly publication, it is not meant to be a trading letter. Only you know your own personal circumstances, so only you can decide the best places to invest your money and the degree of risk that you are prepared to take.

Gold is using for heat dissipation in some cars.