Gold: Separation Before Liftoff
Jim Willie CB September 3, 2009
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Jim Willie CB is the editor of the "HAT TRICK LETTER"
Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
The latest development in the gold world is highly favorable. Summarize by saying from the rooftops that GOLD LEADS THE CURRENCIES in price movement. Gold is not only a metal, but the most important of currencies, whose importance will soon be confirmed on a worldwide basis. The enlightened realize that if gold had been a core to the banking systems, and to the currency systems, that the entire bank credit crisis would not have occurred. The dimwitted that dominate the landscape still utter nonsense about gold, only to have their prattle squelched and overrun, as it seems so tiresome and vacant anymore. Gold has begun to respond finally to the global ruin of money, to the Western government fiscal ruin, and to the ruin of the United States and United Kingdom banking systems. The price movement in gold & silver has suddenly turned favorable, although this is an early stage, in spite of the lack of decline in the USDollar. That is the main point. Gold has risen without a lead by the beleaguered USDollar. Silver has followed. In the last couple hours when this article was penned, gold has risen to 992 and gold risen to 15.90 in nice continued movement, both without any jiggle even to the USDollar or US stock market indexes. The crude oil price, subject of much debate concerning its tether as hedge to the USDollar, has been quiet as well. Gold has begun a stealth rally, an exciting one to come!
CLOSE-UP PICTURE ON GOLD
Like an EKG chart, the very short-term daily chart resembles the electrical activity of a human heart. Except this golden heart has begun to race fast. Watch as even the gold community will show doubt in believing the gold price move. They are so drained of emotion from failed rallies at the $1000 price gate, that they might need a surge in the gold price over $1200 in order to feel glad or giddy, let alone believers in the breakout. The important point is that gold has risen out of its tight 940-965 range in effect for several weeks, and RISEN. The gold price has risen without benefit of a weaker USDollar. It will next challenge the $1000 level in a natural progression. The real debate is whether the gold price will surpass the $1000 level with or without a key signature event. In my view, it simply does not matter. That is like asking whether the sun will rise with or without clouds.
Silver has moved in tandem with gold. It actually fell more in the last year than gold, and now shows more leading thrust power than gold. It has some ground to overcome. The gold/silver ratio remains too high, and must be addressed within the market for precious metals.
The USDollar has NOT demonstrated any notable weakness in the last week. It remains bound in a tight range. The past few weeks have seen the US$ DX index rise and fall, then rise and fall, only to find itself stuck inside a tight range. Numerous news items have come though, enough to tarnish the billboards. The FDIC has announced greater bank losses, and longer distressed banks in a list, a depleted fund, nil loan loss reserves, and new threats from the commercial loan segment. The USEconomy shows signs of life, but needs all sorts of canes and crutches and gurneys and intravenous infusions and boneheaded clunker programs even to struggle in walking. Most signs of life are phony anyway, assisted by twisted perceptions. The Chinese defiant rebellious position of futures contracts has colored the entire sky, except to the Wall Street folks who wear too many tinted glasses to notice.
BIGGER PICTURE FOR GOLD
The bigger picture must address the three pennant pause patterns extremely clear to view. Only the precious metals have broken out of the tight pattern, enough to warrant early conclusions. My conclusion has a headline that gold & silver now should be recognized as leading the USDollar and other currencies. The Competing Currency Wars will continue on their merciless path of global asset destruction and economic deterioration. Damage to other currencies tends to render the USDollar is less pathetic light, no more, no less. The nations that drop the USDollar standard and abandon the USDollar structures will be the first to emerge. Those nations with ample reserves will also fare well. China will remain a mystery. It hitched its wagon to the US$ parade for too long, finds itself in possession of too many US$-based bonds, and is greatly dependent upon a US$-priced global export trade. While debate continues concerning the Middle Kingdom, they will continue to disrupt the existing systems of global influence.
The gold price has clearly broken out of its pennant pause pattern. The magnitude of the potential lift is roughly $70, from 910 to 980. Look for a 70-point lift from the breakout, which should take the gold price to around $1030 soon, real soon. The vast energy built over the last several months will come to power the move onward and upward.
The silver price has also clearly broken out of its pennant pause pattern. The magnitude of the potential lift is roughly $3, from 13 to 16. Look for a 300-point lift from the breakout, which should take the silver price to around $18 soon, real soon.
The USDollar remains within the bounds of its pennant pause pattern. It awaits instructions. Those instructions are likely to be a death sentence at worst, and a shove into the credit dungeon at best, with an option of a return to normalcy not even remotely possible. Its USGovt debt security is gradually being recognized as in tatters, where the custodians are working feverishly to destroy whatever value can be salvaged. A Third World Govt bond is what it offers, complete with unending Printing Pre$$ support, a Goldman Sachs syndicate to uphold it, and a USMilitary perceived to be strong.
PROPAGANDA VS REALITY
Just today, typical nonsensical commentary came from the New York Stock Exchange floor. As preface, note that over 75% of all NYSE trading volume is traced to Wall Street program trading. Their handy high speed, high frequency trading, also known as insider trading that taps into stock trade orders before they hit the exchange, now dominates the majority of trading activity. If that does not qualify as brokerage pit tent parties, what does??? The commentary went like this to explain the gold price runup, which is still early and still not significant yet in its jump. The charlatans on the NYSE explain the gold price moves up as technically based (therefore not real), as owing to the weak USDollar (not true in the last couple weeks at all), as a safe haven (intriguing if an epiphany is in progress), and as the result of light volume leading to high volatility (the ultimate in lame excuses). The Wall Street gang has really lost a lot of credibility. Why anyone even listens to them is a good question.
The Chicago trading pits integrate much more brain wattage than the NYSE floor, and far less bias based in crippling propaganda. The wisdom that emerged from Chicago pointed to the gold price rise as a result of two important factors that seem SPOT ON. Chicago buzz centers upon the perceived Chinese demand for gold, both at the official government level (sovereign wealth funds) and the popular street level (retail coin & bar buyers). The other buzz centers upon what could mushroom as one of the biggest stories to date, as it matures and develops. It is difficult even to describe accurately this factor. The Chinese announced they will permit their state-owned firms to dishonor elements of futures derivative contracts, and thus limit their losses, on a selective contract basis. Crude oil and metal contracts were specifically mentioned. Implications will be difficult to sort out, but on its face, it appears that China has given Wall Street a big defiant gesture as it decides whether to act universally or in very selected fashion. Chinese leaders seem adept at shattering the front window, then making backtracks to mend relations. They take a giant step forward to disrupt the global model (see Paradigm Shift) but then talk constructively to the Wall Street and USGovt syndicate (see pretense of Status Quo). Add Japan to the mix, as they have voted out of power the party in control for a full decade. Opposition leaders have clamored for support of the USTreasury Bond only if denominated in Japanese Yen currency. They won!
PARADIGM SHIFT TIDBIT
Today's news includes a story receiving no press coverage. The real news network (INTERNET) is abuzz over an announcement by Hong Kong to yank its physical gold holdings from depositories in London, transferring them to a high security depository newly built next to the Hong Kong airport. That would match the layout used by Zurich Switzerland. MarketWatch reports that "The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center." See the article (CLICK HERE).
A reliable banker contact mentioned in response to this story that Moscow will soon emerge as the next super hub. This is yet another link in the chain of Paradigm Shift. The shift is away from New York and London, which might soon be reminiscent of Rome and Athens during their empire collapses. The United States and United Kingdom can no longer wield real power to provide for a robust and sustainable business environment during paradigm change. Focus will eventually shift to the COMEX and LBMA, the major commodity exchanges. A while back, my May article about "Hitmen Contracts to Bust COMEX" (CLICK HERE) garnered some attention, some criticism, and a little debate. The news from China and Hong Kong this week should add fuel to the fire. To the corrupt and comprised, they will remain asleep and diverted until their posts of power are dismantled. This is a potentially highly toxic situation for the London Bullion Market Assn. Given the suspicious nature of shorted gold & silver contracts without benefit of required collateral, enormous and substantial ripple effects could come from short covering. Fundamentals like what is seen from China add credence to big additional upward price moves.
THE ONGOING DISTRACTION
The gold price has moved out of its pause pattern tight range exhibited over the last few weeks. Many detractors had claimed, what with all the 'deflation' out there, that the gold price would hurtle downhill toward $900 per ounce and test the bottoms. What incredibly wretched analysis they offer! The false representation, false reporting, and false interpretation of inflation has contributed to an absolute numbing of the minds and almost permanent distortion of the situation. People have no idea what inflation or deflation are anymore. My emails contain some ongoing disturbing and annoying little debates with folks who observe falling stock prices, falling earnings, increased debt distress, increased home foreclosures, and generally deteriorating economic conditions, and therefore cry stupid moans from their porches to anyone who listens. Not me, got no ears for such nonsense! The confusion offers continued cloud cover for the unbridled unprecedented historically staggering monetary inflation in progress, certain to continue for many many months. The false definition of inflation serves as a distraction within the propaganda engines and machinery. The truth is that inflation is accelerating, if one counts the hidden monetization of USTreasury Bonds offered at bond auctions. It is hardly hidden anymore. How any rational thinking person can focus on falling prices of assets when Weimar-like monetary growth processes are firmly in place is mind-boggling. They point still to phony money velocity figures issued by the US Federal Reserve to justify the money printing activity. So the official banking authorities tell us lies about the Consumer Price Inflation and lies about the Gross Domestic Product and lies about Productivity and lies about the Job Loss, but they tell us correct information about the Money Supply and correct information about the Money Velocity. Horse puckey!!
The shocks come when the appearance of some hint of normalcy returns, when some hint of stability takes root. The Money Velocity is huge when the Shadow Banking System is added to the equations. We already know that the US banking system would have crawled if not collapsed without benefit of the shadow system of credit derivatives and vast array of unregulated nonsensical corrupted contracts floating about. So a system plainly dependent upon the Shadow Banking System does not include its activity in the Money Velocity. Well, just wait until the spillover comes. The ivory tower beanie USFed Chairman Bernanke is trying desperately to sell his planned Exit Strategy. As he tries, the unexpected outcome will likely be price inflation. He is under enormous political pressure, as well as foreign creditor pressure, to begin the stages of that Exit Strategy. As he pulls the levers, these hack maestros admit they cannot control the direction and destination of the vast flows. They claim they will limit further growth in the USFed Balance Sheet, but this too is a lie. They claim to have the necessary tools to limit damage, but this too is a fantasy. They will add another hot $1 trillion, admitted by one Fed official. Maybe that is a leak, maybe a plant. Who knows? Who cares?
FINAL NOTES OF ANNOYANCE
By the way, a final note of vital importance from a likely critical breakdown element. Rumors swirled on Tuesday of an imminent large US bank suffering a death experience. See Wells Fargo for a likely candidate. Its bank stock option put contract activity hinted of a walk down Death Row. But wait! They passed the Stress Test, did they not ?!? Yes, they did. They passed the rigged stress tests that contained very little programmed stress and avoided the entire second round of bank assaults. Even USFed Chairman Bernanke (last guy to figure out anything anything anything) noted that the commercial mortgage sector will deliver powerful losses to US banks. Those losses will show up this autumn and winter, with big blows next spring. The already insolvent big US banks will probably admit their ruin by then. Maybe when such facts are more clear, the nation will be subjected to a US Bank Holiday. During the holiday, watch Wall Street and other Big Banks demand mergers with the scores of midsized regional banks. Instead of liquidation of Big Banks, expect them to take full control of the entire national banking structures. If you think that item was included in the Stress Test, you operate with limited wattage and qualify for USGovt service. The Politburo tagteams are being formed.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com