first majestic silver

A Clear Eye and a Sure Step

October 24, 2002

Did the gold charts betray us? The short term trend was supposed to be up. All the technical signals were bullish. What happened?

A trend remains intact until it's broken. Trite, but true. Unfortunately, this statement tells us zip about the probabilities attaching to the trend being broken when price approaches the line. Is it buying time (a bounce) or selling time (a break down)? Often, the answer flows from dogma or prejudice. How does one decide?

Decisions taken by reference to community norms are more likely to support the dogma than the reality. That is why decisions should be taken following quiet introspection as opposed to solicitation of as many corroborating opinions as is possible.

I confess! The act of writing these articles offers the writer more benefit than the reader because it "forces" an introspection which would otherwise not be forthcoming. Why should I discipline myself when I can artificially contrive to engineer an external discipline? Yes, its positively Machiavellian, but it hurts no one. The textbooks call it a win/win situation.

Enough rambling! Let's see if we can make some sense of this.

Technical analysis is a tool. Valuable, yes, but only one tool. By way of analogy: You can't build a table if all you have available to you is a hammer. To make sense of the Markets we need more than one tool. You need a workshop full of them.

From another perspective, comfort zones in life come from feelings of familiarity. When a given set of circumstances gives rise to an expected outcome, we feel comfortable. Not so, when the outcome is contrary to expectations. Many readers of this web site will now be feeling uncomfortable as well as varying levels of having been betrayed.

There are two solutions to this dilemma:

  1. Withdraw to another comfort zone
  2. Broaden your existing comfort zone.

The former does not bear discussion. It typically leads - eventually - to an inability to perform effectively. The latter approach demands a broader set of reference points, and a greater perspective.

Here's an interesting perspective:

I will take a five cent bet that most of the readers of this web site are religious and that there is a general belief that the Universe has an order which has been created by a supreme Consciousness - however we may choose to label that.

Personally, I will not take issue with this, but it needs to be articulated so that it can be confronted and examined. People with this belief often too readily embrace Fibonacci Numbers (Elliott Waves) and recurring Cycles (Kondrat'eff, Juglar, Kitchin), as "drivers" of activity. This is a mistake!!

Mathematical models do not "drive" events. By definition, they seek to model events. Thus, a model has more value as a descriptor than a predictor.

The evidence of belief in a Higher Power and a Natural Order has been peppered through many articles that have appeared here. Statements like "Gold has been a currency for 5,000 years" flow naturally from the tongues in this discrete community.

That there is in fact a Natural Order cannot be gainsayed, and it is pointless to go down a path of debate that will ultimately require a "leap of faith" to reach a final conclusion. Nevertheless, here are two facts that need to be embraced by those of us who wish to straddle both the corporeal and the spiritual world:

  1. Man has a free will, and with that he can choose to go down a path of self destruction
  2. Self interest is a two edged sword. It benefits some, but has the potential to damage others in the process. The "Freedom" that is so highly valued in the USA that it has been entrenched in the Constitution, is an asset to the individual who possesses it, but a potential liability to the Society in which that person lives (and other Societies) if inappropriately exercised.

In essence, it has been a misuse of this Freedom that has finally landed us all in this economic and environmental mess. The levels of debt in the Western World have grown to become unsustainable across all three categories of personal, corporate and sovereign. Further, our forests have been denuded, our waterways have been contaminated, the Earth's ozone layer has been damaged, species are becoming extinct at an accelerating pace, and the soil is no longer yielding crops in historical volumes per hectare.

To restore the "Natural Order" of things, then the drivers of these issues (Irresponsible Consumption and Disrespect for the Environment) need to be addressed before a healing can commence. There will be no Band Aid solution.

The broader problem is that our values - exercised with irresponsibility - have transmogrified our society from benign to monstrous. And the Bottom Line problem is that our Political, Economic and Commercial leaders - who are possessed of the most power - are the guiltiest of all. Whilst they should have been leading us AWAY from the abyss they have been leading us TOWARDS it. All in the name of preserving the "Western way of life".

The US Congress has recently given the US President permission to take the country (and the World) into a war to "protect" this valued way of life. This does not provide any comfort that the key issues are about to be addressed or that a healing is about to take place.

Those of us who believe that there is a Natural Order to the Universe are subliminally attuned to expecting that the external environment will "force" a solution. THAT, in essence, is why we have all been expecting a dramatically rising Gold Price.

The (unspoken) argument goes something like this:

The Kodrat'eff Winter is upon us, but Life carries on. In order for us to survive we will all have to either "muddle through" or "hunker down". To preserve wealth in an economic environment which is trembling at its foundations, we need to go back to the foundations and shore up the building. The foundation of the economy was originally "gold", and so for our economic salvation, gold needs to rise like a Phoenix from the ashes. If this happens, then all will be well in our personal lives - because we will have protected our wealth.

The base assumption that underlies the logic of gold rising like a Phoenix is that "Market Forces" (good) will overcome the Federal Reserve and its allies (evil).

But what if "the market" is made up of individuals who predominantly still embrace the concept of freedom to consume irresponsibly? What if the real reason we are buying gold and gold shares is that we want to preserve our ability to buy Porches and Rolexes and Holiday Cottages by the sea - and we want to do this without changing anything else in our lives?

Well then, my friends, the dishonest men will continue to retain their positions of power, the gold price will continue to be artificially suppressed, the debt and derivative mountain will implode, and the world will go to war.

At the heart of the problem is not that we have abandoned gold as an anchor to our economic sanity. At the heart of the problem is that we have sacrificed our integrity, and we have allowed men with big egos and little integrity to become our Leaders.

It is only when you have quiet integrity that you can move forward with a clear eye and a sure step. Without it, you move forward with the anger and passion that ultimately leads to confrontation and war.

Nevertheless, when all is said and done, there IS a natural order to life, and gold IS the ultimate bedrock on which the economy has been built. Its just that we need to get our priorities right before we can start to rebuild. This will take time; which is why our gold investments should be in the metal itself or in mines with a long life expectancy.


Let's get on with it.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.
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