Gold Price Chart and Implications

May 15, 2015

The chart below (source: Stockcharts.com) shows a pattern known as a Reverse Head and Shoulders. No breakout has yet manifested but the probabilities seem to be rising. Tecnically, a break above the neckline will lead to a rise of around $80 . Note that there have been THREE Right Hand Shoulders. To me this is evidence of a conscious effort on the part of the financial authorities to stop the price from breaking up through the neckline. By implication, if it does break, the break will be violent.  Under such circumstances the gold price could rise by $160. (2 X measured move target of 1220 – 1140 = $80) to around $1380

This possibility is confirmed by the Point and Figure chart below. Based on the horizontal count technique that sees a relationship between length of consolidation and extent of move following a breakout, if the gold price breaks above $1230, the P&F target destination is $1380. Such a coincidence should be regarded as meaningful.

The  3% X 3 box reversal chart below evidences that such a  move would be more accurately be classed as a “technical” upward reaction rather than a change in direction of secondary trend. The price would have to rise above $1405 for the price target to change to become $1728 (which would still be below the previous peak)

Conclusion:  The gold price is climbing a wall of worry. 

Author’S comment:

A break in the gold price above its 2011 peak (if it happens) will not evidence that gold is a panacea to the world’s ailments because such an event will likely be accompanied by panic. Such a development would not be an “I told you so” moment. We are living in very worrying times.

Potential Black Swan triggers:

  • Greece’s sovereign bankruptcy pierces the veil that hides the foolish face of Quantitative Easing
  • If not Greece, then some other critical mass “red line” will be crossed – leading to widespread lawless behaviour – when the public as a whole suddenly comes to understand that the global economy has become dysfunctional. For example: When a single painting sells for $160 million dollars, that is not a sign that  the painting is exceptionally valuable; rather, it is a sign that irresponsible expansion of the money supply by Central Banks  has resulted in worthless money, and that excessively low interest rates have led to reckless “investment” behaviour and to the destruction of wealth.
  • Theocratic Iran – encouraged by misplaced confidence in backup support from China and/or Russia – pushes one arrogant step too far
  • The centrally mismanaged Chinese economy implodes. There is an exponentially rising risk of this because: Its currency pegging policies have led to falling exports; its one child policy has led to a gender imbalance; its excessive reliance on real estate development as an economic driver and its excessive creation  of production capacity that will never be filled have led to massive non performing borrowings; the mindless drive of its leaders to expand the economy has led to pollution of China’s air, water and soil, ill health of its population, shortages of potable water and a deterioration in the nutritional value of its food. Finally the psychotic focus of its leaders on legendary, but anachronistic, “war “ strategies in a modern world has led to growing global resistance of developed countries to its expansionist, “resource grabbing” behaviour in the South China Sea, Africa, and other centrally controlled and/or impoverished third world countries. This anachronistic, war oriented mindset has also tacitly encouraged a “land grab” outside its borders by its cashed up entrepreneurs which actions, in turn, have led to exploding real estate prices in democratic first world countries. The imminently coalescing  realisation that these two aggravating phenomena  are part of a deliberate Chinese policy will doubtless lead to a world-wide backlash reaction by developed countries.
  • Escalating Russian belligerence – as it plays out its own testosterone driven war games – results in a co-ordinated backlash by NATO
  • Internal instability of North Korea spirals out of control leading to reckless misuse of WMD and unpredictable global consequences.
  • There is a cosmologically induced geological cataclysm such as an earthquake measuring over 8.0,  or a volcanic eruption, or other,  in a high population density area within a developed country.
  • Climate change induced wild weather event/s lead to a sharp reduction in global agricultural output
  • The Oil price rises above $70 a barrel in a global economic environment where the vast majority of transport (on land, sea and in the air) is still dependent on oil
  • Growing civil unrest in developed countries may lead to unmanageable anarchy in an environment where population continues to expand, illegal migration is spiralling out of control, education standards are falling, and accommodation costs are becoming unaffordable to the majority. (Housing affordability benchmarks used to be rental: 25% of annual household income, house prices: 3.5 X annual household income. In some countries the ratios are trending toward 50% and 10:1. Once again, the driver of these latter real estate related developments can be traced back, ultimately, to irresponsible central bank monetary policies. China does not have a monopoly on reckless behaviour)
  • Assassination of a head of state in the developed world by some rogue organisation such as ISIS

Potential “White” Swan breakthroughs.

None of the above is inevitable and it would be a mistake to assume that gold price will inevitably explode. Indeed, it is unhealthy to focus on only one side of the equation because, behind the scenes, there has also been a tsunami of positive developments flowing largely from electronic miniaturisation and associated smart software which, in turn, have facilitated new technological breakthroughs. Below are a few examples:

  • Energy consumption per capita in a number of areas has been falling because appliances, machinery and transport have become more energy efficient. Examples are halogen light bulbs that are 30% more efficient than incandescent light bulbs, modern cars that are achieving higher mileages to the gallon, enhanced electronic measurement and remote sensing of temperature, light intensity, humidity and movement have facilitated a minimisation of energy wastage.
  • There have been amazing developments in medicine rangeing from sophisticated diagnostics to keyhole surgery to biofeedback implants to personalised medicine.
  • Robotics will “force” an increasing focus on the need for higher education in order to survive
  • A growing momentum in the shift away from transport’s dependence on oil and towards natural gas and electricity powered engines
  • A growing momentum away from centralised energy production towards distributed energy production such as solar panels, local storage of energy in advanced technology batteries and, within the next human generation, miniaturised Generation IV nuclear power plants.
  • An expanding, society-wide understanding that manufacturing should favour a mental attitude of  “up to a quality standard” rather than “down to a price” because with standards of living no longer rising, humanity will be forced to embrace frugality and will, as a consequence, turn its back on the throwaway consumerism and embrace the concept of a “steady-state” economy.
  • Reduced pressure on mineral resources because of this change in attitude
  • Reduced pressure on the ecological environment because of this change in attititude
  • A reduction of political corruption and pork-barrelling graft because of this change in attitude.
  • The hysterical and childish knee jerk reactions based on so-called Political Correctness will fall by the wayside as a maturing reality dawns that all humans are part of the same family of homo sapiens. Thus, for example, the terms “Black Swan” and “White Swan” will once again come to be seen merely as language descriptors of natural contrasts rather than race based expressions of prejudice.

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Tea Gardens, NSW, Australia

www.beyondneanderthal.com  

A one-ounce gold nugget is rarer than a five-carat diamond.

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