Addressing the Billions Underserved

Featured in

Bernanke Green Lights Gold

There has been an awful lot of talk about the Gold bull market being over in the past 12 months.  Since hitting a high of $1926 on September 6th of 2011 Gold has been in a grinding, brutal consolidation which saw it test the $1525 level enough times to bring every moldy deflationista to the party believing that they had finally been vindicated with their completely implausible and indefensible scenarios.  I saw calls ranging from $1400 down to $800 from people who are smart enough and connected enough to know better.   Back in July I made it clear what path the central banks would take; calling out said deflationistas and explaining it to them.

Under no circumstances will the central banks of the Western world, owned and operated by the very banks that most need protecting, JPMorgan Chase (NYSE:$JPM),  will be allowed to allow a massive credit deflation to envelope the world like it did 80 years ago.  As September began we saw major banks in Spain, Italy and France all request bailouts. 

FOMC Chairman Ben Bernanke’s speech Friday, August 31st finally put paid to the notion of the FED seeing future uses for more QE.  Of course there is room for it; the major banks in Europe are teetering on the brink of oblivion.  There was never any doubt that the FED wouldn’t “print, baby print;” the question was always when they were going to finally admit it in public and green light Gold, and, by proxy, Brent Crude (AMEX:$BNO). 

Bernanke’s speech has set in motion another round of stagflation wherein the U.S. will be saddled with high food, energy and precious metals prices with credit deflation and buoyant asset prices. 

Looking at the SPDR Gold Trust ETF (AMEX:$GLD) from a monthly perspective clearly shows that the closing price for August was the highest closing price since March and a clear 2-bar reversal setup.  A similar setup occurred on the weekly chart, with Gold putting in its first back to back weekly close up since the February 29th sell-off that stripped more than $100 off the price.  Multiple attempts to break Gold below $1525 per ounce failed all summer, as Asian buying consistently stepped up and the futures curve flattened out, at a few points in August slipping into backwardation.  Even after Gold’s massive pop on 8/31, the futures market in Asia before the open on September 4th before the first day for longs to stand for September delivery was incredibly tight.

Gold Futures Curve 9/3/2012 22:40 EST

Month

Last

Open

High

Low

Volume

Cash

1694.9

1691.8

1696.71

1690.37

0

12-Sep

1695.6

1689.1

1695.6

1687.7

13

12-Oct

1695

1691

1696.8

1685.1

1633

12-Nov

1686.4

1675.1

1688.8

1675.1

8

12-Dec

1697.4

1693.4

1699.4

1687.6

48617

13-Feb

1696.7

1696.2

1698.4

1691.7

83

 

As long as this condition exists, it is signaling that the physical market is setting the price on the futures market and the price is capable of exploding higher until the supply/demand dynamic is restored.

The situation in silver is nearly identical.  The iShares Silver Trust ETF (AMEX:$SLV) put in a similar 2 bar reversal in August and the futures curve is similarly flat through the end of the year.  With the current Gold:Silver price ratio above 53:1 there is a very good probability that Silver will outperform Gold in the short term, but there is no doubt that Silver will trade with more monetary character as Gold pushes through this next leg in its bull market.

It is important to note that QE ever really ended.  With the opening up of indefinite, zero-interest swap lines last fall between most of the G-7 central banks, if one of them engages in QE then all of them are, for all intents and purposes.  Operation Twist, LTRO, the Swiss Peg to the Euro (AMEX:$FXE), the BoE’s QE program and China’s lowering interest rates are all forms of QE.

It’s now the Fed’s turn to step up to the plate, since everyone else has had a turn recently.

They took the last year off, and in doing so made it look like they were the hawks of the group and that the U.S. Dollar would be allowed to retain its place as the world’s reserve currency due to its unchallenged strength and ability to retain its value. Of course, that’s just nonsense.  The U.S., according to a recent article by Lawrence Kolitkoff and Scott Burns in Bloomberg, is now $11 trillion dollars further in debt than it was this time last year, $222 trillion dollars, or 1580% of GDP, when one factors in all of the off-balance sheet liabilities by doing rational accounting. 

Now, I keep hearing about how bad things are in Japan with their debt of ~230% of GDP. By comparison the profligate Japanese look like spendthrifts.  And the Yen, looking at the CurrencyShares Japanese Yen ETF (AMEX:$FXY), seems poised now to push up to the June high of $125.92 as capital will flow out of the U.S. Dollar on Bernanke’s speech.    The USDJPY pair should finally bust through ¥78 this month.  If the powers in Europe over the next two weeks finally create a lasting structure to support the Euro, then both it and the Yen will rally hard versus the Dollar, taking U.S. Treasury prices with them.

But the big winner has already been and will be Gold.  Silver and oil, both Brent and WTI, will tag along for the ride as the game of money printing musical chairs goes on.

 

The Most Important Capital Shift of the Century

Because of titanic changes in the global economy led by China’s ascension we have dug deep to find 3 places set to expand the most from China’s expansion westward and the shocking U.S. attempts to contain them in the great global race to control the major strategic resources in the 21st century. Click below to sign up and find out more…

Peter Pham is a capital market specialist and entrepreneur.  With expertise as a Head of Institutional Sales and Trading he closely watches the market and probes for investment opportunities utilizing a unique blend of quantitative trading experience and macro trend analysis… (read more)

StockTwits Follow Peter Pham on StockTwits Follow Peter Pham on Twitter Follow StockTwits on Facebook Subscribe to AlphaVN RSS

The Big Trade: Simple Strategies for Maximum Market Returns

Sign Up for AlphaVN Reports

Site Archive

Join StockTwits
Page 1 of 11