The following is commentary that originally appeared at treasurechests.info for the benefit of subscribers on Tuesday, February 1st, 2011.
In the spirit of my recent observations concerning our corrupt bourgeoisie’s penchant for turning up the heat in order to get what they want, and that we could be very close to a turning point in this regard, it would be fitting to see the seeds of revolution planted within sight of our racial origins (Northern Africa), considering this time around the drama will encompass the globe on a profound level. Along these lines, one must wonder if this is the real McCoy, or just a dress rehearsal for things to accelerate to more dangerous levels next year, within biblical dimensions during 2012. Certainly on a more practical level there is reason for revolution moving forward due to the growing energy imbalance required for the human race to keep increasing with peak oil in the here and now, however who knows, maybe new technologies will allow us to tack on more billions of population growth in the years to come.
If this is not the case however, and the human race rolls over into decline, then, the implications associated with ‘these times’ could in fact prove to be ‘biblical’ in dimension, where it’s best to embrace the concept of ‘viva la revolution’ in order to survive. And of course if this is true, then, it’s important to realize that on a basic level fewer people will need less money, which although not realized by many, is why our fiat currency / credit based economy(s) are in peril of rolling over as well. So you see the condition our condition is in is all tied together down to the most basic level(s), and is at a minimum cyclical in nature. The important thing to realize here is that our perception of the concept ‘survival of the fittest’ is just that during the good times, a concept, however during times of stress, like in revolutions, understandings tend to come alive into something more real and primitive.
And along these lines, and because trust is also lost during such times, our money returns to it’s more primitive roots also, anchored closer to the ground in which we need to grow things, but yet needing more lasting qualities. This is naturally why we as a race have embraced precious metals in this regard, with gold and silver our undisputed and preferred eternal money. And gold will remain the world’s undisputed and preferred eternal money even in times like these, when it’s going down. You may say, along with James Turk, yes, but gold is not going down. It’s merely had a correction and is now poised to shoot back up to new highs. Unfortunately if you believe this you are premature and don’t understand either the gold market, or our faulty and fraudulent markets in general at all, because it’s not fundamentals that make markets these days, it’s speculator betting practices.
In the first place, it should be noted gold failed to reach the larger degree Fibonacci resonance related target just above $1500, as can be seen here in Figure 1, which can be construed as being bearish under present circumstances. And pray tell, exactly what circumstances do we refer? Well, for one thing, precious metals shares have a tendency to underperform when input costs are rising rapidly, with energy at center presently. So the trouble in Africa will not help in this regard if crude oil keeps going up $3 a day. Secondly however, and most importantly, make no mistake about it, as alluded to above open interest put / call ratios across the precious metals sector have been crashing, with those of the shares (NEM, GG, etc.) and share indexes (GDX, XAU, etc) at center in this regard.
What’s more, you can see how important speculator betting practices are in our faulty and fraudulent markets when the performance of precious metals shares is set against the broads that have been increasingly shorted, as can be seen in the heavily traded SPY contract, where the open interest put / call ratio is soaring. This is why stocks did not crash yesterday, not because things are improving overseas. (i.e. or because the economy is getting better.) Liquidity is on the rise, with not only growth rates of M2 and other conventional money supply measures accelerating; but more, monetary authorities are also pumping daily POMO injections (like a drug) and excess reserve allowances ($25 billion per week over the next 8-weeks) into the system as well, which is the other key element in supporting the perpetual squeeze in anything speculators are dumb enough to short. (i.e. think the broads.)
So, don’t be surprised if the performance gap between precious metals and the broad measures of stocks continues to grow, because it will. And it will continue to grow as long as crazed speculators continue to buy every dip in precious metals (buy calls on stocks, indexes, etc.) and selling the rallies in the broads (short selling, buying puts, etc.). Of course at some point the speculators will stop buying puts on the broad measures of stocks due to combination of exhaustion and / or good news becoming prevalent and then they will join precious metals shares. And make no mistake about it, precious metals shares are breaking down, where in spite of the probability a bounce might be in order soon, this would likely just be shoulder building on the head and shoulders pattern forming in the Amex Gold Bugs Index (HUI) seen below. (See Figure 1)
Figure 1
The measure in the above noted head and shoulder’s pattern is down to 400 (500 – 100), which not many investors / speculators in the sector are expecting, which is why it can happen. All we need to see is the 200-day moving average go to confirm the fact prices are falling in five-wave sequences and the die will be cast – precious metal share fate will be cemented. So, needless to say we will be watching events in coming days closely, watching to see if gold breaks below the trend definer (in pink) too, as has already occurred in the shares. (i.e. which are leading the way down.) All we need now is for interest rates (think TNX) to confirm the bullish trend higher and this should be about as much as gold could handle under present circumstances (think deflationary), and this break lower should occur soon enough. (See Figure 2)
Figure 2
And don’t be fooled by the big drop in open interest last week, neither this nor physical supply side constraints will help once the larger equity complex rolls over, given if this is not to be the case for some time (think options expiry in March like in 2000), then sporadic rallies would occur. All such rallies should be sold until a more profound correction occurs however, because the liquidity draw of such an occurrence will envelop macro-conditions in a profound manner. Again however, with the Fed pumping an extra billion per week into the system until the end of March this is not expected right away, however a top in equities could be seen prior to the liquidity feed running out, like at options expiry in March if this is when the speculators / hedgers are finally to cease buying puts in betting against the broads. This is how long it took for these types to become exhausted off the Fed’s extreme liquidity event surrounding the Y2K scare in 2000, so this might repeat once again in terms of seasonality associated with such extremes.
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Good investing and best of the season all.
Captain Hook
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