Guest Post: QE, The Gold Price, The Meaning of Words & The Congressional Cycle, by "Argentus Maximus"

Today's guest post comes to us from Argentus Maximus. Argentus is the author/instigator of a terrific and very popular forum called The Setup For The Big Trade. It can be found here: http://www.tfmetalsreport.com/forum/4460/setup-big-trade

QE, The Gold Price, The Meaning of Words, and the Congressional Cycle, by "Argentus Maximus"

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean -- neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

Lewis Carroll

Paul Volcker said of his tenure at the Fed, and I paraphrase in my own words here, “if I had to do it over again, everything else would be done exactly the same but I would keep a tighter control over the price of gold”.

Fast forward a half century and here we are again.  The clock of time has turned and again a great depression is on. The price of gold is suppressed. It is hardly surprising.

Let me refer to another gold bear. During the 1998-2000 gold bear market called Brown’s Bottom in the gold price there was a similar time during which the price of gold was manipulated downwards under threats of sale, and eventual actual sale itself of a substantial amount of the Bank of England gold, IMF gold, and sellable gold from anyone else willing to sell and their dog. We are now aware that the banks in the UK were insolvent and were able to cover naked shorts and recapitalize using cheap gold prices brought about by the unfortunate UK Chancellor of the Exchequer.

Let’s change the subject and look at something else for a moment. Some people can be perplexed by the fact that stock markets are making highs while the economy bumps along the bottom. They assume that the stock market should be low, since it is supposed to be an indicator of how the economy is doing. Not in this case. Market players know full well that the stock market would be bottom bouncing, if there were no stimulus free money being pumped into financials. So an opposite kind of reality emerges during recessions under monetarism. The stock market does well when the economy is booming, and it also does well when the economy has crashed and is bottom bouncing. The stock market has even developed a twin personality to suit this “are we in stimulus or not” dual reality with it’s bullish and bearish states of being called “risk on” and “risk off”.

So economy down stock market up, economy up stock market up. I think i can figure out who came up with that idea!

But what happens between the depression and the boom?

Logic would suggest that the Central bank trainer wheels get taken off the economic bike.

So let’s see, that would mean the stock market has to crash when things begin to improve. Nah! Never! Impossible! Oh .... hold on! Wait a minute ...... What was it that Ben Bernanke hinted at last week? Quantitative easing stimulus would end? …  No! Absolutely no way, never, he said it would continue ... What he said was the Fed will be “flexible” ..... .

By now readers have figured out where I’m going with this. The switch from stimulus to no stimulus could kill the patient but it has to be done or the state fails.

From the Fed’s point of view, if the economy improves .... interest rates begin to rise. Well that seems to be happening. And QE requires to be slowed to a trickle and stopped .... much caution is required next. So they were hinting that they might consider possibly doing a teeny tiny little bit of QE reduction some time in the distant future...hardly any reduction at all really. The market bombed anyway! And what was that phrase Ben used?.... “tapering”. Such a harmless word. Almost as good as using QE instead of printing. Tapering =  not printing. I can see it now in the dictionaries of the year 2025. “QE definition: printing money, stimulus, opposite of tapering. “

Language and the meaning of words can be such a flexible thing. Rather like the Fed. Ben is good with words. We need to listen carefully.

“Would you tell me please,” said Alice, “what that means?' 

…. said Humpty Dumpty, looking very much pleased. “I meant by "impenetrability" that we've had enough of that subject

Lewis Carroll

But if the economy is beginning to show early signs of recovery, we would begin to see a move down in the stock market as it realizes the easy money will die off soon. And down it has most certainly been going. OK Just a little bit. But it’s early days yet. The first sign of a thaw is far from the blooms of the summer still a ways off. But are early signs showing? Sure!

Earlier in 2013 the stock market rotated from high dividend bond alternative stocks into utilities during a slight consolidation, and it is now rotating into more mainstream stocks. After that it will move into specialists and the smart money will be gone by then. But gone into what? Where is value to be found if not bonds ?.

The commodities market. That’s where.

So if we are at the stage where the earliest signs of growth are only visible to the Fed, and the insider-est of the insiders (that was my experiment in language and new words!) then what would the gold price be reasonably expected to look like at that precise time. Well logic (dangerous!) suggests that gold would be still in it’s maximum suppression mode, at the bottom of a bear market in fact. About to come out of suppression. And so it is! Hooray! Well maybe not, but you get my meaning.

So asking oneself a few test questions seems to be appropriate:

Is gold at the end of a long decline? Yes. At the end? Maybe.

Is gold sitting on long term support that can not be broken ... Well sort of. The old support level is broken and above us, and the new lower support is proximate to price but not really challenged yet.

Are there signs that the suppressing organizations are getting short of gold to sell having been selling for a protracted period. Sure. In fact, according to COT some of them seem to be well on the way to being stocked back up again. But the Central Banks who were selling the longest (sure they only swap it, such a nice word that ... swap .. full of possibilities) seem to be buyers, especially the CBs over there in the East who didn’t have much interest in suppressing gold seeing as US inflation is exported to their country by the dollar devaluation,. Then there are the ABN non-delivery of physical gold to clients, nudge nudge, wink, wink, but they have loads of gold! Loads I tell ya!  The GLD is draining. The COMEX seems to be a little light on the shiny yellow stuff lately. So I think that we can say there is plenty of anecdotal evidence that suppressing organizations may be getting a tad low in their vaults.

What is the current sentiment on gold as an investment? Positive and widely owned, mania demand and parabolic, or negative and lightly owned? We need to be contrarian in these matters but not too early. Well I guess you could describe gold sentiment as uber-bearish and nobody owns any. (except in Turdville) Good. They will all need to get some when it “turns”.

So the earliest of early signs all seem to be telling the same story. Buds are visible, but not greenshoots just yet. And when we add them together a picture emerges. The Fed knows the QE which was contained in financials is bleeding out into the economy. It can’t keep on easing. It needs to bring the stock market down instead of crashing it. So a hint here, a word there, a little suggestion of changing conditions to elevate the perceived risk of stocks and get them down the gentle way. That will do the trick.  Also take note of the reaction of capital. The instantaneous rush to the doors was highly instructive, and should not be forgotten during the coming months.

So I hypothesize that the market is about to be weaned off stimulus, gradually, and it will still hurt. Gold’s suppression will, it is to be assumed, also be wound down. That will have implications for gold and those who hold it. The gold winter appears to be about to thaw into spring. And as the old QE regime decouples and the normal relationships between asset classes return, a link with economic activity will become relevant to stock values once again. Then when the time is right the rotation from stocks to commodities, including gold and silver, will begin.

Under these conditions I suggest that a failure of the gold market to make significant new lows is a bullish sign.

I tend to consider the market as a quasi cyclic place where certain rhythms exist. So lets’ look at a chart. To see what a cycles analyst can make of QE and the market it just has to be the SPX. Sure enough a two year cycle exists. How interesting and quaint that QE should have a rhythm of 2 years, just the same time period as a certain US election cycle. Pure coincidence I’m sure! Nothing worth looking into there!

Take a look at the 2 year cycle in US stocks. It does not appear to be all that powerful.

However in the second chart I have tweaked this cycle, flipping two lows up into highs. Suddenly the 2 year cycle leaps out as being the main force synchronizing QE, and the stock market, and the re-election of congressmen. There is much food for thought in that chart.

The second chart also gives a timing perspective on when QE will be re-imposed for another round, or not. And why should it be when the US President in in a second term and not seeking re-election. Fed Chairman Bernanke’s upcoming resignation also fits the timing of this cycle.

However since QE began this cycle has altered its shape somewhat. The regular pumping has chopped the bottoms off the cycle effectively changing them into little tops between the usual tops. This can be expected to last only so long as the QE monetary stimulus pump is still in operation. But regardless, the SPX has recently arrived at a top for this cycle. The implications of coming off a top are clear enough and confirm a far as a cycle can, that for one reason or another either the stimulus or the effect of it is reducing.

And in the normal world, the sequence is bonds, then stocks, then commodities.

The cycle charts I enclose will provide an idea of when these things can be expected. Observation of the procession actual events must be done to confirm that the re-coupling scenario hypothesized at here has begun and is playing out. Gold will react when it does.

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice

149 Comments

MrGuboci's picture

Furst

Yeah , baby !

Mr. Fix's picture

So I'm catching up on my morning reading…

And suddenly there is a new post to  ponder. Interesting times we live in, the worldwide financial system is in collapse. Turdville  is a beacon of knowledge and wisdom in a vast sea of misinformation. I sincerely  hope that Turd is enjoying his vacation, I seem to be buried in work. Today will be another day that seems to have no end. 

I hold silver and gold as a hedge against an economic collapse. As long as I am busy, it's price does not matter.

Hopefully, when the majority of my customers realize just how screwed they are, I will have something to fall back on.

Keep stacking, that which is unsustainable will come to an end.

There will never be a return to “normal”. 

achmachat's picture

May this concept be fruitful!

I like this guest post concept!

good to better get to know your Turdites :-)

wouldyoubelieve...'s picture

tourth?

yup

copper/silver still fighting, gold seems stunned on the ropes, but not out, this is gonna be a sloogy summer through July, but I think the fall rally starts early, labelled as a bounce/correction that just build steam through Oct/Nov

Turd Ferguson's picture

This is excellent

MODERATOR
Mudsharkbytes's picture

5

th

ArtL's picture

top ten!

remember professor Fekete said Hydra will not go down easily

http://www.professorfekete.com/articles%5CAEFWhoSaidDragon.pdf

Amberjack's picture

Good is bad, and Bad is good...

...and the dance continues.

Interesting take on the cyclical nature of the market.

Since we've gone past the point of no return on whether 'fundamentals' even matter any more - all that matters is whether we're in a QE-on or QE-off period.  We've seen several of these since 2008 but the recent taper talk has taken us to a new level.  Now the Fed doesn't even need to actually stop printing for the markets to take a hit. What will be interesting is when (inevitably) they announce the continuation and increase of QE, will we see a corresponding effect in the markets?  Just like a heroin addict, it takes more and moar to satisfy. 

This isn't going to end well.

Keep Calm and Stack On.

AJ

Ned Braden's picture

WTF ???

is goin on??

cavalier's picture

$19.39 What caused the spike?

Any explanation for that big spike, aside that the price is way too low?

ZILVERMAN's picture

MAYBE

the low is in,and we are back in bussiness.

wouldyoubelieve...'s picture

this may be a feint

or the D-Day we've known was coming, this is gonna be interesting to see how CNBS spins this

Sterling's picture

Could be Calvin.  Be careful

Could be Calvin.  Be careful

Pining 4 the Fjords's picture

What an outstanding article Argentus!

Thank you so much-  a great contribution to Turdville and well-deserving of a large audience on Main Street.  Your opening paragraphs are reminiscent of some of the juicier chapters in the book "Gold Wars" by Ferdinand Lips, a truly great book recommended to me by fellow Turdite Tabberto.  You and Ferdinand both write with the unmistakable voice of experience and first-hand knowledge of the markets.  Great stuff!

Here's hoping your work gets the widespread attention it deserves!

zman's picture

"Buds are visible, but not

"Buds are visible, but not green shoots just yet."   

Where is the budding?  Lots of the recent economic data is poor.

Europe is in deep recession, Japan is a mess, China growth is falling, and the US is stuck at a phony 1.5-2% GDP growth rate.  Emerging markets are falling.

So if QE is stopped, money is going to into commodities?    I don't get this rational.

Louie's picture

NO CHEAP SILVER FOR YOU THIS WEEKEND!!!!!

They just couldn't bear the thought of Louie getting cheap silver this weekend.  The HAD to go and jack the price up. 

sad

thatguy007's picture

Up nigh on 5%

Who's shorting this rally :D

RationalMind's picture

Excellent Guest Post, Argentus M

I appreciate the 'macro' perspective, linking it to the economic cycles. Even how the election cycle is aligned.

The proposed hypothesis is very rational, as it's better to assume some level of intelligence on the part of the manipulators; and not merely evil intent. 

ScottJ's picture

DoubleThink

"To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which canceled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself — that was the ultimate subtlety; consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word 'doublethink' involved the use of doublethink."

-Orwell

ScottJ's picture

Not Enough Space on Airlines for Gold Demand to Dubai

There is not enough space on airlines flying in to Dubai to meet the rapidly rising demand for physical gold in the emirate since the price plunged to record lows this week. 

The price drop led to a rush of buyers for Dubai gold from the Middle East, South East Asia, the Balkans, Turkey and parts of Europe according to Tarek El Mdaka, the managing director of Kaloti Gold in Dubai.

"I cannot find a place for transporting gold on Emirates, on BA on Swiss Airlines this weekend," Mr El Mdaka said. "I am shipping in one-and-a-half to two tonnes of gold every day and it is going straight out."

Read more: http://www.thenational.ae/business/industry-insights/markets/gold-rush-2013-style-has-dubai-scrambling#ixzz2XWVEnS3b

¤'s picture

Thanks AM

Nicely done yes

Imho....rates go up very slowly not only in the U.S. but also in other important bond markets as well like we're currently seeing.

As long as the rate increases stay stable and relative to all the other rate increases globally then the impact of higher rates across the board seems manageable.

If it was only the US that was going to raise rates and no one else did so then that's another story. But when 10/30 yr. bonds globally mostly rise in unison it's the near perfect Goldilocks situation for the bond markets....for the time being.

The understandable penchant on this site of Fed bashing (in hopes the giant is weaker and falls quickly etc.) is a bit misplaced and dramatic at this point I think. Like it or hate it, the Fed is still far stronger and more influential then many can stomach and the underestimation of  the various market movements they can accomplish one way or another (gold) seems to have caught many by surprise. 

Does anyone not think that the strong and sustained mention of 'tapering' last week had no effect on the Chinese banking situation recently?

You can hate, despise or actually demonize the Fed but underestimating what their still fully capable of would be short sighted.

We haven't seen anything yet...but we will see rates rise higher. They've actually been doing so for almost a year at this point.

To adamantly deny bond rates can't or will never go up means you kind of believe you're smarter or more influential then the Fed moving forward.

Run that by China and see if they totally disregard or don't take the Fed seriously any longer. Keep an open and patient mind like China has had to all these years/decades.

For good reason.

OrangeAlert's picture

AM

Great stuff as always.

achmachat's picture

now let's see...

I was just able to order 10x 3013 1-ounce Gold Pandas, with the price locked in from before this sudden rise! (YAY!!!)

now let's see if this was the bottom we've all been waiting for!

Clarki Stomias's picture

This was on MarketWatch?!?!

http://blogs.marketwatch.com/cody/2013/06/27/the-gold-and-silver-crash-is-artificial-2/

Truly, the worm is turning.  I was so stunned I had to register just to post a comment.  

Turd, this was on the front page of a MSM outlet!  The end is nigh?....  Do they know that the PMs will now be allowed to rise, so: "Begin commencement of 'Operation CYA'.  All ahead full!"

beardeus's picture

From Martin's blog

The goldbugs loved me when I said gold was rising. When I said we had a 2 to 3 year decline, they then act the same way. They REFUSE to quote me assuming like the CFTC gold declined ONLY because I said so. They are as intellectually honest as government – no different. They think the same way. Shut me up and gold will rise. They live in a fake world where they think if the keep screaming gold will rise perpetually. They then create perpetual enemies arguing there is some systemic plot to keep gold down when a simple correlation study shows gold has risen on par with commodities in proportional basket basis. Gold CANNOT rally until the dollar rally is over. Look around – everything is connected and the world is far from flat.

Galearis's picture

Troll question

I have a thought or two, perhaps original, perhaps not, and a venue in the form of this web site...But I am worried about what I am seeing more and more here Thank you, Turd for this service...I try to give as much as I can.

I like, respect and admire Turd and thank him for providing this service - and yet I do not necessarily agree with him all the time. Gold bugs are the finest of moralists. (Even as I empathize with his pain, when wrong and joy, when he is correct.)  However, there is a dark presence creeping in. It is this "troll" thing. I am not even sure of the definition of "troll" - could I be one for just speaking my mind and disagreeing with the conventional wisdom of the group? One of those "in group/out group" dynamics seen in cliques?  I have no agenda but to be a student of life and to speak the truth as I see it...But labels applied without clear definition are without an ethical dimension. So, as I would really like to know if I am a troll or not, as labeled in this site without definition. So I would suggest "Troll" be added to "Turdisms" page with a definition.  One poster even stated his opinion that if one mentions being labelled a troll in a post, then the poster probably is one...

And what an outrageous thing to say! So I am a Troll, I guess. But this kind of irresponsible statement is a threat to forums like this....That statement is an attack against thinking people on this web site and I think there is need for this change.

Turd is paying for this post and therefore has rights approaching a dictator. This is a fine line to walk because labeling like this can destroy the strengths of forums as venues for discussing various world views. And I have been disciplined by stepping outside the boundaries in a forum - USAGOLD forum - and can label that forum as a particularly fascist environment that earned the contempt of many of us over the years. In fact a whole sub class of posters were kicked off that web site for insisting on speaking the truth (defending and making an intellectual argument against the one the management was insisting on at the time) and for us the rejects from that forum we marched to another forum as self-proclaimed heroes against fascism and pro freedom of speech. For me this concentration of labeling as a troll is very close to marching that USAGOLD forum road. I do not have an agenda for personal gain when I post. I post to share information and views that may or may not gel with the philosophy of most here, or even with Turd from time to time. But I have been correct with each and every one of my posts when it comes to what is happening in the paper markets. I do not represent the view of banksters and other scoundrels of chaos.

And I ask Turd and everyone here how much improved would this forum be if everyone was preaching to the choir and singing the same hymn?

So are the paper markets going to go up because of a short squeeze? Everyone seems to agree with that...I might be wrong, but I think we go down...My rational for this is that while inflation so far has more or less been trapped in the financial system and paper markets, it is about to start phase two to grab everyones attention...Do TPTB want to see gold exploding and hastening the demise of the dollar when Benny is just starting to get the printing press roaring? Or can you see him maintaining the paper markets for another couple of years by hook and by crook? Does he want the launch pad for gold and silver to be at Dead Sea elevations or at Mount Everest while the dollar is slowly added to the trash heap of history?

So call me a troll for stating my opposing opinions on this when I see the banksters subverting the markets to the point of even rendering TA as a useless exercise...I do not want to insult anyone here, but this stuff seems quite obviously true... And the bile showing amongst posters on this troll issue is beginning to wear..What usually happens is people leave these places to those who enjoy the like company and slowly but surely the intellectual level begins to stagnate...I have been watching and engaged long enough to see history repeating here too.

FWIW,

Galearis the Troll

RationalMind's picture

Direct Registration - assist required

So, after reading sometime ago Jim Sinclair's call to 'directly register' one's equity stakes, and after hearing that again in the podcast yesterday, I went ahead this morning and called Fidelity Investments.

Here's where I need some validation from Turdville who have gone through this process. It seems that for my self directed (BrokerageLinkage) 401K account, I cannot directly register the investments (equities). I got some mumbo jumbo that 401K accounts has to go through a trust that they have set up.

On a separate issue, even for an individual brokerage account that I use for trading, it seems that there's a listing of funds/equities that are directly registerable. NUGT isn't on this list. I am wondering whether the list is a standard industry list, or whether the financial institution/broker determines what goes on this list.

Thanks in advance to those that kindly respond.

Swineflogger's picture

@Turd - GGecko

Wow

"succinct" : marked by compact precise expression without wasted words

argentus maximus's picture

@zman Show new poor economic

@zman Show new poor economic data. New poor data that is not priced in.

If it's in the price, it's discounted and done with already.

I'm talking about what is coming next, not what is visible already.

On your second point: So if QE is stopped, money is going to into commodities?    I don't get this rational.

If QE is stopped, the valuation of financial products returns to normal, instead of inverse. From a fast approaching point in time the economy must grow for stocks to rise, but in the recent past, stocks rose because the economy was worse ... on the assumption of more easy money. This inverse relationship between high markets and low economy is going to be killed off by the ending of QE, or even just it's "tapering".  QE causes the business cycle to look like this: bonds - stocks - bonds - stocks, etc. The normal sequence is bonds, stocks, commodities as inflation helps each and kills it later, causing capital to rotate into the next market which suits the inflationary outlook of the time.

Now this is not a flick of a switch change I foresee, it is a process with several increments in its construction. Watch the Fed, watch the stocks reaction. Gold will react.

realitybiter's picture

Anecdotal evidence

Got a call yesterday from a family member who said they couldn't take it anymore and was dumping CEF.  I merely said, "you know my position.  It is your decision.  I will be amazed that within 5 years, it is worth less than 100 dollars."  General equities will likely struggle for the next few years....ala 1976-1982....wtfdik.  good luck.

The crazy thing was that it had been purchased years before, and was barely showing a loss.  They had just noticed that it had given up large gains over the last 6 months.

Typically, silver leads gold at the turns.....good miners lead the metal....

ding, ding, ding...

btw, did anyone notice the 4 pm prices yesterday....exactly 1200 and 1850....no manipulation-right....free markets.....usa!usa!usa!....gotta squeeze every penny out of these suckers....

it is all disgusting.

Syndicate contentComments for "Guest Post: QE, The Gold Price, The Meaning of Words & The Congressional Cycle, by "Argentus Maximus""