The Golden Bear of 2011

Evaluating the golden bear

Readers here are to a large extent of a type that likes to buy gold and silver and other precious metals in a desire to avoid damage from inflation, and risk of confiscation and loss caused by lawless behaviour of a damaged and crooked financial system.

So that makes readers here vulnerable to losses caused by deflation, or gold price suppression, which are both characteristics of stagflation. And there can be no doubt that stagflation, or financial repression if you prefer to call it that, is exactly what the past 10 years has brought, and as long as the sovereigns are indebted up to their eyeballs, we should expect the next 10 years to look very much the same.

So we have inflation, but in the wrong assets.

Or we have deflation in the wrong assets.

Or we have state selling of gold to suppress the price of extra national currency.

I guess I could put it at least a dozen other ways, but you get my point I’m sure.

So I propose to forget all the corrupt application and non applications of the law, and forget the IMF, World Bank, BIS, DC, London City, Fed, BOE, BOJ, ECB. I will also forget QE to insiders, tax hikes on outsiders, fantasy accounting, fantasy inflation and GDP statistics. I am going to forget all those for today’s blog article and put them aside.

I will look at something else instead.

Here is an interesting subject: Is gold in a bear market, and if it is, is the low in place, and if that is the case, is that bear market over? In short: What can we tell about the current status of the bear?

I will only look at gold, and I will use technical analysis, and I will compare this time (which is not different!) to other times in history during the past half century, when similar events took place. So in the comparison, fundamental events get compared with other fundamental events but by using technical chart tools as the comparator. I will look at the 12 month price change in gold.

As I see it we had the 1920s-30s, the 1945-1950s, the 1969-80s and the 2000s as relatively well documented deflationary times to compare. But for this blog article it's the years from the 1970s stagflationary recession up to today that I will concentrate on here. 

The 2011 Gold Bear.

So let’s get started. This will be a minimalist project, focusing on what matters bigtime. I will attempt to remove all distractions from the analysis.

I have reproduced the gold price chart in three charts, each one showing a decade or more of gold’s price movement. There is a technical oversold indication marked wherever the price of gold declined approximately 25% in 12 months periods.

This is interesting because there have been relatively few times this happened during the approx 40 year period.

Here they are:

1976 - 1986

and next ....

1986 - 2000

I will comment on two things that pop out at me from these charts. They are in relation to the quite short periods of time when gold 12 month percentage change got down into the -20% to -25% region in the past.

  • There can be a low in the percentage change of -20%-25% and gold rallies more or less promptly after registering that price/date. The lower the %change low, it seems, the more prompt the rally.
  • There can be an oversold reading as just described, and followed by a rally, and then later gold falls back to it’s low area or even makes a lower low, but the percentage change fails to fall to a lower level.

That is to say, whenever the 12 month percentage change fails to confirm gold’s second low by making a second percentage change low. In this case the rally which followed has generally been of a size that one would describe as a new bull market in gold.

Now coming up to the present day - here is Gold from 2000 - 2013:

So if one examines the present gold chart with these historical behavioural tendencies in mind, (only tendencies remember!) one can see that on an annual basis gold is indeed long term oversold enough to warrant either a rally or a new bull market.

But one can also say that gold after a new rally (if it gets going) gold was to turn around and decline again and fall back to this price region a second time again , or even a lower price, and the 12 month percentage change was to fail to confirm with a new low that would be  a better signal.  That would suggest a new bull market in gold, rather than a rally was in progress.

This simple but value based technical approach suggests that in the long term gold is very oversold, and it is oversold enough to warrant a rally. Indeed a rally (in it's infancy ) is what we see during the past few weeks, notwithstanding the selling of last week. But the duration of this current rally is an unknown quantity, and due care should be exercised for another possible downswing by gold to build the kind of base that provides a better footing for a new bull market to grow from.

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

77 Comments

silver66's picture

First

Holy cow, I am on a roll

Silver66

edit: now that I read it, thanks for the post. I have been thinking alot about the stagflation of the late 70's and this post is timely

AlienEyes's picture

2nd

#2?

silver foil hat's picture

wow... number 2

now off to doo my bidness

edit: guess my HFT was a nanosecond slow.

Maybe it's time to upgrade to the same ones wallstreet uses.

Kcap's picture

Does someone have the bill numbers from the states....

that have passed legal tender laws for Gold and Silver....or at least have a bill number from a state that has one running through their Congress at the moment?

Thanks in advance....I need to read the language.

Kcap

foxenburg's picture

When the system goes down.....

Sometimes, when I read of American gold bug survivalists stocking up on food, water, canned food, bullets, etc I have tended to think that they are a bit over the top. However, a new book by UK Labour Party spin doctor Damian McBride shows that UK PM Gordon Brown was as concerned as the most dedicated survivalist:

"Mr Brown is quoted as saying: "If the banks are shutting their doors, and the cash points aren't working, and people go to Tesco and their cards aren't being accepted, the whole thing will just explode.

"If you can't buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves.

"And as soon as people see that on TV, that's the end, because everyone will think that's OK now, that's just what we all have to do. It'll be anarchy. That's what could happen tomorrow."

According to Mr McBride's book, Power Trip, Mr Brown feared panic from other countries could spread to the UK."

http://www.telegraph.co.uk/news/politics/labour/10324839/Gordon-Brown-considered-sending-in-troops-as-banks-faced-collapse-Damian-McBride-claims.html

Magpie's picture

Kcap

silver foil hat's picture

Just something I put together

while 'occupied'.

Just kidding...

Washington DC is the place to be
free money for you and me
Deficits we don't need to hide
Tax all the remaining workers country wide

Wall Street is where I'd rather be
making money with HFT
in conjunction with the PPT
Bennie I love you when you press C...T...R...L ..P

Print More!
Fed Wh*res!

Sell Paper!
No Taper!

We have no more gold
Good-bye money old!

Hyperinflation we are here!

Green Lantern's picture

AM Thank you!  As always an

AM Thank you!  As always an interesting and thought provoking read. 

In light of the meme that has been emerging here and other places, "gold will not move higher until the end of the banking system" and "nobody has been right" "don't trust any forecasts" etc... which speak to a general despondency for investors, your removing all outside factors QE, manipulation, BIS etc... seems to speak to what you termed "government intervention cycle" in your previous well written article> Would that be correct.   Your ta already assumes manipulation so it does not have to factored it because it is part of the cycle? .  And sort of speaks to the postulates I put forward a couple of times that gold, silver or any market will behave in a cyclical manner despite manipulation and I gave a couple of examples on your forum.  

So for clarity sake, do you agree or disagree with the general notion that's now come forward that "gold will not move higher until the destruction of the banking system" and that's coming from a space of despondency and not market dynamics or even cycle theory  in a manipulated market? 

I hope my question is clear.  The idea that gold can't rise even in manipulated markets seems to violate principles of cycle theory and power theory which I wrote about where power always looses control.   Gold won't move higher seems like an an emotionally strong argument until destruction occurs seems like an emotionally strong arguement but not a principle based arguement.  I am just wondering if you think it has any virtues based on underlying principles of cycles. 

I don't think so but I don't have a fraction of your experience in these things.

Basil's picture

Nice analysis - shame about the manipulation .....

Turdites can't have it both ways.

If you believe that the Gold market is manipulated, (and most Turdites do),  then you must accept that TA is useless in such an environment, simply because the normal laws of supply and demand do not apply in an artificial market.

Argentus - you are obviously a bright guy with your insightful analysis and well written prose, but there is just no way that you can use historic price action to predict the future in a manipulated market.

If you personally believe that the Gold market is NOT manipulated , then fair enough, your analysis stands.

Kcap's picture

Thanks Magpie...

Anyone have the list of states that have passed law or have bills in session?

Kcap

question's picture

@argentus maximus

Can't thank the guest posters enough for taking the time to bring their viewpoints to turdville; this is another perspective expanding offering that keeps me coming back here for more.

argentus maximus you said "But one can also say that gold after a new rally (if it gets going) gold was to turn around and decline again and fall back to this price region a second time again..."

I'm not sure what you meant by "back to this price region".

Do you mean back to around $1200 or something lower? Or you just referring to percentage and if so could you give an example of where that level might be?

FWIW I think this is a very useful way to view this market without all the clutter of bs beyond our control, real as that clutter may be.

Thank you for presenting it.

argentus maximus's picture

@Basil

Long term analysis of any kind contains the manipulations of the previous times within it's data. I think you will agree that markets have been manipulated as long as there has been money to be gained by doing so and that's a long time?

If that is the case, then a question arises about the relative amount of manipulation down the years, or increase of it. Historic deviation from the mean is easily checked, and I did it for gold only a week ago.

Volatility has also increased over the years and this to me is an indication of manipulation and leverage added together.

However, if manipulations move a market away from the price of fair value, then the manipulations are merely pro and counter trend moves in price that might not exist otherwise. If that is the case then they represent increased opportunity to buy/sell at prices differing from fair value to all participants.

opticsguy's picture

What 50 oz of silver can get you.

I decided to make an emergency solar setup, kind of a bridge between sitting around in the dark and firing up the generator.

These Renogy panels from Amazon are the real deal.  Mono crystalline 100W, RV size (100 sq in), and about $140 each.

with some angle iron from Lowes, I made a folding frame with casters.  Undo two wing nuts and it folds flat.  It can also be tipped to the right and stored against the wall if not in use.  My courtyard is the only place I can get 5 hours or more of sun.  Too many trees elsewhere.

The soloar box contains an AGM battery (100 amp-hour), Morningstar MPPT charge controller (pricey, but worth it for battery life), a fan, an LED light, and 12V 30A outlet.  A 700W inverter can provide AC (not shown).  Wheel this box outside during the day, charge it up, and wheel it inside at night.  You want wheels because the battery is HEAVY.  The wheeled toolbox is also from Lowe's.

The frame I have can hold another panel, and the box can hold another battery, but then I would need 7 hours of sunlight to get a good charge on both.

With the battery, controller, metal, cables, box, etc, the total was about $900.

argentus maximus's picture

@question Gold is in a very

@question

Gold is in a very steep declining trading channel so a new low is definitely possible. All it takes is for gold to fail to break out upwards from the channel. We must accept that possibility and manage our behaviour around it.

I think the balance of probability lies with a declining trading range for a few weeks, but I'm open to pleasant surprises if one comes.

Magpie's picture

Kcap

Dyna mo hum's picture

Magpie Fort Hood

When was the last time you heard a notable muslim publicly  denounce islamic violence? I can't recall myself and that's pretty telling! Make no mistake about it violent muslims are within our gates just waiting for the right time to murder and maim in the US. Coexist my arse.

Magpie's picture

Dyna,

And you won't hear a peep from them about this either.

http://www.voanews.com/content/suicide-bombers-kill-50-at-pakistan-church/1754638.html

The powerful explosions are said to have instantly caused most of the deaths.  Eyewitnesses say people were screaming for help while human remains were strewn all over the church.

AlienEyes's picture

@ foxenburg

I would rather not go to a gun fight with a knife.

I pray the US will never end up with no way for it's citizens to protect themselves.

silverwhere's picture

John Galt – SDR Value info

Your post regarding the SDR value presented on customs form CP72 lead me to this USPS search result.

All
See section 323.62 here:
http://pe.usps.com/text/imm/immc3_006.htm
 
And here is the link to Exhibit 323.62:
http://pe.usps.com/text/imm/immc3_006.htm#ep405472
 

+ I'll post more SDR info shortly.

.
John Galt's picture

@ Magpie re: Militants in Kenya

According to that article US forces are targeting al-Queda militants in Kenya as if they were the enemy.

Isn't Obama arming and supporting those same al-Queda militants in Syria?

John Galt's picture

Thanks silverwhere

From what you have posted it seems that the USPS is doing some serious prep work related to the SDR.

Mantis's picture

TA and manipulation

My viewpoint is that gold is always manipulated and always will be. "Browns bottom" was a huge manipulation for example. The TA of the charts shows all the manipulations as steep drops and steep rises and everything in between. These prices changes can be looked at a long time after everyone has forgotton what the fundamentals of the era were. 

The precious metals markets are manipulated, and the biggest players are people who have the abiltiy to manipulate it, BUT only to a degree. Gordon Bown didn't prevent the bull run that followed. If manipulators could be 100% successful in their manipulation then gold would be $35 an ounce or something like that. They can't be 100% successful though, its physically impossible. Just like all powerful King Canute couldn't stop the tide.

I think the TA in this article is good analysis, sometimes when you focus on all the manipulation and the politics and the creeping fascism and everything else you focus on the trees and forget the forest. Like Mike Maloney says, its all just noise.

silverwhere's picture

SDR = ISO 4217 currency code XDR

SDR wiki explanation:

Created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and the US dollar, the value of a SDR is defined by a weighted currency basket of four major currencies: the US dollar, the euro, the British pound, and the Japanese yen.[1] SDRs are denoted with the ISO 4217 currency code XDR.[2]

http://en.wikipedia.org/wiki/Special_drawing_rights

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GoldMania3000's picture

great post am

alwasy apprecieate your insights and wisdom

Fred Hayek's picture

Wait a minute, I thought Jack Nicklaus was the Golden Bear?

Are you saying that he and the PGA tour are in cahoots with JP Morgan to suppress the price of precious metals?

Magpie's picture

@John Galt

What Zero says he's going to do, and what he does are seldom the same thing....except when he's talking about fundamentally changing America.

And, just for fun, there's this:

Magpie's picture

$3.39T Quantitative Explosion

http://cnsnews.com/news/article/terence-p-jeffrey/339t-quantitative-explosion-fed-owns-more-treasuries-and-mbs-publicly

Since the beginning of September 2008, in fact, the Fed's ownership of Treasury securities and MBS has increased seven fold.

As of the close of business Thursday, the Fed said, it owned approximately $2,052,055,000,000 in U.S. Treasury securities and approximately $1,339,771,000,000 in mortgage-backed securities—for a combined total of about $3,391,826,000,000 in Treasury securities and MBS.

The U.S. Treasury divides the U.S. government debt into two parts: debt held by the public, which includes publicly traded Treasury securities such as Treasury bills, notes and bonds, and intra-governmental debt, which is money the Treasury has borrowed out of the Social Security trust fund and other government trust funds and then used to pay current expenses.

 
silverwhere's picture

SDR - currency conversions

We travel a fair bit. With travel comes the need for different currencies. My very favorite site for currency conversions is http://www.xe.com/.

This is a terrific website & has served us well, in more ways than one. Not only can you convert pretty well any currency, you can play with some charting. The site allows you to view charts – click on the “View Chart” feature & get results like this:

http://www.xe.com/currencycharts/?from=XAG&to=USD&view=5Y

Remember, this is a currency site – the BEST currency site. They have silver (XAG), gold (XAU), and platinum (XPT).

Guess what else they have (some of you know where I’m going with this)? A stuffed bankster is your prize if you guessed this:

XDR - IMF Special Drawing Rights

So, once you get comfortable with the buttons you’ll discover this:

From: XDR – IMF Special Drawing Rights

To: USD – US Dollar

“View Chart”

Set chart to max 10 years & hit GO

The result is this chart showing the XDR to USD comparison over the last 10 years:

http://www.xe.com/currencycharts/?from=XDR&to=USD&view=10Y

You can view closing prices by moving your mouse along the chart line.

Give the XE site a whirl & the boss can fine tune those winter vacations.

.

T's picture

it can be both

Does TA work or not. Does manipulation rule supreme or not.

Its not necessary that logic requires only one single  true dynamic here.

It can be both.  Both working at the same time.

When you do technical analysis ,in great  and complex detail, on many time frames....  you can see  that it does  find very precise targets.  days.weeks,and months ahead of time. Forecasting is possible. It works.  Often bullseye  precise in finding targets. and  easy to find  target zones.  Timing cycles are more tricky to  forecast. Maybe thats where the manipulation game factors in, to   misconstrue the  flow of time.   to stretch out the manipulated system longer. to buy for time. etc...

Clearly as well, one can see the manipulation going on.   Astute observers were talking about it  maybe 5 or 6,or 7 years ago,that I know of. JS Kim,Peter Schiff, Faber, Jim Willie, etc etc.  Now  everyone sees it . and mainstream news is even beginning to report it.

Its both working at the same time. 

The manipulation  shows up on a chart. its called a painted chart.

Esoterically, one can say that its not a 'real' picture.  No, its a surreal picture.   Its a chart of a manipulated market.  Its painting by numbers.  and you can see the details of it often, when you look at the  precise numbers  where price action  hits bottom, then where it hits top. where  it hits the 50% Fib, and bounces. where the whipsaw reversal happens at precise clock moments (what Andy Hoffman has documented daily for a few years now) .... you can see the painting in progress as its being done. 

and when you follow the bouncing ball,  and do the technical analysis  alongside it,  you get yur price targets, and then you sit back and watch.   Uncannily, price goes right there. Maybe that  means your technical analysis is now tuning into the HFT algo  program.  or something like that.

Now youre in the Matrix.

These charts and article posted by AM is good work.  food for thought.  Possible  vision to consider.

and like all analysis,    is just a possibility.

From these charts,     it  looks like that ROC  divergence indicator  tended to  take 3 or 4 years to  get confirmed in the 80's charts. and in the 90's charts 1 to 2 years, and now ??? remains to be seen.  

Theres only so much juice  of insight   you can squeeze out of  data.

On the fundamental side. experts are  saying that  the available supply of gold and silver is dwindling  every day. and 'soon' it will be all gone.

Experts are always saying soon.  Black Swan events are always  possible   at any moment.  They might have a grave impact on markets.

In gold, wasnt it a big factor that JPM needed to cover their massive short position, or was that silver? They did that now.  Thats a factor  to consider. 

Its all a complex game. too complex for me.   I just try to look for top zones to  sell a little and bottom zones to buy a little.

and the work of Argentus M is very good.

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