Gold & 2nd Term US Presidents

48
Sun, Aug 24, 2014 - 7:25pm

Did you know that there is an (alleged) cycle in the price of gold which approximates 8 years in length. Here it is:

Since gold is in a bear market, or recently was in a bear phase, it would appear to be prudent to look at the downwaves of this cycle in the past. Then those periods can be compared with the downwave of 2012-2014.

So for a start let's look at the 1970s 8 year cycle bottom:

Next came the 1980s bottom:

This major low came in a few months after the idealized time. It was preceded by a secondary size low which came 2 years earlier, and the rally between the lows was sharp and significant.

The next low came in the early 1990s:

Once again a low 1 and 2 years [prior to the main low. The main low came in "late".

The following low came here:

A pre-low is visible 18 months prior. Note that the absolute low this time came prior to the idealized low, and the later low was a higher retest. The higher retest set up serious bullishness following it's completion. After this low gold went into it's most recent substantial uptrend.

Whether this rise is secular or cyclic is open to conjecture, although many commentators insist the 2000s gold bull was/is a secular bull, which secular bull trend many assume may not be completed and resumption is assumed. I myself think that that particular view is bull because everything is cyclic in some way or other. To me, the gold bull of 2000-2011 was simply another 7-9 year bull cycle swing which lasts for half the cycle length and is inevitably followed by the return swing. The return swing downwards in 2008 was suppressed which raised the starting point of the following upswing out of the 2009 low. This downswing is making up for the relative shortness of the last one. The "secular bull"downswing retracement is now becoming quite mature and the rallies can be expected to show surprising liveliness, hurting late bears during the bottoming period, but failing to show prolonged follow through to further upside.

Let's get back to the bottoms of this cycle. Next wave ....

There was an 8 year cycle bottom along the way during the gold bull:

At the above bottom, the early low also appeared, but when the "main low" came later, it failed to break the "pre" low, and a series of higher bottoms formed. Following this gold began to rise in value at quite a fast rate.

However a top formed and the 8 year cycle turned down once again.

We are fishing about for an end to this major 8yr wave with it's 3-4 yr downswing at the moment. Though calls for super low swings and for super bull swings (at the same time!) are beginning to emerge as they always do from the must-make-big-name-to-achieve-breakthrough pundit business, not to mention the retail bullion sales business who are naturally hoping upon hope for an end to the bear before all their clients are gone while at the same time keeping a long term bullish face and improving terms (lower premia over spot) towards their remaining clientele. I have found that it is wise to look dispassionately at the data and close my ears to whatever conversational "rhubarb" is floating around.

Here is how it looks with this particular idealized cycle superimposed for reference:

So we can see that the habits of 2nd term Presidents are still intact so far. Being such clever people with clever advisors, they have conjured up via totally innovational concepts and practices exactly the same results as the previous clever presidents' advisors did before them ,and before them , and so on ad nauseum.

So this makes it appear that the gold low is not yet upon us, and another 12 months could be required to make ultimate low for this 8 year downswing.

But not every 8 year downswing is equal. Remember those 2nd year presidents were only "in" for some of the downwaves. Here are the late 20th century and early 21st century US Presidents:

Richard Nixon, Ronald Reagan, Bill Clinton, George W. Bush and Barack Obama have been elected president twice during the period shown in the gold price charts here. This is year 2 of the second 4 year term, or year 6 of tenure for these dual incumbents.

I leave it to readers to consider which downwaves are the important waves to focus upon based upon who was "in" and for how long. For example, in some years the pre-bottom was higher or lower than it was in other years. This also requires to be taken into account. You have the charts here so this can be readily evaluated.

If all of the 8 year cycle waves, similar and dissimilar were to be overplotted, what might it look like? Here is the chart which takes a bit of careful scrutiny to catch the times and places where they tend to do the same things, and the other times and places where they tend to "disagree" with each other:

Note that the variation between separate lows has been "normalized here by using logarithmic data for the gold price. it is essentially a percentage ratio chart of gold rather than the exact chart. Also note that, if this plays out the same again, (and for sure it won't do that so neatly) but if it ends up looking similar, there are two opportunities for the price of gold to make seriously determined attempts to test the decade trading range lower limits before setting off for the upper side of this long term trading range. "Moonshots" come after the retesting process is completed, and it is my opinion that until then, while big moves up and down will be seen, the thing that goldbugs hope for deep in their hearts will come after the bottoming process has had another low printed, whether this exceeds the low already made is of no importance, it is the need for another half yearly retest that must be satisfied.

And for the bearish of mind who latch onto the message "another low is coming!!" please look to the difference between the different historic downwaves for this cycle, and also the presence of something called "higher lows" which can satisfy a cyclic bearish period just as well when appropriate.

What I see mostly is the probability for two separate "weak periods" during which I might hedge holdings, and at the end of which I would probably buy, should they come to pass.

This leaves the issue of total aggregate global leverage, or to put it another way, maximum expected volatility for swings both upwards and downwards. Gold has certainly seen a significant downswing already, prior to the trading range of the past year or so, and if the swing gets pushed a great distance one way, the return stroke may reasonably be expected to exhibit some similar characteristics. However excluding all the other factors,of which there are undeniably a great number, the habitual behaviour of these powerful administrations is what it is, and they can be assumed to continue to indulge in modern day versions of exactly what their predecessors did before them.

Have a nice weekend everybody!

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 & his work can be found here: RhythmNPrice.

About the Author

  48 Comments

AlienEyes
Aug 24, 2014 - 7:44pm

#1

Ace ! Oh hell yeah !

lnardozi
Aug 24, 2014 - 7:57pm

Number Two

and that's the straight poop.

Aug 24, 2014 - 8:11pm

I just edited the article

I just edited the article above for a chart which failed to come out properly. This has been rectified.

sierra skier
Aug 24, 2014 - 8:13pm

Ah yes, Gold Graphs

It is always informative to see how the graphs are interpreted.

Would have been Thurd.

tyberious
Aug 24, 2014 - 8:50pm

All we need to know!!

“Monetary Policy” Gone Berserk

Mark J Lundeen

August 24, 2014

One issue the financial media is willing to ignore, but has been foremost in my mind for many years is the utter recklessness of the Federal Reserve’s “monetary policy.” Below is a chart the public will never see on CNBC, or anywhere else, but I believe is vital to understand the threat that Washington and Wall Street currently present to the world at large. You’re looking at what academic-quack economists have done to the global reserve currency to save the hides of the banking elite, who for decades have acted as if Wall Street was their private fiefdom.

The FOMC calls this “monetary policy” but for me something completely different comes to mind: legalized counterfeiting. Unfortunately, for years the baby-boomer generation (and their children; the Gen-Xers) have sought pleasure in immediate consumption. It’s hard to blame them since the Fed destroyed their incentive to save by lowering the Fed Funds Rate to nearly 0% in December 2008. This rate can never be raised (despite the Fed rhetoric) without blowing up the budget deficit, sinking the economy in the process. For decades American’s, (and just about everyone else) have taken full advantage of the debt generously provided by the banking system to leverage their income, and now far too many people are hooked on cheap credit and just one paycheck away from insolvency, as are their employers.

The financial markets currently find themselves in the same perilous situation as consumers, and for the same reason; their valuations are being supported by central bank “policy.” Janet Yellen may intend to reduce QE to zero in the next few months, but when the stock and bond markets begin their long overdue corrections, she’ll be “monetizing” Treasury debt yet again to supporting financial “asset” valuations. Yellen (an inflation dove) is a typical economist of her generation; she too, prefers pleasure to pain when it comes to matters of monetary policy. I can’t see any way for the Fed to unwind (or stop expanding) their balance sheet without risking the wrath of an army of financially ruined voters in the next election cycle.

However, whether the voters are happy or not, the simple fact is that the Federal Reserve’s “monetary policy” is totally out of control. The quantity of US Treasury Debt monetized by the Fed since Alan Greenspan became Fed Chairman in 1987 is enormous as evident in the table below. Their portfolio of US T-Debt is now 77% larger than the entire US National Debt was in August 1987.

But monetizing US Treasury debt hasn’t been exclusively monopolized by Americans. Barron’salso publishes the dollar value of US T-bonds held at the Federal Reserve by foreign central banks (Blue Plot below) which have been huge purchasers of Treasury debt for decades. Once purchased, these central banks do what central banks always do, that is “inject” the resulting “liquidity” into their banking system, increasing its ability to create credit (debt). However, foreign CBs apparently reached their limit in 2011 of how much US Treasury debt (the US National Debt) they were willing to monetize, and since then the Federal Reserve (Red Plot) has picked up the slack.

Next is a Bear’s Eye View (Blue Plot / Left Scale) of the foreign central bank data above. In November 2012 there was a large (11.4%) reduction in US T-bonds held, but this decline didn’t make the news. However the 15% decline in September 1998 (due to the sharp contraction in the “Asian Tiger Economies” known as the “Asian Contagion”) was big news at the time. Alan Greenspan needed to reassure Congress and the public on TV that he had everything under control. And during this mini-panic in Asia (March 1997- September 1998) Greenspan didmaintain control over the market; 10Yr US T-Note yields declined from 6.70% to 4.90%, while the price of gold fell from 9 to 0. But then no one could execute “monetary policy” like Alan Greenspan!

In this next table we see how much US Treasury debt different countries were holding as of June 2014. Note: this data is from the US Treasury (not the Federal Reserve). I included the Federal Reserve’s T-debt holdings for comparative purposes BUT the Fed’s T-debt is NOT included in the grand total. I’m assuming that the Treasury’s data includes all holders of T-debt within a given country, not just their central banks. Also the “Max Val” column gives the maximum holdings from 2008 to present, as the “Min Val” lists the minimum. The Percentages columns give the percentage increases and declines as of June 2014.

China and Japan (#2&3) each hold more than a trillion dollars of T-debt, but combined hold only 60% of the Federal Reserve’s portfolio. Out of curiosity I checked to see how many billions of dollars these CBs held in May of 2008, at the start of my data:

  • China: $506
  • Japan: $575
  • The Fed: $478

What a difference six years and one credit crisis can make.

Germany (#21) holds only $68 billion dollars of Uncle Sams IOUs. Germany is one of the world’s largest economies, yet countries like Ireland (#16) hold more US T-debt.

A frequent theme of the US Treasury market is that should a major holder of T-debt (such as China, #3 above) decides to sell, they could trigger an economic doom’s day. So let’s have a look at this same data sorted by the Percent From / Max Val column (below). The biggest seller to date (on a percentage basis) has been the UK (#1 below) which has liquidated just over half of their T-bond portfolio. Russia (#3) has sold off 35% of their T-bonds. But so far, none of the major holders of US Treasury debt have liquidated a significant percentage of their portfolio as of the latest data. And note that the grand total (#36) is at a new all-time high.

China (#18) may sell a large percentage of their US T-bonds at some point in the future, but I don’t believe they would do so as retribution against Washington’s foreign policy. A big sell off in US Treasury Bonds would hurt more than just the Federal government. Creating a panic in the US Treasury market would greatly harm China’s trading partners as well, countries with which China wants to foster good relations.

But just because China isn’t willing to commit economic suicide doesn’t mean the US Treasury market is a healthy place to hold your wealth. Currently banks hold 58% of the US national debt. Should that be a source of comfort or concern for the owners of the other 42%? These banks are definitely not intentionally going to start a panic in the T-bond market. But the 58% of the Treasury market they currently own is also the size the entire US national debt when President Obama was first elected in 2008, and the remaining 42% was created during the first six years of the Obama Regime (chart below). Does that comfort you? It doesn’t me.

It wasn’t always like this. In the table below we see that in May 1995 private holders held 83% of the Treasury market.

One thing we must keep in mind is that the so called “national debt” is only the fraction of the of the Federal Government’s liabilities that trades in the bond market. It seems that no one really knows, but when one takes into consideration the future expenses for Social Security, Medicare, Federal pensions, and who know what else, I’ve seen estimates as high as of 0 trillion dollars of unfunded liabilities pending on the US Treasury in the coming decades. There is coming a day of crisis that Washington will attempt to postpone by funding these unfunded liabilities with monetary inflation.

Taking this into consideration; is it possible that there are some in the Federal Reserve Board of Governors concerned of a future shortage of US Treasury debt? I wouldn’t be surprised if there were. After all, to create the required credit and currency necessary to re-inflate the financial markets after the 2007-09 credit crisis, the Federal Reserve has been grinding up T-debt like hamburger at a sausage factory. Forget for a moment Uncle Sam’s unfunded liabilities, if Janet Yellen actually intends to taper QE to zero, and the financial markets once again begin to deflate as we saw in 2008-09, I expect that political pressure on the Federal Reserve would be impossible to resist after the a stock market decline of 30% or more. And without direct Federal Reserve intervention in the stock and bond markets, stock and bond valuations would decline to incomprehensibly low levels. To a Keynesian-macro economist, how many trillions of dollars of T-debt does the Federal Reserve require to move the economy safely into the mid-21st century?

This is interesting: since May 1995, the US national debt has increased by .75 trillion dollars,yet T-bond yields have declined to levels not seen since the 1950s.

With growth in the US national debt this grotesque over the past twenty years, how could T- bond yields possibly decline to levels not seen since 1953? It wasn’t hard, because the Federal Reserve has unlimited funds with which to execute their low interest rate policy. So, they don’t care how much they have to pay for a US T-bond, or how many trillions of dollars of T-bonds they have to purchase if “policy” dictates that bond yields must decline.

Keynesians economists still dominate the FOMC, and they believe that lower interest rates can cure all market ills, so the current absurdly low T-debt yields are to be expected. But the Keynesians are fellow travelers with big-government nanny-statists, you know, President Obama’s crowd. Since the Bolsheviks first nationalized the Soviet Union’s health care system, everything these left-wing progressives have touched eventually died, and I expect that will also prove to be the case with our current bull market in stocks and bonds. And if these people hate gold and silver, maybe that is a good reason for you to like them.

Mlundeen2[at]Comcast[dot]net

https://www.gold-eagle.com/article/“monetary-policy”-gone-berserk

Aug 24, 2014 - 9:27pm
BagOfGold
Aug 24, 2014 - 11:27pm

Argentus Maximus...

That chart looks very familiar!...Subliminal messaages perhaps?...MMM...it looks like we are both on the same chart...& we might as well ride this one out together!...

You are truly gifted Argentus!!!...

Bag Of Gold

Mr. Fix
Aug 25, 2014 - 1:34am

This might be important:

08.24 20:34 ET BREAKING NEWS: CME has HALTED ALL ELECTRONIC TRADING

by John Galt
August 24, 2014 20:34 ET

From Bloomberg and numerous other sources, all electronic trading has been halted on the CME and GLOBEX electronic platforms.

Perhaps this is the first shot across the bow of the mighty US via the great hacker war or is it worse perhaps that the CME is trying to block trades which might profit America’s enemies?

Time will tell and we will find out more soon.

UPDATE 09:48 ET…

This story from Bloomberg appears to attempt to mollify the masses and make everyone feel better about a mysterious “glitch”….

CME Halts Electronic Trade on Futures From Oil to S&P 500

<excerpted>

The Chicago Mercantile Exchange halted electronic futures trading due to technical issues, affecting contracts from U.S. stock-indexes to Treasuries, oil, gold and copper traded on CME Group Inc. (CME)’s Globex platform.

CME Group, the world’s largest futures market, suspended the start of trading on all of its Globex electronic-trading markets except for Malaysian equity-index derivatives, according to its website. Trading will open at 9 p.m. Chicago time, the bourse said in a later update. Dozens of commodities from corn to West Texas Intermediate crude change hands on the all-electronic Globex platform that begins on Sunday nights in the U.S., as well as contracts on interest rates and stock indexes.

“The biggest problem you might have is with some of the agricultural products because people rely on it quite heavily,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone today. “You’re taking away a risk transfer mechanism that people rely on.”

Asset classes where there is also a spot market, such as precious metals, are less affected, Barratt said. Investors can trade spot gold, silver, platinum and palladium in London while those in China, the world’s largest consumer and producer, can trade bullion on both the Shanghai Gold Exchange and Shanghai Futures Exchange.

The CME has mostly avoided the larger market structure breakdowns that plagued U.S. equity venues over the last five years, though a futures contract traded on its platform was identified by regulators as helping precipitate the flash crash in May 2010. In the stock market, U.S. Securities and Exchange Commission Chairman Mary Jo White has demanded infrastructure and procedural improvements as a way to restore investor confidence.

Funny how this happens as the pro-Russian forces appear to be ready to strike a major victory, the US appears to be ready to expand the war in the Middle East, Yemen’s government collapses in the face of Islamist rebels, and China is increasing its military stand against US Pacific forces in its region of influence. Nothing to see here, continue to hit the Wall Street Casino. Nothing could possibly go wrong like 1907, 1929, 1937, 1979, 1987, 1998, 2001, 2007-2008 now could it?

Safety Dan
Aug 25, 2014 - 2:32am
Safety Dan
Aug 25, 2014 - 2:44am

As President, John F. Kennedy

As President, John F. Kennedy understood the predatory nature of private central banking. He understood why Andrew fought so hard to end the Second Bank of the United States. So Kennedy wrote and signed Executive Order 11110 which ordered the US Treasury to issue a new public currency, the United States Note.

Kennedy's United States Note - Click for larger

Kennedy's United States Notes were not borrowed from the Federal Reserve but created by the US Government and backed by the silver stockpiles held by the US Government. It represented a return to the system of economics the United States had been founded on, and was perfectly legal for Kennedy to do. All told, some four and one half billion dollars went into public circulation, eroding interest payments to the Federal Reserve and loosening their control over the nation. Five months later John F. Kennedy was assassinated in Dallas Texas, and the United States Notes pulled from circulation and destroyed (except for samples held by collectors).

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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