Early Aught Perspective

Since all of the Fed Goon jawboning this week has now raised the odds of a March FOMC rate hike to 147%, we thought it best to write today with some perspective on the past...perhaps unearthing some clues as to why Comex Digital Gold seems to rally every time The Fed hikes rates.

The challenge for your host is to somehow make this case logically through the written word only, when this information might be better presented through a podcast. But here goes...

As we discussed yesterday, this is your most compelling chart at present:

We all noticed yesterday that, even as rate hike odds hit 115%, CDG and CDS refused to break substantially lower. Now today, with rate hike odds at 159%, CDG and CDS are once again hanging tough. Yes, they're both down a little but, as I type, CDG is only off $7 at $1242 with CDS down just 10¢ at $18.38. So, what's the deal?

I think the answer lies in history...and not just the most recent history.

Many of us came to the sector after the onset of The Great Financial Crisis and it seemed that the dollar price of gold and silver was tied to dollar devaluation and sharply falling interest rates. And why wouldn't you feel that way? 2010 and 2011 saw sharply rising prices and record highs while rates and the POSX plummeted. HOWEVER, this analysis ignores what happened before 2010 and I think THIS is what we may need to focus on for a while.

Do you recall seeing charts like this back in the day?

The dollar price of gold followed almost precisely with the rising level of US debt. And take a good look at that chart. From 2003-2008, the dollar price of gold rose from $300 to $1000...that's 3X!...all the while, the total US debt rose by 50% from $6.5T to $10T.

And here's what you need to consider...The period of 2003-2008 was NOT a period of steeply falling interest rates. See below. This chart is the US 10-year note rate from 1/1/03 through 1/1/08:

So, if we step back and consider price history that extends back beyond just the 2010-2011 timeframe, it might be quite plausible to expect higher gold prices AND higher interest rates as US debt levels continue to soar under The Don's tax and spending plans. A more recent and longer term chart of debt and gold is posted below. We all know how this trend has disconnected over the past few years but, as this chart shows, this isn't the first time this has happened. Note the period of 1995-2003...and then note how quickly the price of gold rushed to catch up!

So, with the period of 2003-2008 as a guide, we can plainly see that gold in fact CAN and DOES rise during a period of flat/rising interest rates. This, in part, explains why CDG has rallied from the last two rate hikes and likely explains the relative firmness in price this week. (Of course, now I look and I see that suddenly The Banks have decided to smash price while I've typed!)

One more piece of the puzzle needs to be put into place. As you can see below, the period of 2003-2008 also saw a rather significant drop in the dollar. It fell by about 25% over that time period as the DXY began 2003 near 100 but was near 75 by 2008.

While the dollar has rallied since the election of Trump, the new American president has indicated that he may prefer a weaker U.S. dollar in order to help with his international trade programs.

So...

Are we entering a period of higher rates, higher debt levels and perhaps a weaker dollar? If so, there's historical precedent of steeply rising gold prices under these conditions and this might explain the last two rallies from FOMC rate hikes as well as the current strength in gold in the face of another, pending Fed Funds hike.

TF

160 Comments

Turd Ferguson's picture

MAJOR silver raid in progress

MODERATOR

We spoke on Monday about the likelihood of CDS falling back to test the support of the 200-day MA below $18. Well, it looks as if JPM et al have decided to give it a go this morning. Out of the blue, silver is being smashed on no news or any other event. This is just an old school price raid, designed to shake out Spec longs and induce more selling. It's criminal price manipulation, pure and simple. Sadly, it still passes for a "market" in 2017. (This is the third time I've updated this chart in the past ten minutes!)

The last time The Evil Ones tried this blatant of a stunt was on Friday, November 11, when price was smashed for $1.36 with the intention of breaking the 200-day. Well, here they come again.

billhilly's picture

regarding Miners...

I used to be able to handle this....

but now I find myself only hoping for this....

Marchas45's picture

4th

I don't care, I'm ready to efen give up.

RickshawETF's picture

thurd

thurd

Marcrward's picture

Classic

Love the algo

gold leader's picture

Well timed trip to the LCS

I guess. Sadly. One of these times, Alice! /moon

Turd Ferguson's picture

If JPM is successful

MODERATOR

A good spot for me to add would be $17.25. That's the area I'll be watching.

gold leader's picture

But hey, BTC!

Sorry

batting500's picture

The hikes - THE HIKES...

At this point it really is all about the hikes, are they pretend or real, how many and how much.  And what impact will they have on the rest of the market place

Good luck all...

batting500

ReachWest's picture

More Paper - Less Physical

These smack downs really do get old. And .. I hope Andy is right that the physical market will makes these paper alchemists sorry they ever created all these paper certificates. (and soon).

canary's picture

Predicted Daily Trends for Gold and Silver...for the next day

Friday, March 3

Spot Gold Intra-Day Trend: Choppy-Sideways. VantagePoint’s short-term indicators are still conflicted.

Spot Silver Intra-Day Trend: Choppy-Sideways. VantagePoint’s short-term indicators are still conflicted.

Boing_Snap's picture

Wow the damage a .25% rate hike

Lol, and the Dow sits there down .25%, well there's a correlation there, but it's beyond me.

Turd Ferguson's picture

It's important to understand

MODERATOR

The sudden 252% likelihood of a rate hike means that we're likely in for a challenging two weeks. However, and what this post seeks to show, another hike likely means HIGHER CDG and CDS, not lower, as debt levels continue to soar in the months ahead.

brokerk22's picture

and the

VIX is down 6% on a 70 point down day.  LOL what a sham again and again and again.

goldcom's picture

Pure unfettered

Pure unfettered economic tyranny for those of us trying to protect ourselves from their reckless scheme.

lakedweller2's picture

.25 Rate Hike

Good for gold unless that is the only thing the Fed can come up with to rationalize a criminal attack on gold.  MOPE.

Marchas45's picture

Bloody Hell Turd

Don't Rub It In, I've Been Adding To All The Efen Drops, For What, So They Can Drop It Again? Man I Guess I'm Having A Rough Efen Day, Today. Time To Calm Down and Have Some Popcorn Chips, A Dr. Pepper and Watch The Charade. Can You Tell I'm Pissed Off?

Turd Ferguson's picture

what am I "rubbing in"?

MODERATOR

I don't understand.

Response to: Bloody Hell Turd
Turd Ferguson's picture

On the bright side

MODERATOR

Just as we've been expecting, Bitcoin is surging toward $1300 and likely beyond. This does NOT make up for the damage to my miner portfolio today but it's nice to see something in the green...

Dr Jerome's picture

Decision time

I have been holding JNUG all the way through the past week, even adding to my position at sub $10. Of course, in retrospect, I should have set a reasonable stop and watched all this recent miner carnage  from the sideline, like I did last November-December. A few minutes ago, I check the price and here it is a $6.66. "Surely it cannot go lower," I say to myself.

But times may be changing. The markets seem disconnected. Gold has been resilient, stocks roaring higher--except the mining sector. And now today, metals are being taken to the woodshed.  (better go check prices). AU has been turned back before it broke through its 200. Now silver is being pushed lower to break down below its 200 day MA.

Emotions can control our actions

  • Metal fails to break above 200 day: disappointment--I'm holding
  • Metals move lower: denial: I'm holding
  • Metals moves lower: frustration--Ain't no manipulater shakin' me out
  • Metal moves lower: self-doubt--maybe I should get out? ... No. I'll be strong and hold.
  • Metal moves lower: anger-- Oh screw it, I'll book my losses and look for a lower re-entry point

I think I have entered the anger range today. Trying to decide to hold or exit, just like the "rat-bastard" manipulators want me to do so they can scoop up my shares cheap. but I want to become a more mature, stable trader who does let emotion dictate trading actions.

Two years ago, I blew out my account with stubborn holding.

Chancey's picture

Sad

This is really sad. Miners and the metals really getting beaten down.

Now if I can just get through my day without letting this affect me.

LostMind's picture

Well, there goes all remaining

Well there goes all remaining hopes of convincing anyone to get out of the Stawk Market and into metals... No one, and I mean no one I know, will ever listen to this advice again.

Curious is if our sanity will survive the ability of the cabal to short the market into oblivion... F'ing amazing!

canary's picture

How nasty and opportunistic they are

Knowing that five goons will speak tommorrow (Evans, Lacker, Pawell, Yellen, Fisher)...And that Yellen (1PM) will deliver the "final confirmation" for the March rate hike....they smashed silver today, expecting a follow-up avalanche tomorrow....Hope that a meteorite hit their FOMC meeting one day (March 14, 15 preferably).

goldcom's picture

So what are we going to do Turd?

Are we going to turn this site into a Bitcoin crypto currency site?

goldcom's picture

Sorry Turd

Sorry about that last post Turd. I think there is a whole lot of frustration here today. Certainly is for me.

Marchas45's picture

Turd That It's

Heading Down To $17.25  and don't take everything personal. Do I always have to put a Lol after everything I say so you know I'm only joshing. Lol

Dr. P. Metals's picture

But...

miners never lead metals

/sarc

joeblack's picture

Bitcoin is

a derivative of a computer algo

no thank you

jaba's picture

Maguire

I always find Maguire's interviews interesting, logical and persuasive.

But each time over the last year or so, whenever Maguire has stated that the sovereign and hedge funds have bids just below the market price, thus limiting the bullion banks' ability to bomb the price and cover their shorts, the bullion banks seems to go out of their way to prove him wrong and blitz the price.

What happens to all those sovereign and hedge fund bids? It seems that the paper dog can still wag the physical tail when it counts - at inflection points.

From a psychological point of view the bullion banks are experts at demoralising the PM investors.

Dr. P. Metals's picture

Comparison

1 monster box of BTC in 2013 = $17,460 (approx)     1 monster box BTC today = $640,000 (approx)

1 monster box of AG in 2013 = $14,000 (approx)       1 monster box AB today = $8900 (approx)

...

1 monster box ETH today = $9500                                 1 monster box ETH 2019 = ?

Edit: My point here isn't gloating at all, because I missed the boat also. but in hindsight, would it REALLY have killed any of us to diversify just ONE box of Ag into an alternative a few years ago? no...and look at the rewards. May go to $0 tomorrow, who knows, but a little diversification even if you "hate btc" might be prudent. The banksters have proven TIME AND AGAIN that they will NEVER EVER let the manipulation cease on metals, until the system has crashed. Last week, a chart was posted where the 13 YEAR trendline was give, where the 100 (200) ma was on it, an when it was breached, a 10 year bull market took of. We are at that trendline again, do you REALLY think they will EVER allow that line to be breached again, EVER?

Syndicate contentComments for "Early Aught Perspective"