Well, it’s been a bad 5 months. Gold has mostly just gone back and forth, and gold bugs are wringing their hands in frustration. But this is the problem with using intuition in the markets. One intuitively remembers the recent past, and one forgets the larger picture. This is the big advantage of using charts. So let us look at a chart of this bull market going back to its start in early 2001 just slightly above $250.
Well how about that gold bugs? Gold has multiplied by more than 4 times over the past decade! Viewed in the big picture gold has been steadily going up. And how well has the typical establishment follower done over the past decade? Well, we might take the S&P 500 as our measure. Over the past decade, the S&P 500 has declined by 25%. Now what would you prefer – 300% up or 25% down?
Of course, this is being too kind to the establishment. The real establishment person did not follow the S&P. The real establishment person followed the New York Times. He faithfully obeyed the New York Times, and he does not even know that the New York Times exists. (You see, the reporter on his hometown paper faithfully echoes the opinions of the Times, and so millions of Americans follow these opinions without even knowing from whence they come.)
Well, what did the New York Times say over the past decade? In 1999, they published the book, “Dow 36,000,†by Glassman and Hassett predicting that the Dow Jones Averages would go to 36,000 (from its then level of 10,000) in 4-6 years (i.e., between 2003 and 2005).
What the New York Times did over the past decade was to buy their own stock early in the decade, when it was near 40. After all, they are the greatest economists, and their company is the greatest company. What could go wrong? Now the New York Times stock is at 11, and a year ago it was down to 4 – a 90% loss. They had to mortgage their new headquarters and take a loan from Mexican billionaire, Carlos Slim.
So who was better off, the gold bug or the establishment? The gold bug has 4 times as much wealth. He lives in a fine house and has a lot more stuff. He is surrounded by beautiful women. (Note to beautiful women. Gold bugs make good catches as they can treat you in the manner to which you would like to become accustomed.) On the other hand, if you are an establishment follower, you can go to parties, stick your nose in the air and pretend that you are one of the elite. Since everyone else at the party has read the same New York Times opinions, they will be struck by your great wisdom, and when you prove disastrously wrong, they will quickly erase that fact from their minds.
Going back to the chart of gold the chart makes us recognize the big picture. And the big picture is a gradual uptrend (which over the decade amounts to considerable). This is crucially important, and it cannot be said too many times: THE BIG MONEY IS MADE IN THE BIG MOVE. And yet we are all sorely tempted to remember the small move (because it is fresh in our minds). As you can see, the fluctuations of the past 5 months are just a minor detail. Soon they will give way to another up move (such as the rally of September, October and November of last year). This will be followed by another round of profit taking, etc.
One of the characteristics of the gold chart, which strikes even the casual observer, is the steadiness of the up trend. Chartists tend to be too mathematical and like to draw precise lines. But you probably get a more honest picture if you stand back and get an intuitive notion of the trend. For example, I have drawn two trendlines, AB (from 2001 to 2005) and BC (from 2005-2008.) An up trendline is drawn connecting two low points. To complete the picture, we select a prominent high point and draw a line through it parallel to the original trendline. Thus through D we draw a line parallel to AB, and through E we draw a line parallel to BC. These lines represent the top of the channel.
For example, when gold got above the line through D in early 2008, this was a signal that gold was (temporarily) too high. Together with other signals this allowed me to put out a sell signal on March 7, 2008. In essence, when gold is near the bottom of the channel (near the trendline), it is a good time to buy. When gold is near the top of the channel, it is a good time to step away and take profits. If you just interpret the lines roughly, then they give you useful information, and together with other signals you can get out close to an intermediate high. It was the same type of thinking which led to my sell signal (special bulletin) of Dec. 2, 2009. Now with the decline from $1,229 and the passage of time, gold has pulled back from the top of its channel.
A very important line (not drawn) extends from point E through $1,000, horizontally through 2008-09. This line was broken in October 2009 as gold moved above $1,000. When a technical pattern makes such a breakout, it is normal behavior to pull back to the break out point one last time before making its real advance. Thus, my original expectation (after the Dec. 2009 top) was for a pull back to $1,000.
But I argue in the April 2, 2010 issue of the One-handed Economist that this is one of those rare exceptions where the pull back does not go all the way to the breakout point, that the intermediate bottom has been made (at $1,050, not $1,000) and that we are ready for another leg up. Thus, I expect the gap between $1,050 and $1,000 to remain open, and this is such an unusual event that it must be regarded as a very powerful (in this case bullish) signal. The final proof that the gap has remained open will be a move in gold above the Dec. top at $1,229, and this event (together with the break above $1,000 back in October) will be a second signal that gold is in a massive, long term bull move.
In other words, dear gold bug, you ain’t hardly seen nothing yet.
Another very exciting fact, which supports the bullish argument above, is the sharp drop in bonds which occurred near the end of March. It makes the bond chart look like a developing head and shoulders top. This top has not yet broken down (which will occur on a break below 112). But if it does break down, the implications are awesome.
You see, bonds and commodities traditionally move opposite to each other. There are a few exceptions to this. Say that bonds and commodities move opposite on the major term but differ from this pattern to signal a grand cycle move. For example, in 1972, as commodities were just getting started on their grand cycle upswing bonds were flat for a year as commodities moved up. This ability of commodities to outperform inverse bonds foreshadowed a very powerful rise in commodities, which occurred in 1973-74. During this time gold moved from $65 to $196. Conversely in 1981 commodities dropped sharply in the face of a continued fall in bonds, and this signaled the grand cycle drop in commodities of the 1980s and ‘90s.
Thus far, commodities have moved aggressively higher in the face of a flat bond market (2003-10). If we now get a declining bond market, commodities should explode, as they did in 1973-74.
What these considerations are telling us is that all the fundamental information which has been coming in since 1981 about the mismanagement of the U.S. economy is correct. It is merely that there is a long time between cause and effect. Ronald Reagan doubled the U.S. money supply. Bush Sr. and Jr. kept on printing money. The Treasury bill rate went from 16% to 0%. All of these distortions have to have their effect. Well, the bill has come due, and – as Ayn Rand predicted – it is marked “ACCOUNT OVERDRAWNâ€
The vast majority of people do not understand what is happening. The printing of money is a counterfeiting racket run against them by their own government. To avoid being robbed, they must be in gold. This is why every organ of establishment opinion denounces gold and tries to scare you away from it. If you value your hard earned wealth, do not listen to them
You have made your way in the world by specializing and becoming very good in one specific area. You then trade your expertise, via the use of money, I too specialize, but my specialty is the field of economics – monetary economics. Now is a time when we need each other. I understand the cause and effect relations when our own government depreciates its currency, and I can see these effects working themselves out in the markets in the real world.
What I have to offer you is my fortnightly (every two weeks) newsletter analyzing the financial markets with special attention to the precious metals. When the dollar goes down, gold goes up. When the dollar goes up, it’s just a short term move because, in the days of Barack Obama, dollars pretty much do grow on trees.
My newsletter is the One-handed Economist ($300 per year). You may subscribe by going to my website, www.thegoldspeculator.com and clicking on the Paypal button. Or you may subscribe by sending a check via the U.S. mail to: The One-Handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. (There is a $10 discount for paying via mail. So send $290.) Thank you for your interest.
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Comments….. Gold should not be looked at as a commodity that should be traded on a regular basis. Rather it should be looked at as a way to preserve your wealth against inflation. If you choose to trade gold as such you could easily loose your shirt while getting caught in the up and down swings.Buy and hold and when SHTF you will have something of value to get you through the hard times, take possession of the physical gold and you will sleep  better at night. The advice this guy gives will put you in the poor house, for the gold that is being traded only exists on paper and in your mind.
I dont trust gold. Its dangerous to buy anything at its high. Too many people and companies are pumping it up. I would buy silver any day over gold at these prices. When it comes to bartering, silver will do just as well!!
Gold has generally gone up, thus it’s more than served its purpose for me … as an insurance policy.
If someone goes into gold as a speculator…. then they deserve whatever happens.
It’s short term versus long term. Apples & oranges.
The fact is, short term speculators tend to screw up everything.
They are the bane of markets.
TONY : I agree 100% , Silver is a better buy than gold , especally for those of us who don’t have a lot of disposable money to buy gold . And when the bad things begin to happen silver will increase in value just as gold will .
Comments…..Don’t worry, the Feds will confiscate your gold if its price gets “too high”, just like they did during the Great Depression.
I don’t know anyone who can buy gold, let alone silver or any of that precious metal stuff. Most people I know can barely afford to pay the rent. So tell me Mr. Gold bug, what does that have to do with anything?
People today are struggling to buy food. Your talking about protecting your wealth. You wonder what’s wrong with this country.
We need more immediate Solutions instead all these what if scenarios because I don’t know if you’ve noticed but the S is H T F. It has been and will continue to until we the people get off our fat, lazy, money obsessed asses and do something about it.
Do you want to go out with a whimper? Or a bang?
Peace!
FOR : ED , I don’t believe thay will confiscate gold , they won’t have to , IF they outlaw its use as legal tender ! People would dump it fast if obama did that . Although more than likely a black market would spring up for gold , we will see what happens .
You all are victims of the same thing that has made economists and scientists look pretty foolish lately: considering everything in the world in the context of the last 50 years.  If your economics came from a textbook it is sadly inept. If your view of the world is based on events that took place more than 5 years ago you have no idea what you’re talking about.
Don’t get me wrong, I’m not trying to be a jerk, its just a fact. From 1950-1990 nothing changed too drastically (save for a few monumental things per decade), economically, technologically, socially, etc. Converseley the last 5 years have changed considerably more drastically than those 40 years. Smart Phones, Blu-ray, 2 market bubbles, govt healthcare. So any knowledge that you have of the world from even a 2005 viewpoint is horribly off base.
Here is the deal. There used to be Capitalism, open markets, free means of production. The antithesis to that was socialism/communism where the state controlled the means of production and evenly distributed commodity goods. And likely your view of the world is based somewhere between these two poles. Certainly all of economics is. But that is no longer the world we live in. The world we now live in and are heading deeper into is the one where THE MEANS OF PRODUCTION ARE UNIVERSAL AND EXTREMELY MARGINAL. Don’t believe me? Remember when a band went into a studio and recorded an album. The record company footed the bill in the tens of thousands of dollars for the effort. Then the album was pressed onto vinyl. Then a photographer designed a cool cover. Then it was packaged with inserts and sent to the local record store where you paid $10 bucks. This provided profits to multiple entities, and while representing a market price.   So what happens today? A band pays $200 bucks for SoundForge or something like it, produces a high quality digital recording in their basement, and distributes it for free over the internet.  And there is absolutely nothing about it that falls short of what you get from major label acts.  So as you can see an ENTIRE ECONOMY SUDDENLY CEASES TO EXIST.  And it is hardly just music facing this reality. Real estate agents, Cable TV, brick and mortar stores, Colleges, etc etc. None of these things have a meaningful existence any more. They still exist, a product of all of you clinging to the old ways, but they are totally unnecessary. All of the information taught in every college in the world is available online for free. This along with video recorded lectures of the subject matter by the worlds leading professors. So the 12 figure industry of universities in this country is just a bubble waiting to break.Â
So my point is this, if you are not considering this current reality in your projections and evaluations of the economy, currency, inflation and actual value of goods and services, you can be sure that your assertions are astoundingly wrong. We are headed into an economy with no precedent, where the existing rules don’t apply and few have the vision to truly assess and predict. Corporations will crumble with nothing lost. Look at the debacle that has befallen the recording industry, yet music is more available than ever before. Currencies will deflate as buying power increases and quality of life does too. All of the conventional economic and supply/demand relationships are being turned on their ear as we speak. Don’t fall prey to those committed to maintaining the old ways just to protect their their share of the pie.  Don’t be pushed into a course of action dictated by a 50 year old mentality not relevant today.  Our currency is already a full blown hoax. Nothing of tangible value backs it. It is just a holdover accounting tool for keeping rich people rich on paper. We are within a decade of it being a painful memory.Â
The new world will exist in direct defiance of the New World Order, and the old one too. Stop the gloom and doom over money. The days of free everything have already begun.  Currency is an oudated idea. I know you’re all calling me crazy now, but let it stew and you’ll see I’m right…
1) Gold was confiscated during the last depression because the US Dollar was still on a gold standard. Therefore, in order to devalue the dollar, FDR needed to take possession of large private gold holdings. Gold confiscation is no longer necessary for dollar devaluation, so the Feds needn’t bother.Â
2) Gold is already outlawed as legal tender in that it is against federal law to enter into a contract that requires payment in gold. When gold will really matter, federal law will not.Â
3) Silver is a screaming buy now as its historical ratio to gold is at absurd lows. In a crisis Silver will be more readily fungible than gold, because of its lower value per ounce. If you can get silver Eagles or Maple Leafs under $20 in your physical possession, you will never regret it.
Physical gold if you can afford it. Physical silver if you can’t afford gold. Both will increase significantly when the SHTF.
Gold will increase more during political or economic risk; or in the event of war (which is coming soon) because that is where the major players run when they smell risk in the air.
Silver will be better for barter and/or exchange during the CHANGES. Both are a good way to store a portion of your wealth through the CHANGES and then, only if, your other stored necessities are met.
Platinum and palladium are also good stores of value and increase in value as the world economy improves, due to their unique physical properties, hi-tech industrial uses, and rare occurance in the earth. Silver is also an important industrial metal and increases in value as global manufacturing picks up.
Traders will make money whether the price of all of these metals move up or down. That is what the price of these metals do, and that is what traders do. Bullion markets are sophisticated. The average “prepper” should not “trade” but buy what physical gold they can now, and sell some (down to their basis) when the price skyrockets during the coming Israeli / Iranian war, which we (US) will be dragged into.
Contrary to the Constitution, gold and silver are not legal tender, except as they are applied to coins of the realm. Bullion is a commodity. It does not qualify as legal tender.
When a black market springs up for gold and silver, you better be packing and armed to the teeth (AB71 / Mad Max). 🙂
Echo everyone’s comments about silver. It is the much better deal. When the gold-silver ratio is above 65:1 it is time to favor silver. At one time this ratio stood at 16:1. Should that ever happen again, well… you know where silver will be at. In addition, it has been estimated by the USGS that silver will be the first element to disappear, in as little as 10 years. Now I don’t know about anyone else, but a commodity that has a 5,000 year history as money, and whose thermal and electrical properties are unmatched by any other metal, and is the only known material that has known anti-bacterial properties, well this all sounds like the deal of not only a lifetime but all of human history. Throw in endless money printing and inflation and I see no limit to where silver could go.
pointless, an ounce of silver can be picked up at your local coin shop or at any number of online dealers for $20. I think everyone owes it to themselves to at least scrounge up enough to buy a few ounces despite having difficulty paying the bills.
Derek D, I think you’re right about universal means of production and marginal profits. The problem is that what good do free CDs and movies do us when we can’t afford to fill the oil barrel, or pay the electric bill? Last time I checked these means of production are tightly controlled unless you’re fortunate or wealthy enough to own a large solar array and/or oil field. I think many of the “consumer” things will continue to get cheaper and/or all but free. But the basics that we depend on, the food, the energy, materials, resources – these cannot be marginalized last time I checked. In fact it is directly the opposite, we will continue to pay more for them leading to a lower standard of living for most.