...says
Gartman. From Forbes entry in the 'Running of
the Goldbugs, 2012' sweepstakes:
Bernanke
delivered the fatal blow to gold's ten year bull market, according to Dennis Gartman. Gold has been in bear territory since the summer
of 2011, when it topped out above $1,900 an ounce, with the latest post-FOMC
sell-off inflicting irreparable technical damage, he says.
Well close
Dennis. But let's fine tune a little: Unbridled panic-fueled momentum drove
gold unsustainably higher as it took a mini blow off and very predictable
correction. Gold is not broken in its secular bull market (and not
necessarily even the cyclical one out of 2008) by any rational technical
parameters. Not as of this writing and thus, not as of your little Forbes
piece with the alarmist headline. 'Irreparable technical damage' Dennis?
Where?
Technical
damage could come about but here's the thing, it has not yet come about. Why
the haste to make such a call good sir? And you Forbes; why pile on now when
everyone from Buffett to Bernanke himself is mowing down the poor,
under-armed gold bugs? If gold is so marginalized, why the big and seemingly
coordinated negative ad campaign?
The time to
have negative feelings was late last summer. The time to think like a
capitalist is now.
UBS' Edel Tully adds that markets' no-QE-for-now realization
will push gold even lower, probably down to $1,550 an ounce over the next
month.
Oh my... all
the way down to 1550? While that's a little under my initial support
parameter, it does not break the bull market. Next...
Over the last
couple of years, gold's precipitous, and continued, rise fueled causal
theories, with some investors attributing it to U.S. dollar weakness, others
to a safe haven trade in the face of widespread market turmoil, an inflation
hedge, or whatever they could correlate a chart with. The yellow metal,
though, appears as a Humean experiment in
causality, marrying no single trend.
What the #$%!
are you talking about you egghead? Okay, so you razzle dazzled us with a reference to David Hume. Dial
your head out of the clouds and down here to ground zero of the battle
between honest systems and corrupt, media perverted ones. David Hume, are you
kidding me?
Gold has
fallen nearly 9% since late February, trading at $1,628.5 an ounce on
Thursday in New York. Gold went on a rollercoaster ride over the last 12
months, rising to an all-time high above $1,900 last spring, then tanking
about 18% to December, then rising a further 15.5% to this February.
Gold is up
over 350% since I became involved in its market. Casino patrons can have
thrills on the amusement park rides of 18% and 15.5%.
According to Gartman, gold's latest price action confirms the trend
line has clearly been broken, indicating we've been in a bear market for 12
months, since it peaked. In Thursday's Gartman
Letter, "in retrospect it does appear that gold has not been in a bull
market but has indeed been in a bear market" since August 2011, when it
peaked above $1,900. "Since then," he added "each new interim
low has been lower and each new interim high has followed. How, we ask, had
we missed that fact!"
I agree with
you Dennis. But you need to define 'trend'. Is it a trend that ends the
secular bull market or just a trend that defines a mini cyclical bear or as I
would call it still, a downward consolidation of the unsustainable momo into the euro blow off? You know that in the hands
of the mainstream financial media the definition is simply going to be
"bear market" without any care about time frames and
sub-definitions of bear or bull markets like cyclical, secular, etc.
The catalyst
for that realization has been the Fed, specifically the latest FOMC meeting
and Wednesday's minutes from that meeting. In both, markets caught a glimpse
of a more optimistic Fed that, while keeping the option on the table, has
seen the necessity for a further round of quantitative easing reduced by the
improved economic performance. UBS' Edel Tully
adds:
"The
minutes painted a rather more optimistic view on growth, a more convincing
take on the basis for the decline in the unemployment rate and most
worryingly of all for gold, an acknowledgement by the Fed of the potential
for a change in the end-2014 forward guidance."
With the
Bernanke Fed guiding markets over the last couple of years, it should come as
no surprise that gold prices are very sensitive to monetary policy. Record
low interest rates amid a weak global economy pushed nervous investors out of
both risk assets and the safety of Treasuries. A weak U.S. dollar, along with
massive liquidity injections via QE, helped investors look to gold for it has
always been: a store of value.
"Do not
attempt to adjust the picture. We are controlling transmission. If we wish to
make it louder, we will bring up the volume. If we wish to make it softer, we
will tune it to a whisper. We will control the horizontal. We will control
the vertical. We can roll the image, make it flutter. We can change the focus
to a soft blur or sharpen it to crystal clarity..."
No QE3 and
higher interest rates before late-2014 would cause further damage to gold, as
it would signal an improving economic environment where capital should once
again channel into productive, and thus riskier, assets. Fed unwinding will
definitely deal a deadly blow to gold bulls, so the real question investors
should be asking is: are we out of the woods yet?
No QE3 and
higher interest rates would cause further damage to gold if the charade on
the yield curve can be maintained. Why are long term rates rising when
Bernanke has expressly stated that the Fed intends to buy those bonds? For
now, short term rates (don't look behind the ZIRP curtain where Fed Funds
money is being given away free of interest) are rising faster than long term
rates in all likelihood due to what the Fed has already stated it would do;
manipulate the curve by driving up short term rates (selling short term
Treasury bonds) relative to long term rates (buying long term bonds).
If the
gradual pace of economic improvement in the U.S. and the relative calm of
European markets persists, then the global economy
might be close to the edge of those woods. Bernanke has remained cautious,
noting downside risks still abound, while ECB chief Mario Draghi
was blunter on Wednesday saying risks are definitely skewed to the downside. Housing
markets in the U.S. remain depressed and labor markets, while healthier, are
still relatively weak.
I am not a perma bear. I was noting
economic improvement in February and taking email derision for it to
boot. I also noted
that the economic growth was caused by inflation. What I did not do was
plan for the devil that eventually came out in the details as Dear Leader
Bernanke did what no respectable policy maker has done before and decided to
just take over the operations of the US Treasury market, which means he had
the nerve to single handedly attempt to massage the unmeetable
obligations of the US Government in a way that paints a picture of economic
growth WITHOUT inflation. So regular market players got Goldilocks and honest
money advocates got ignominy.
Among the
best at illustrating the bear case is Peter Schiff of Euro Pacific Precious
Metals. "Don't catch the recovery fever" he told investors in his
daily newsletter, adding "the recovery is not only going to falter -
it's going to evaporate like the mirage it is!"
Schiff
expects substantially higher interest rates, which went untested in the
recent stress tests on banks, to blow the lid off major financial institutiosn. Large Wall Street names like JPMorgan
Chase, Citi, and Bank of America have relied on cheap money from the Fed to
keep operating. Rising inflation, as a consequence of money printing and bond
buying by the Fed, will force Bernanke to raise rates. From Schiff's
newsletter:
In fact,
higher interest rates are not only possible, but probable. The stress tests
assume long-term Treasury note yields stay under 1.8%; but that figure is the
current six-month low on the 10-year, which is already dragging along its
historical floor. As I write, yields are already up to 2.2%. The post-war
average is about 5.2% - high enough to crater today's banking system.
The stage is
set for gold to continue falling in the immediate-term. Higher interest rates
and an improved economic environment suggest it's time to put capital back to
work. The improving outlook does face substantial threats, though,
particularly the European sovereign debt crisis (which promises to flare up
again), which could stoke recessionary fears. Add Schiff's predicted
inflation, and you could see the yellow metal rally rise through the ashes
like the Fenix. At the end of the day, it all boils
down to the true strength of the economic recovery. Stay tuned.
Well, here we
have Peter being Peter. Peter gets a little excited. It comes down to this...
if Bernanke is able to continue screwing with the curve,
rising rates are likely to hurt gold. If he fails and the market wins out and
the yield curve begins to rise again, gold should benefit from rising rates.
Short of these scenarios, maybe what is on tap is that the precious metals
are forecasting a hard decline across the asset spectrum (with a hard decline
in yields, AKA a deflation blip) before gold again leads the way out of it
into the next inflationary up cycle. Patience and a noise filter are the best
tools now.
Manage risk
and understand the game; Forbes, Gartman, Buffett, Roubini, Bernanke... the whole lot of them. This is what
happens at the opposite pole to the damaging momentum and greed that drove
gold too far last summer and it is all part of doing business in markets that
operate as if in Wonderland as opposed to any sort of rational and healthy environment
that policy makers and media would have us believe actually exists.
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