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The exciting news
from the CFTC gold and silver
hearings seem to have coinincided with the predictable gold move. The past six months have had
tremendous events and it appears black swans are flying in flocks. Now the gold price appears poised to reach my
earlier predictions but this may
not be easily played for profit.
EARLIER PREDICTIONS
With gold trading
around $995 on 9 September 2009 in Gold Party Barely Started I wrote,
“This puts $1,300 gold and $25 silver within range without greatly
exceeding previous trading norms”.
Slightly later on 9
October 2009 with gold below $1,050 I was interviewed on
BNN:
BNN HOST: You said the credit
crisis has not been calmed but intensified. Why? … So as we get more
and more concerned with the top of that pyramid, the derivatives play, you
are talking about $1,300 bullion. How do you get to that figure?
TRACE: $1,300 bullion comes
from looking at the 200 day moving averages and where gold has consolidated
and where it goes based on the usual uplegs. It looks like we are following
the same thing that happened in 2004 with the rise in 2005, the consolidation
in 2006, which went to the rise in 2007, and the consolidation in 2008, and
it looks that it will lead to a similar rise in 2009 and 2010 which will take
gold to $1,300 which should be a little bit above its 200 day moving average.
But in the same trading ranges as we saw in 2005 and 2007.
SIX MONTHS OF BLACK
SWANS
In the last six
months many important events have transpired. The credit crisis intensified
with CIT, Dubai and looming sovereign defaults. Commercial real estate is
still frozen and about $600B needs to be refinanced during 2010. Massive
fraud is being revealed on a grand scale such as with the 2,000+ page report
on Lehman brothers. Greece is holding the Euro-zone hostage while Russia, as usual, most likely mass executed their political opposition. The spread between
2 and 10 year Treasuries has been getting omnious at highs not seen since the
early 1980’s. Haiti and Chile rocked out. Civil unrest is increasing
throughout the world from Bangkok to Paris. And to cap it off the CFTC gold
and silver hearings led to some amazing convergence of opinions between Mr.
Jeffrey Christian and GATA.
However, I did
slightly jump the gun on timing as this late Jan 2010 chart shows.
 
The consolidation
lasted longer than I anticipated. But that only leads to greater strength for
the upleg. And given the past events in the last six months, any of which
could lead to chaotic fingers of
instability, I would rather be a little early than a little late.
I still think the
probability of $1,300 gold in Q2 is very probable while $25 silver may not be
so likely; although there will likely be good returns in the white metal. Of
course, I still like platinum and the current gain is about $600/ounce from
when I recommended buying platinum.
JEFFERY
CHRISTIAN’S DANGEROUS IDIOICY
Zero Hedge did an excellent analysis
of Jeffery Christian’s interview on Financial Sense Newshour. Because Whiskey and Gunpowder recently featured my
article Survivialism In The
Suburbs and it stirred up some good discussion I thought I would hone in on
some of Christian’s comments that have been lost in the kerfuffle.
Mr. Christian said,
“If you look at fishes and
loaves of bread, the ratio of derivatives transactions to physical underlying
it’s 5 to 1; if you look at aluminum or copper it is
about 15 to 1.” During his CFTC testimony he downplayed the
implications of shortages, “Another thing is that there are any number
of mechanisms allowing for cash settlements”.
CASH SETTLEMENTS AND
EMPTY BELLIES
Using Mr.
Christian’s logic about always being able to use cash settlements instead
of delivery is ludicrous. How helpful is cash settlement of commodities for
the people in Haiti and Chile? But then again, Mr. Christian is from Goldman Sachs and their CEO thinks
they are ‘doing God’s work’. But last I checked while one
can eat cash, like they can eat gold, neither are very nutritious.
Government deficits
are generally funded by inflation. Inflation is used as a weak excuse for
ineffective price controls. Price controls lead to shortages. These
artificial, yet real, shortages lead to rationing. If shortages are too acute
and in this case if the Federal Reserve is unable to turn their colored
coupons or derivatives into actual physical loaves and fishes, like Jesus
did, then the shortages can and will lead to starvation and death.
The attempt by
government to disable the chief numeraire to mask the effects of inflation indirectly
acts as a price control on all goods and services; particularly raw materials
such as commodities which should be viewed as competing currencies. This
treasonous policy is fraught with tremendous societal risk. While no one
knows precisely how it will play out; my gold chips are on the outcome that
it will not end well.
GATA warned about
this in the WSJ advertisement:
The objective of this
manipulation is to conceal the mismanagement of the U.S. dollar so that it
might retain its function as the world’s reserve currency. But to
suppress the price of gold is to disable the barometer of the international
financial system so that all markets may be more easily manipulated. This
manipulation has been a primary cause of the catastrophic excesses in the
markets that now threaten the whole
world.
A LIFE HEDGE
As a basic life hedge
I recommend a three month supply of food and a 72 hour kit. These will provide protection against
the vast majority of probable scenarios. Just to be clear, for the extremely
dense ones, I recommend taking physical possession of the food and not
relying on another institution who engages in fractional reserve food storage
at a 100:1 or even 5:1 ratio. When I am hungry I do not appreciate a
waiter’s promise of cash settlement instead of my giant steak.
For the truly risk
averse who want to ensure the safety of their family then what is the 72 hour kit
for? To get somewhere else; like a cabin or for the lazy and social: La Estancia De Cafayate. As with
everything just weigh the risk and probability, perform your value
calculation and implement your decision. We all have different risk
preferences; for example some people want meteorite insurance but I do not.
CONCLUSION
The entire worldwide
financial and economic system is a Ponzi scam and will evaporate. No one
knows how this will play out but those who are farsighted and understand the
Austrian school of economics know this is extremely serious. I was in Chile a few weeks before the massive earthquake. Upon small hinges the wide arc of our
lives turn.
The massive
imbalances in the gold and silver markets and the entire worldwide economy
will not be quickly corrected nor easily played for profit. Too many adhere
to the cult of government
for that to happen quickly and without too much disruption. But Daybreakers is a good primer so simply be prepared with
every needful thing. Tell me, what do you think?
DISCLOSURES: Long physical gold,
silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the
platinum ETFs.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree
in Accounting from Brigham Young University, a law degree from California Western School of Law and studies the Austrian school of economics. He works as
an entrepreneur, investor, journalist and monetary scientist. He is a strong
advocate of the freedom of speech, a member of the Society of Professional
Journalists and the San Diego County Bar Association. He has appeared on ABC,
NBC, BNN, many radio shows and presented at many investment conferences
throughout the world.
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