The recent gold upleg has proceeded
fairly predictably based on previous trends. Like the October correction
and consolidation the December correction and consolidation has laid a firm
foundation for the third round of the upleg.
FIRST ROUND
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.
For the rest of October we saw gold consolidate and
prepare for the second round of this upleg. The credit crisis
intensified with CIT and Dubai. Commercial real estate is still frozen
and about $600B needs to be refinanced during 2010. The spread between
2 and 10 year Treasuries has been getting omnious at highs not seen since the
early 1980’s.
SECOND ROUND
On 28 October 2009 with gold trading at $1,031, the lowest price since the
BNN interview, in Gold Party Intermission Nearly Over, I wrote:
While the probability for a profitable trade is not
nearly as high as it would be should the price relative to the 200dma be
significantly below the 200dma there is still room for the price to run as we
enter winter. The October intermission is likely coming to a close.
…
The current correction and consolidation of gold
appears to be within trend and expected based on the seasonality.
November is the strongest month and this recent correction on low
volume is laying a strong foundation for a large move upwards.
Within 26 trading days gold for LBMA delivery was
$1,218.75.
THIRD ROUND
Gold is currently trading at about $1,105 with a
50dma of $1,114.57 and a 200dma of $989.68 or a current price of 1.116x the
200dma.
There has been no substantive change to the quality
of US Treasuries and the Federal Reserve is failing with quantitative easing.
The Greater Depression is still being intentionally
exacerbated by the Obomba administration. States are in even worse
shape; so make sure you keep nothing in a safety deposit box or it may
end up on Ebay. The bond market, in the 28th year of a secular bull
market, is due for a secular bear market as real interest rates (using gold
as the presentation currency) continue rising.
One substantive change is that private ownership of gold now
surpasses officially reported central bank holdings.
Big players like John Paulson with over $4B in gold investments is
flanked by David Einhorn of Greenlight Capital and Paul T. Jones of Tudor Investments and the sheeplike investment
community is beginning to change its attitude towards the Ancient Metal of
Kings. Freedom is good for business and private gold ownership is good
for freedom.
As Ludwig von
Mises wrote,
It is impossible to grasp the meaning of the idea of
sound money if one does not realize that it was devised as an instrument for
the protection
of civil liberties against despotic inroads
on the part of governments. Ideologically it belongs in the same class with
political constitutions and bills of rights.
After seeing the record and the numbers I chuckle at
some of the Establishment ‘financial professionals’. For
example, in January 2009 on my article ‘How the Treasury Bubble Will
Burst and Why‘ at Seeking Alpha I received a comment from Alan Brochstein, CFA of AB Analytical Services and fellow
Gold Standard Contributor who provides analytical services for hire. He said,
“Trace, sorry, but this makes absolutely no sense…” This is
not surprising considering his 8 Dec 2008 article ‘Own Gold? Time to Fold‘
where he stated, “Gold remains a sucker’s bet…”
Since Mr. Brochstein’s article gold has
powered from $772 to $1,104. But gold is not a portfolio asset;
everything else is. For those who perform mental calculations of value using
gold as the numeraire the results are truly stunning and likely to lead the
market entrepreneur to be shell-shocked. It appears that following the
advice of most of these ‘financial professionals’ peddling paper
coupons was the real sucker’s bet. Scoreboard.
CONCLUSION
Everything appears in place for the third round of
gold’s upleg. The previous two rounds have followed the same
predictable pattern found during 2005 and 2007. The fundamental reasons
for owning gold have not changed. Quantitative easing is failing as little colored tickets evaporate, federal
budget deficits are ballooning, States are bankrupt, extremely respected
money managers are moving into bullion, the world needs a new reserve
currency and private ownership of gold is at record highs.
Sure, the third round of the upleg could not
materialize for any number of reasons such as interest rates being raised,
the mythical Cibola being discovered, etc. As the upleg progresses the
gold to silver ratio should probably close from the current 63.27 towards a
more normal 50-55. The better time to buy gold, silver or platinum was before the first or second rounds of
this upleg. But if the precious metals are absent from one’s
portfolio then the second best time to buy them is now although the real
bargain may be around $1,050-$1,080 but we may not see that. And by all
means, avoid the GLD ETF despite the caterwauling of the prospectus challenged illiterate apologists as it is
merely a paper ticket that struts around like the precious metal.
DISCLOSURES: Long physical gold, silver and platinum with no position the
problematic SLV or GLD 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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