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This morning I posted a challenge to Brad Zigler of Hard Assets Investor, I asked him point blank, “Pontificating aside, where do you stand in relation to Gold? Both short term and long term? No charts or arguments just a simple statement I believe Gold will…”. This was in relation to the 1st article below and comments (included); our answers back and forth (highlighted).
Today Gold is trading currently up $4.40 at $947 (April Contract). It has been as high as $17 up and as low as $946 currently trading at the lower end. We have strong support at the $930 level and if we close above $950 today then I believe next week we’ll see a return to test the $1000 level again.
The 2nd article is from GATA and government intervention/supression of Gold prices. Read my comment after Brad’s article for my short to long term call for Gold. I am getting ready to re-enter my DGP trade again and will be watching the market closely. If we do break resistance here then I will actually go short (buy DGZ) on the Gold market for a very short term trade as I think (if the resistance is broken) then we will go back and test support at $925 and then $880-$890 level. If we close above the $955 level then I will go long for the test of the $1000 level then the next test at $1033 all time high.
Disclosure: I am long in a couple of Precious Metals Mutual Funds, long Gold and Silver Bullion, and many of the Tier 1, 2, and junior mining stocks. Otherwise,as you can see I use DGP or DGZ for the short term moves in gold.
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Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account– just click here and then again on the Gold Bar!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.comNow the article by Brad…
Gold’s Devilish Advocate – Seeking Alpha
By: Brad Zigler of Hard Assets Investor.com
U.S. Monetary Inflation And Gold
Dollar interest rates bottomed just before the Obama inauguration and have steadily gained ground since then. Rising rates are like lipstick: A judicious dose can enhance the beauty of a currency; too much, and it looks tawdry. There’s nothing tawdry, though, about the 18-point rise in the dollar LIBOR over the last month. It’s sustainable and makes the buck even more attractive.
Dollar Interest And Gold Lease Rates
The gold lease market belies the shortage scenario played up by many market pundits. Gold lease rates have been falling precipitously as the contango reflected in forward rates has been rising. Contango exists when supplies are plentiful. The current oil market provides testimony of that. The gold market – at least the commercial gold market – gives every indication of being well-supplied.
Relative strength in gold futures crossed into overbought territory when the spot contract topped $1,000 last week. The peak, if not exceeded, would represent an interim double top and confirmation that the March 2008 high is likely to hold.
COMEX Futures Open Interest
Commercial hedgers are still driving gold futures pricing. Aggressiveness on the part of large speculative buyers has actually waned as prices moved higher. Over the past month, net long speculative positions rose 34% while commercial net shorts picked up 40%.
Think back to the events surrounding gold’s March 2008 peak and ask yourself this: “Have economic conditions improved or worsened since then?” I think it’s fair to say our financial troubles have deepened. If that’s true, and if gold is a safe haven, why hasn’t the metal made new highs?
This is by no means an exhaustive analysis, but it does raise essential questions that gold bulls should be prepared to address when making their case for higher prices.
Don’t expect to hear the answers in the late-night infomercials hawking gold, though.
- one cannot decipher a puzzle without having all the pieces.i think you lack a lot of other data to put together a whole picture of where gold stands.there are quite a few people in the world who have collected the all pieces of the puzzle and deciphered the truth behind gold! you are obviously not one of them.i think either you purposely hand-pick the set of charts with very limited time frame to drive your point home or ……
You’re offering a complaint, not a refutation. What, specifically, is wrong with the arguments advanced?
On Feb 27 06:10 AM JudeJin wrote:
> one cannot decipher a puzzle without having all the pieces.
> i think you lack a lot of other data to put together a whole picture
> of where gold stands.
> there are quite a few people in the world who have collected the
> all pieces of the puzzle and deciphered the truth behind gold! you
> are obviously not one of them.
> i think either you purposely hand-pick the set of charts with very
> limited time frame to drive your point home or ……
and any equity or real estate investment.
It could drop.. I’m not that smart to predict.
IMO the drop is after the economy recovers and that could take years at
this point. It’s a safe haven and a trade against the dow.. I see the dow
much lower.. so gold should at minimum hold it’s ground and perhaps
rise towards 1500-2000, based on historical trends.
In troubled times we humans tend to get religion and go back to
ancient methods of survival.. gold fits that scenario.
1. NYMEX open interest for April exceeds open interest for all other months. ETF effect?
2. India is not importing gold anymore. Regular buyer of 30% physical gold is out of the market.
Jeff Schulman Sr aka jschulmansr
here are, however, technical indicators such as the Relative Strength Index and stochastics which identify certain market levels as overbought or oversold.
A double top is a price level reached a couple of times by a market as it attempts to rally higher but can’t be hurdled. The failure sets up a decline.
About gold leases. Often, nefarious intente is ascribed to central bank swap activity. But leasing can be simply a way to garner a return on an otherwise sterile asset as well as a way to stimulate lending and investment activity.
Outright borrows of bullion by bank customers tend to increase when bearish sentiments prevail. In essence, the borrower doesn’t want to face the prospect of buying back gold at a higher price to close out the loan.
With that in mind, the market may already favor shorts BEFORE leasing.
On Feb 27 09:25 AM craigdude wrote:
> Brad- could gold be controlled by governments leasing gold and selling
> to keep lid on prices?–please explain double top and overbought
Ps- I guess I should have added I think your articles are very well written and thought provoking. I make mention of and use your stuff on my blog quite often, but recently I have not heard your outlook for Gold. I do agree we are at a crossroads here, we may see more retracement. I think we are about to see Gold go and test it’s all time highs. Failure there I think will mean a retracement potentially as low to $880 to $890. If we clear due to manipulaton and where the short interest got in at there will be sttrong pressure to bring down prices at the $1050 level. If that hurdle is cleared I think that the banks who are short will give up and cause a very violent spike upwards “shortcovering rally”. After all they can afford to give in now as they figure they can get their money back thru Government stimulus, TARP, and bailout funds. Long term however, I do feel with inflation runnng a tad higher than what you are currently stating,and the fact that the monetary printing presses are running full steam round the clock; that longer term we will see inflation even hypr and/or stagfaltion. In other words get your wheelbarrow to haul your money around to go shopping for a “loaf” of bread. I truly think that prices of $2000 to $3500 oz are not unrealistic given the aforementioned scenario. What is your opinion in regards to this? Maybe even a special article?- Thanks Again- Jeff Schulman Sr aka jschulmansr
As February’s expiry approached, open interest rolled to the next active month in the cycle–April. Yes, some of that is ETF interest (namely, DBG, the PowerShares DB Gold ETF). It doesn’t, however, include the SPDR Gold Shares (GLD) or the iShares COMEX Gold Trust (IAU). These trusts hold physical metal, not futures.
On Feb 27 10:31 AM Alex Filonov wrote:
> Couple more data points:
> 1. NYMEX open interest for April exceeds open interest for all other
> months. ETF effect?
> 2. India is not importing gold anymore. Regular buyer of 30% physical
> gold is out of the market.
But as “melt-down” insurance, gold has performed exactly as advertised. I see no indication that it will somehow stop acting this way. If the markets fall off another cliff, obviously gold will do well.
Diversification has always been a prudent strategy. That hasn’t changed, but gold’s importance to a diversified portfolio has changed. Some investors have recognized this out of prudence, not panic, and acted accordingly.
I’m long, but if gold goes to $500 from here, you won’t hear me whining about it.
Ex-Treasury official confirms gold
5p ET Tuesday, February 24, 2009
Dear Friend of GATA and Gold:
In an essay published today at Counterpunch.org, former Assistant Treasury Secretary Paul Craig Roberts confirms that the U.S. government has been leasing gold to suppress its price and support the dollar. The admission is made in the last paragraph of the essay, which is appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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Doomed by the Myths of Free Trade: How the Economy Was Lost
By Paul Craig Roberts
Tuesday, February 24, 2009
The American economy has gone away. It is not coming back until free trade myths are buried 6 feet under.
America’s 20th century economic success was based on two things. Free trade was not one of them. America’s economic success was based on protectionism, which was ensured by the union victory in the Civil War, and on British indebtedness, which destroyed the British pound as world reserve currency. Following World War II, the US dollar took the role as reserve currency, a privilege that allows the US to pay its international bills in its own currency.
World War II and socialism together ensured that the US economy dominated the world at the mid-20th century. The economies of the rest of the world had been destroyed by war or were stifled by socialism [in terms of the priorities of the capitalist growth model: Editors.]
The ascendant position of the US economy caused the US government to be relaxed about giving away American industries, such as textiles, as bribes to other countries for cooperating with America’s cold war and foreign policies. For example, Turkey’s US textile quotas were increased in exchange for overflight rights in the Gulf War, making lost US textile jobs an off-budget war expense.
In contrast, countries such as Japan and Germany used industrial policy to plot their comebacks. By the late 1970s, Japanese auto makers had the once dominant American auto industry on the ropes. The first economic act of the “free market” Reagan administration in 1981 was to put quotas on the import of Japanese cars in order to protect Detroit and the United Auto Workers.
Eamonn Fingleton, Pat Choate, and others have described how negligence in Washington aided and abetted the erosion of America’s economic position. What we didn’t give away, the United States let be taken away while preaching a “free trade” doctrine at which the rest of the world scoffed.
Fortunately, the U.S.’s adversaries at the time, the Soviet Union and China, had unworkable economic systems that posed no threat to America’s diminishing economic prowess.
This furlough from reality ended when Soviet, Chinese, and Indian socialism surrendered around 1990, to be followed shortly thereafter by the rise of the high speed Internet. Suddenly American and other First World corporations discovered that a massive supply of foreign labor was available at practically free wages.
To get Wall Street analysts and shareholder advocacy groups off their backs, and to boost shareholder returns and management bonuses, American corporations began moving their production for American markets offshore. Products that were made in Peoria are now made in China.
As offshoring spread, American cities and states lost tax base, and families and communities lost jobs. The replacement jobs, such as selling the offshored products at Wal-Mart, brought home less pay.
“Free market economists” covered up the damage done to the US economy by preaching a New Economy based on services and innovation. But it wasn’t long before corporations discovered that the high speed Internet let them offshore a wide range of professional service jobs. In America, the hardest hit have been software engineers and information technology (IT) workers.
The American corporations quickly learned that by declaring “shortages” of skilled Americans, they could get from Congress H-1b work visas for lower paid foreigners with whom to replace their American work force. Many US corporations are known for forcing their US employees to train their foreign replacements in exchange for severance pay.
Chasing after shareholder return and “performance bonuses,” US corporations deserted their American workforce. The consequences can be seen everywhere. The loss of tax base has threatened the municipal bonds of cities and states and reduced the wealth of individuals who purchased the bonds. The lost jobs with good pay resulted in the expansion of consumer debt in order to maintain consumption. As the offshored goods and services are brought back to America to sell, the US trade deficit has exploded to unimaginable heights, calling into question the US dollar as reserve currency and America’s ability to finance its trade deficit.
As the American economy eroded away bit by bit, “free market” ideologues produced endless reassurances that America had pulled a fast one on China, sending China dirty and grimy manufacturing jobs. Free of these “old economy” jobs, Americans were lulled with promises of riches. In place of dirty fingernails, American efforts would flow into innovation and entrepreneurship. In the meantime, the “service economy” of software and communications would provide a leg up for the work force.
Education was the answer to all challenges. This appeased the academics, and they produced no studies that would contradict the propaganda and, thus, curtail the flow of federal government and corporate grants.
The “free market” economists, who provided the propaganda and disinformation to hide the act of destroying the US economy, were well paid. And as Business Week noted, “outsourcing’s inner circle has deep roots in GE (General Electric) and McKinsey,” a consulting firm. Indeed, one of McKinsey’s main apologists for offshoring of US jobs, Diana Farrell, is now a member of Obama’s White House National Economic Council.
The pressure of jobs offshoring, together with vast imports, has destroyed the economic prospects for all Americans, except the CEOs who receive “performance” bonuses for moving American jobs offshore or giving them to H-1b work visa holders. Lowly paid offshored employees, together with H-1b visas, have curtailed employment for older and more experienced American workers. Older workers traditionally receive higher pay. However, when the determining factor is minimizing labor costs for the sake of shareholder returns and management bonuses, older workers are unaffordable. Doing a good job, providing a good service, is no longer the corporation’s function. Instead, the goal is to minimize labor costs at all cost.
Thus “free trade” has also destroyed the employment prospects of older workers. Forced out of their careers, they seek employment as shelf stockers for Wal-Mart.
I have read endless tributes to Wal-Mart from “libertarian economists,” who sing Wal-Mart’s praises for bringing low price goods, 70 per cent of which are made in China, to the American consumer. What these “economists” do not factor into their analysis is the diminution of American family incomes and government tax base from the loss of the goods producing jobs to China. Ladders of upward mobility are being dismantled by offshoring, while California issues IOUs to pay its bills. The shift of production offshore reduces US GDP. When the goods and services are brought back to America to be sold, they increase the trade deficit. As the trade deficit is financed by foreigners acquiring ownership of US assets, this means that profits, dividends, capital gains, interest, rents, and tolls leave American pockets for foreign ones.
The demise of America’s productive economy left the US economy dependent on finance, in which the US remained dominant because the dollar is the reserve currency. With the departure of factories, finance went in new directions. Mortgages, which were once held in the portfolios of the issuer, were securitized. Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.
In pursuit of ever more profits, financial institutions began betting on the success and failure of various debt instruments and by implication on firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets.* [See footnote.)
The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.
This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.
The US government should never have used billions of taxpayers’ dollars to pay off swap bets as it did when it bailed out the insurance company AIG. This was a stunning waste of a vast sum of money. The federal government should declare all swap agreements to be fraudulent contracts, except for a single swap held by the owner of the asset. Simply wiping out these fraudulent contracts would remove the bulk of the vast overhang of “troubled” assets that threaten financial markets.
The billions of taxpayers’ dollars spent buying up subprime derivatives were also wasted. The government did not need to spend one dime. All government needed to do was to suspend the mark-to-market rule. This simple act would have removed the solvency threat to financial institutions by allowing them to keep the derivatives at book value until financial institutions could ascertain their true values and write them down over time.
Taxpayers, equity owners, and the credit standing of the US government are being ruined by financial shysters who are manipulating to their own advantage the government’s commitment to mark-to-market and to the “sanctity of contracts.” Multi-trillion dollar “bailouts” and bank nationalization are the result of the government’s inability to respond intelligently.
Two more simple acts would have completed the rescue without costing the taxpayers one dollar: an announcement from the Federal Reserve that it will be lender of last resort to all depository institutions including money market funds, and an announcement reinstating the uptick rule.
The uptick rule was suspended or repealed a couple of years ago in order to permit hedge funds and shyster speculators to ripoff American equity owners. The rule prevented short-selling any stock that did not move up in price during the previous day. In other words, speculators could not make money at others’ expense by ganging up on a stock and short-selling it day after day.
As a former Treasury official, I am amazed that the US government, in the midst of the worst financial crises ever, is content for short-selling to drive down the asset prices that the government is trying to support. No bailout or stimulus plan has any hope until the uptick rule is reinstated.
The bald fact is that the combination of ignorance, negligence, and ideology that permitted the crisis to happen still prevails and is blocking any remedy. Either the people in power in Washington and the financial community are total dimwits or they are manipulating an opportunity to redistribute wealth from taxpayers, equity owners and pension funds to the financial sector.
The Bush and Obama plans total 1.6 trillion dollars, every one of which will have to be borrowed, and no one knows from where. This huge sum will compromise the value of the US dollar, its role as reserve currency, the ability of the US government to service its debt, and the price level. These staggering costs are pointless and are to no avail, as not one step has been taken that would alleviate the crisis.
If we add to my simple menu of remedies a ban, punishable by instant death, for short selling any national currency, the world can be rescued from the current crisis without years of suffering, violent upheavals and, perhaps, wars.
According to its hopeful but economically ignorant proponents, globalism was supposed to balance risks across national economies and to offset downturns in one part of the world with upturns in other parts. A global portfolio was a protection against loss, claimed globalism’s purveyors. In fact, globalism has concentrated the risks, resulting in Wall Street’s greed endangering all the economies of the world. The greed of Wall Street and the negligence of the US government have wrecked the prospects of many nations. Street riots are already occurring in parts of the world. On Sunday February 22, the right-wing TV station, Fox “News,” presented a program that predicted riots and disarray in the United States by 2014.
How long will Americans permit “their” government to rip them off for the sake of the financial interests that caused the problem? Obama’s cabinet and National Economic Council are filled with representatives of the interest groups that caused the problem. The Obama administration is not a government capable of preventing a catastrophe.
If truth be known, the “banking problem” is the least of our worries. Our economy faces two much more serious problems. One is that offshoring and H-1b visas have stopped the growth of family incomes, except, of course, for the super rich. To keep the economy going, consumers have gone deeper into debt, maxing out their credit cards and refinancing their homes and spending the equity. Consumers are now so indebted that they cannot increase their spending by taking on more debt. Thus, whether or not the banks resume lending is beside the point.
The other serious problem is the status of the US dollar as reserve currency. This status has allowed the US, now a country heavily dependent on imports just like a third world or lesser-developed country, to pay its international bills in its own currency. We are able to import $800 billion annually more than we produce, because the foreign countries from whom we import are willing to accept paper for their goods and services.
If the dollar loses its reserve currency role, foreigners will not accept dollars in exchange for real things. This event would be immensely disruptive to an economy dependent on imports for its energy, its clothes, its shoes, its manufactured products, and its advanced technology products.
If incompetence in Washington, the type of incompetence that produced the current economic crisis, destroys the dollar as reserve currency, the “unipower” will overnight become a third world country, unable to pay for its imports or to sustain its standard of living.
How long can the US government protect the dollar’s value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? Given the incompetence in Washington and on Wall Street, our best hope is that the rest of the world is even less competent and even in deeper trouble. In this event, the US dollar might survive as the least valueless of the world’s fiat currencies.
*(An excellent explanation of swaps can be found here.)
Paul Craig Roberts was assistant secretary of the treasury in the Reagan administration. He is coauthor of “The Tyranny of Good Intentions.” He can be reached at PaulCraigRoberts@yahoo.com.
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Have a Great Weekend! Keep your eyes open for a special weekend post. Good Investing! jschulmansr
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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. – jschulmansr