Predictable Gold Upleg Starts A Little Late

Posted 11 Apr 2010

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.


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.


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.

Gold investment performance has been great. 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.


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".


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.


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.


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.