Yes, I am expecting some Hate Mail for This....

Hmmm.... Gold couldn't quite break the huge psychological ceiling of $1000/oz today.  It will.  Fairly soon, I'd be willing to wager.  But that will be its last gasp- just when the die-hard gold bugs victoriously wave their hands in the air.  There's been a lot of gold bugs around these days.

After that,a not-so-orderly decline.  To a price where the buyers of today feel disgust at best.  I'm going to illustrate my point on another level here.  Outside of the inflation/deflation argument for just a minute.

What if gold is a bubble?  What if gold has been a bubble for over 20 years, trying to unwind but held up by die-hard optimism of its followers.  And now that optimism seems to have spread around to hedge funds, central banks, et al.

That's the point where you want to start getting a little fearful.  Remember Warren Buffet's old saying - "Be greedy when others are fearful, and be fearful when others are greedy".   Well, as illustrated in yesterday's ETF inflows chart, I'm seeing a hell of a lot of greed. 

And don't for a minute think that this is a one-of-a-kind "investment attraction" scenario for gold.  That this is the only time in our lifetimes that we have seen this kind of attention.

What about the 1980's?  If you price out the high of gold in today's dollars you end up with about $2100!!  That is TWICE the amount of money suckers are paying right now.  What's even crazy there is actually MORE speculative money/credit still floating around out there and yet the price of gold isn't CLOSE to its all-time high. 

But, like I said before, what if gold is still unwinding a bubble?  What if we are actually seeing a long-long-term sentiment-based series of events playing out before our eyes under the clever ruse of an inflation-deflation scenario.

Like I said yesterday, I believe in gold 100% philosophically.  I believe it keeps people free and governments chained up, as they most certainly should be.

But I also have started thinking something else recently.  Allow me to explain.  (An ode to sweet visual aids, anyone?)

The Craziest thing about a bubble is the utter mania that characterizes each and every one during and to the height of the bubble.

When it's over, the market takes those gains away in a real hurry.

As you can see.

Looks kind of familiar, doesn't it? 

Maybe something like this as well...

Or This.  I have a personal price target of $25.00 for oil within the next 24 months.  I know, I know - hate mail here we come.

And of course This

And who in their right mind could possible forget This.  The driving factor behind some of "those" and many others not shown here...



Anyway, back to my main point.  After much ado.

Gold is in a mini-bubble of its own.  A sentiment bubble.  A psychological bubble.  Ask any guy or gal on the street if gold is going up or down, and what do they say?

I know what they say, because I have been saying it for years.  Except, now that everyone seems to be listening, I have a feeling it might be time for a change of tune.  For now.  And telling you that I think gold could see the unimaginably low price of $350 is the type of melody change I'm talking about here.

Call me crazy again in 2 years.  That's probably about the time people WILL be because I'm buying the stuff.

And that, dear readers,  is just the point.

Happy Long Weekend, all!

Derek.

The "Evidence- of-a-Top-Forming" (ETF) Piles oh so Sky-High

Interesting chart (courtesy of clusterstock.com) showing Gold ETF inflows over the past few years.

Sentiment is DANGEROUSLY high for the yellow metal at this point.  Just as we patiently await the slow (and most-likely oft-interrupted) not-so-eventually-"killing-us-softly" death of the US Dollar, our long-term philosophy holds strong on gold and silver even more.

That yellow metal will be so stratospheric in price that people will probably regret for all their lives they did not buy it.

But that point is certainly not today.  Why?  Because everybody thinks it is.  Ah, a visual demonstration, you say.  That's just what the doctor ordered!

As you can see, sentiment has been on a roaring trek for over 2 years now, with a 133% increase in gold investment coming in just the last year!

This is probably the last rush toward a top as the final few buyers are suckered in at these prices.


After that expect sentiment to wither away as all of the "Sky High!!" calls are proven false.  And it will wither quickly.  Once gold begins to turn back down people will begin to realize that right now, it's not quite so safe as they had thought.  And they will run to safer (or "Safer", I should say) places yet.

Namely, the USD in the form of US Treasury Bonds.

We should see gold clear down through the low it made last fall.  Once we hit that level, I will be a buyer at the first sign of overextended negative sentiment.  I will be buying gold when people are disgusted with it and think the whole pile of yellow metal is cursed.  When people spit on silver, I will wipe it off and buy it for myself.

It is hard for me to say that.  It really is.  On a philosophical level I believe in gold and silver.  On a moral level I believe in them.  On a "constrain-the-leech-that-is-government-tax-and-inflation" level I believe in them more strongly still.

But belief is what makes losers in markets, dear readers.  Belief is what clouds judgment and lets that pesky part of humanity called emotion into the game.  And emotion means you are running with the rest of the herd, feeling the same things.  We are all human, after all.

To trade, you must become alien.  You must be Gort or R2D2.  The only time you listen to your emotions in markets is so that you can do exactly the opposite of what they tell you.  When you feel cold iron fear running down your spine, that is the time to be looking for your entries.  When waves of euphoria and big smiles are all you see, the sell key should be your best friend.

Do not hold to philosophy, or wants, or hopes, or fears dear reader.  The market makes an Achilles' Heel out of all these things.  Instead, just listen to the market.  Because, remember, the market is people.  Lost and lots of people.

Happy Investing All.  Be prepared for one of the most interesting eras this entire planet has seen in a long, long time....

Derek.

Still Holding Support - The US Dollar, and Mark Faber makes me feel like a Star!

Just a quick one today.  Actually a quick TWO:

Despite news articles claiming the USD is dying (it's down almost a full point on the index today), there is some good news if you are a longer-term short-seller.  The USD has not broken out of the bottom of that triangle formation I showed you guys a few days ago.

See?

And number two - this video of Marc Faber thrown on Youtube today.  He's talking about the US dollar and how he expects both big moves in the Dollar over the next 10 days (breakout from the triangle, like I said a few days back), and how he also is expecting mid-term deflationary forces, and a sharp reversal of the highly over-extended sentiment (red this) of retail investors, economists, and fund managers all.

It's nice to have one of the worlds most successful traders on the same page as you are!  Not to mention this guy is generally very contrarian and on the starting post for major winning moves.  Smiles all!

Here's the vid if you are interested in listening to one of the world's best traders for a few minutes.  Well worth it.



Happy trading all!

Derek.

A Contrarian Perspective to Government

For readers of Investophoria, I'm sure it has been made abundantly clear the disgust with which the blog covers government action.  Generally governments are incompetent, stupid, greedy, corrupt, evil etc etc.  (which they most certainly are, when it comes to issues of money, social advancement, fairness, et al).

But there is a contrarian view that should also be acknowledged - one that shows that politicians are a very very specific breed of person who have an uncanny ability that a miniscule minority of all human brethren possess - even to a small degree.

Have a gander at this excerpt from Bob Prechter's "Independent Investor".  Bob is the world's foremost expert on Elliott Wave analysis and its application not only in financial markets, but to social activity in general.  He started the Socionomics Institute formally in 1999, and there have been some very interesting (and uncannily prescient) observations made by this man.

Not bad considering he started out playing for a rock band!

Here it is, as usual, for your viewing pleasure:

Anyway, just watching the market drama unfold today.  Pretty interesting stuff.  I might be back after the close sometime to comment.  Or not - there's grass to cut after all!

Enjoy your days, folks!

Derek.

Zombies and How They're Just so Damned Hard to Kill

The US Dollar. That famous piece of paper the world over. So much of the world's trade is done in USDs, and even more of its debt is held in these government-decreed "stores of wealth".

Although here at Investophoria we do anticipate the death of the US Dollar some day, we think it's like a zombie - it takes a lot of bullets to kill.

It looks like the last swath of gun-squad action wasn't nearly enough, the Federal Reserve throwing as many paper and electronic money bullets as possible without completely discrediting itself. Despite the barrage we seem to possibly have formed a bottom and are meeting in a triangle convergence.

What is so important about a triangle you ask? Triangles are the harbinger of death to many unwary investors. Those who can't see the giant red flashing lights because they have a blindfold on. This, dear readers, is a triangle:



Triangles can be both Bullish or Bearish (signal increases or decreases, respectively). It is the ultimate clash of sentiment and ideas, the perception duel. The triangle tells a story - the fight is vicious on both sides, and either both are equally vehement in their cause, or one is just a little more vicious than the other.

But there is one thing that a triangle has in common no matter WHICH direction it points to. When the battle comes to a head, no matter who wins, the victor will STEAMROLL on in their sworn direction - the move that follows a triangle is often breathtakingly violent - people can be made and broken after a triangle formation completes.

The USD triangle pattern forming on the chart is a very strong one that spans over 12 months. Many folks would call this a hard-to-pick triangle directionally because both sides are converging.



Triangles aren't an exact science, but they are certainly one bullet to add to your clip. Remember, trading is first and foremost about psychology, second about money management, and third about method. Many traders have the brains to make it easy, but they get clouded out by the emotions of having their money out there and make bad calls. These bad calls lead to burn-outs, as in it probably would have been less stressful if you'd just taken a match to your cash.

So if you are going to trade, DO IT RIGHT. Learn to be disciplined. Pick a few indicators that work well for the types of trades you are making. If you are investing, as opposed to trading, these tools are still useful because you can pick great entry points and get your companies cheaper than the average sucker hitting the buy key on a whim.

Anyway, back to the USD. Fundamentally it is a terrible, terrible currency. I've touched on this before and I probably will again because thinking of the long-long-term prospects for this currency (barring a surprise Ron Paul election in 2012!!) are somewhere between abysmal and hell-borne.

However, it is also the most widely over-inflated currency on earth - this is quite simply because there is just SO SO MUCH bad, rotten debt (and when I mean SO MUCH I could write that ten times and still not encompass the scope of it) all over the earth denominated in US Dollars. Trillions of this bad debt have yet to be written-down (the losses on loan portfolios realized - remember back in the spring when the government let banks change they way they valued these loans?). When these losses are realized that previous value (denominated in dollars) is gone. Poof.

This is short-term deflation of the money supply, and it will be violent. Will it outweigh the massive inflation of the government in the long term? Certainly not (Governments have proven their inflationary stupidity for over 2000 years of documented history!). However, in the short term, there is so much existing money (in the form of issued credit) to be vaporized that deflation is almost a 100% certainty.

This means the overall supply of dollars will decrease (this is the definition of deflation) relative to the overall supply of goods and services. This includes things like stocks, bonds, real estate, bread, milk. Actually let's keep that one short and sweet - everything.



The dollar looks to be forming (actually looks like it already has formed) its bottom. Based on the previous chart I am willing to put out there that we will see at least 12 months of solid dollar index incline. And real dollar value growth (what you can buy with it). This will probably start the decrease in stocks and a violent turn in psychology will carry it the rest of the way down, down, down to some new low somewhere between HERE and ZERO (and closer to the latter, methinks!).

My trades will benefit from both the price declines themselves due to deflation (put options go up when prices go down), and also from the increased value of the currency compared to other currencies - when I roll back my earnings into my Canadian Dollar account I might just see another 10% - 20% appreciation compared to when I opened my investments strictly on a currency basis.

To the reader who asked me to elaborate on my thoughts on the USD, you are very welcome! Any other questions please feel free to ask away!

Happy Investing all.

Derek.