Monday, February 8, 2010

Jumping the Gun.

It seemed the gold bugs are out in full force over the weekend, calling "the bottom" on the gold price.  We posted a follow-up chart at the end of the day to all those saying that the "high volume" toward Friday's close was indicative of a major turning point.

However, when the rest of the week is put into context, one can clearly see that this is a weak argument at best, and one based on hope.  Gold may experience an upward move from this point on - it was a pretty major psychological barrier that was smashed to get below 1050 in 2 trading days, and a retracement of such a huge move is to be expected.

The fact that so many of the "I'm not sure anymore" crowd is clamoring for the best seats on the bull-wagon after a few hours of high volume and a quick bounce off the bottom tells us that the decline in the price of gold is still young.

There's also been a lot of perma-bear accusations thrown our way regarding gold - when we've only been bearish for a few months and our warning flag was up as gold popped through its old record price with ease (in a deflationary environment).  We aren't perma bearish on anything, just as we aren't perma bullish on anything either.  Our job is to take what information the market gives and look at it as a non-participant, scientifically, before making a decision and becoming a participant.

Being fully committed to either side of the trade for long will eventually have serious consequences.  Those who have been committed to gold for the past 30 years are still down 50% in inflation adjusted terms.  Those who have been committed to stocks for the past 10 years are down 45% in inflation adjusted terms.  And now everyone who is short the USD is going to be hurting too.

The USD is going up for two reasons - sentiment towards it was never lower for longer, indicating a major reversal, and that this is a net deflationary environment, where total money and demand destruction join forces to do a vicious dance. 

But its days are numbered too - all fiat currencies are.  It just so happens that there are others who have been given a less jovial bill of health by the doctor in recent weeks.  We are long the USD because it still stands the strongest chance of survival compared to its peers - most of the world's debt is still denominated in USDs, and the courts will only hear the case if you bring in a contract in USDs - they certainly won't hear you if it is denominated in gold and silver.

This might change in the coming decades - we can only hope ourselves, however in the meantime you invest for what is, not for what you hope to be

We are short the markets and some individual stocks because there is a double gain to be had - you are essentially a lender who has loaned out shares at an inflated value, and repurchases them at a deflated value. you get the benefit of pre-deflation dollars by going short and having that same amount after the asset value has crashed.  Not only are you a net-gainer in strict digits, you are a net gainer in the purchasing power of those gains as well.

There will be a time to go short the USD once again, and long gold once again - just not when over 90% of everyone in the trade is on the same side you are, and believes they only have one way to go.  There will be a time to go long stocks again too - but there is a generation or more of psychological unwinding that must take place before they will be a good buy again.

Have a great week everyone! 

Stops will be in place for full close-outs if hit for the rest of Today through Thursday as I am leaving my
"modern electronic technology" at home to enjoy some ice-fishing for a few days.  Please submit any questions, suggestions, etc to, and I will get back to you by the end of the week.

The website is coming along nicely, and we are excited to be able to offer several subscriptions in the near future - we are also excited at the number of requests by people waking up to the real function of markets and wanting to see things through an objective lens.  We'll be happy to offer one, coming soon to a computer screen near you!



  1. Derek,

    Here in Wisconsin I enjoy great ice fishing with my son. Although Ontario offers some of the finest ice fishing.. its nice to get away from it all. Have a great time!

    Thanks Again,

    Kiley Kuhl

  2. Derek, how can you believe that we are about to enter an deflationary cycle. Ben Bernake and the obama administration are not going to let that happen, inflation had been stated as something that they were willing to forget about until they had the economy back and running. With jobs still being lost, theyll be printing more money, are you suggesting that China will force the US to limit money printing? Why do you think deflation is on the way?

  3. Prediction when $650 gold. I predict moving up of gold and silver March 1, 2010 from no lower than $1030.

    When is $650 gold going to happen??

  4. There are too many people clinging to old axims, and yardstick indicators of market movements from the past.

    These are the ones that are being, and will continue to be confounded by events.

    The basics never change, but methods do.

    For example, that most people lose to the few in markets never changes, and will never change, because it can never change.

    And if you fail to see that, keep out of the markets or you are going to be among 'the most', for certain.

    The dollar is gaining not because of any economic change in economic fundamentals for the US, though change there is because change is a constant of life in general.

    The dollar is advancing because the real movers and shakers have this, and have always had it, in their plan. Don't ask me to enlarge on this, it would take too many words, and time.

    Gold is moving down for a number of reasons, all related to the fact that this will help the dollar to move up, because people have been led to believe this is an 'indicator'.

    This is known in psychology as 'conditioning'.

    And, this is what will catch people unawares when the timing is right for the manipulators.

    Gold will shoot up when all the 'indicators' point in the down
    direction. If you are OUT then, you are truly OUT! You will understand what I mean when it happens,

    Events that have already happened should have told you that we are in a new epoch of economic and political change.

    For example, amounts of so called 'sovereign' debt have reached proportions where adding a trillion or so hardly turns a hair never mind a head.

    This flies against all Academic Economic Theory. (To me, academia is only for getting a diploma in economics to stick on your wall. Its relevance to 'reality' is far removed.

    If it were not so, more economists would get it right, but what is more, this financial/banking 'crisis' would not, and could not, have happened - unless the whole international financial banker fraternity had never graduated from high school. and were suffering from either dementia, or terminal naivety.

    Happy trading or investing, whatever
    Ray Newton London UK

  5. Thank you Mr. Newton a breath of fresh air always.

  6. Derek,

    C'mon mate - how can you seriously say that 90% of people were / are long gold. Gold is hated at the best of times by the majority...and with a decline like we've just seen, even some of the most ardent bulls are jumping ship. Now basically everyone apart from the regular gold bugs are calling for a huge collapse.

    Quoting Jordan Roy-Byrne here in response to your assertion that basically every man and his dog are long gold:


    First of all, only 0.7% of all global assets are in Gold and gold-related equities and exchange traded funds4 . What does a real Gold bubble look like? That figure was 15% in 1934 and 29% in 1980. While more and more people are buying Gold (that is what happens in a secular bull market, participation rises over time!), it is still extremely under-owned while corporate and government bonds are overowned. The vast majority of the few that own precious metals in their portfolio have a weighting below 10%. While a lot of money poured into Gold in 2008 and 2009, even more money poured into Bond funds. That is the crowded trade.


    I just fail to understand that everything that has pushed gold higher over the past 10 years is all about to be undone in the next 12-18 months and it's value is going to halve...

    All will be revealed I guess.



  7. Ignore these analysts when they advise on gold, at least the vast majority of them (Ignore me if you like, I'll never know, and if I did, I will still sleep soundly at night, and be bright eyed and bushy tailed in the morning - after my coffee)

    The gold market is the most secretive of all markets. It consists of mainly very big players, certainly for the size of this market.

    All these statistics put around, even by the world gold council, are best 'guesstimates'. Because even the WGC have to accept what they are told.

    And where gold is concerned (and most other financial wheeling and dealing - no one tells the truth.

    How do I know? Well.among other things, I once challenged the WGC on some of their reporting, and they admitted to me that they have to accept what they are told at face value.

    Even the gold supposedly held in USA and other nations vaults much of this is labelled ''custodial gold'. Who really owns it? (Rhetorical question).

    Did the UK really sell its gold at the bottom, and at such a huge loss? If you believe that, well you are certainly not alone. The suckers list is a huge one.

    So what do I believe? For what it's worth I will share it with you.

    I believe the value (to me) to be what I can sell it at. That cannot be fudged. I believe what I can buy it at, that can't be fudged.

    I can see the trading as it is taking place, and I more or less believe the volumes.

    I believe that those who are spending millions not wanting to sell me something, but wanting me to sell them something, are potting their money where their mouth is, and that they are more informed than I as to where the price is going.

    I know that powerful people 'fix' the price daily right here in my city.

    I know that gold is the most liquid (as in easy to unload) of all commodities.

    I know it is the real money used for trading oil and other macro deals.

    The price of gold sets the value of everything else, directly, or indirectly.

    That's enough for now.

    Except, think about this. How could an ETF balance its books on every trade so that it is always holding the gold to support that trade? It could not, even if it tried. Wide open to manipulate.

    Then there is the whole derivative market - no we won't go into that now.

    Have a wonderful day

    Ray Newton in London UK

  8. One the reasons why gold dropped some much in 2008 is that people were on margin and had to cover so they sold. This time it is not happening. See you at $1500. March 1, 2010 rally.

  9. Derek will you adjust your model if india or china purchase the rest of the imf gold this year for over $1000. There is a possibility that gold will go up with the usd if both are perceived as "safety nets" for the euro.

    Just a thought

  10. I can only be on here briefly as I caved and asked someone to borrow their laptop at the hotel - however I don't want to overstay my welcome so I will only address a question I received about gold.

    As for right now, our forecast for gold has not changed - $650 is the target. However, we will keep a close eye on the metal - as always - and if the technical/sentiment situation changes in a measurable and quantifiable way, the first ones you will hear it from is us.

    Remember, in my analysis, I am not long or short biased - if anything I should be a gold bug and silver bug x 2, because philosophically I believe in their virtues and as a student and believer in "true economics" (Austrian school), they are integral to personal economic freedom.

    So if the situation changes I will be the first to talk about it.

    Thanks again for the comments - I'll be back full swing on thursday.

    It's bloody cold out there!


  11. Dogmatic belief in a price target can get you into a lot of trouble - both for those who believe in $5000 gold and those who believe in $650. Admit it: you don't know where the price is going to be one week from now let alone a year from now. The only people who know this are the ones with the ability to move markets -as Ray Newton described so well above. The only thing the "little guy" can do is to learn the art of using buy and sell stops strategically and rigorously to allow you to participate in some upside without getting wiped out to the downside. In this rigged game it's the system that makes you money not the entity.

  12. Yes, Derek knows where gold is going because he is a god.

  13. LOL. Greek or christian god?

  14. The following is a snippet taken from a commentary from a well known analyst, but typical in sentiment of most.

    Its relevance here is that it is all part of the whole picture. It is like that small piece of a huge jig saw puzzle where all parts fit, though not to each other, to make the complete picture.

    “Traders are looking for clues on what and if there will be a EU intervention in Greece’s debt issues, ahead of tomorrow’s EU economic summit. Rumors are causing volatile movements in a thin market.
    Mr. Detremmerie however said that: “the Euro remains vulnerable to further downside, which is likely to see gold following swiftly. It [gold] has managed to keep afloat above $1,075, but it’s failure to move much above $1,080-$1,084 has made it vulnerable to fresh speculative selling”.

    This type of commentary gives the impression that 'no one' knows what is going to happen. In other words, 'it is anyone's guess'.

    Or, if you like, 'we are all in the same boat,' 'all in the dark' one could go on.

    There are those who do know, not only the next move, but the one after that, and the get it. And you had better believe it.

    This should not be a revelation to anyone. Perhaps, deep down you do know it, but media can make you forget it - if you are not on your guard, at all times.

    Greece, or any other nation in the EU will be saved should it, or they, appear to be on the verge of economic collapse.

    How do I know? Because the EU was created by very powerful people, for a very powerful reason.

    This has nothing whatever to do with the people of any of the nations that comprise it - if they ever had had their way it would never have existed. It has nothing to do with the elected 'puppets' of these nations, either.

    How the markets play out these continuing scenarios depends on how and where the players can be deceived into placing their bets. Once the money starts to fall, then it is played so that the majority (all on the 'outside') will lose to the few (on the inside') - as always.

    It's all so easy when you know how (and why).

    Being contrarian is the way to play it if you want to have any chance. But, to be a 'true contarian' you have to see, and understand, what you are acting contrary to.

  15. Conspiracy theorists abound under every rock. "Powerful people KNOW", blah, blah, blah, with all sorts of innuendi regarding the economic events unfolding. Where's the data to support such accusations? Show the information that is verifiable to all to see. Otherwise, it is mere dribble, Mr. Newton.

  16. Elliott Wave theorists abound under every rock. "sheople know", bah, bah, bah, with all sorts of innuendi regarding the economic events unfolding. Where's the data to support such accusations? Show the information that is verifiable to all to see. Otherwise, it is mere dribble.

  17. Conspiracies abound upon and under every rock. Some lesser ones get blown from time to time. But the most powerful ones, are the biggest ones that most people lack the imagination to see (as in accept).

    Therefore, those who decry them, also abound in greater number than those who point them out.

    How do I know that? Well, for one, by their very nature, they would not exist otherwise.

    But, dear 'anonymous' who can't even reveal his name, no one is forcing you to accept anything.

    As far as I am concerned there is sufficient evidence over centuries, and great and learned men point it out from time to time - even those on the 'inside' looking out.

    They can afford to, because, like the 'Smoking Kills' on the cigarette packet, people think it is not relevant
    because it doesn't comply with their view.

    There are people I read who still believe the earth is flat. Now I am not going to waste time trying to convince you, any more than I would waste time trying to convince them of other than what they believe.

    You either see it or you don't.

    You, and they, and all, are entitled to believe what you wish. So far, this liberty has not been taken from us.

    Enjoy it while you can.

    Happy trading/investing

    Thank you for responding.

    Ray Newton in the UK

  18. Hi everyone... I am a small hobby Silver Collector/Investor, and very much enjoy the different World Bullions. I find it exciting, if not anything else to read the sometimes intense views of people on this particular site. I can't wait for Derek to return and fill my head with more fancy, as I can't afford but a few ounces of Silver every other paycheck anyway :)

    Thank you for the insight... and I never wanted the future to show up so fast, as since I started reading this blog! You guys rock!!!

    James from Michigan

  19. Market goes down, Derek appears.

    Market goes up, Derek disappears.

  20. Sorry guys -

    experiencing some trouble with the network as we just updated our phone system and the router is reacting with it.

    We should be back full tilt tomorrow and bring some updates.

    Thanks for your patience.

    Derek Blain

  21. "We should be back...."

    And who may i ask is WE? You and your girlfriend?

    If you knew what you were talking about you might at least have a real website.

    Anyone who sells here is going to miss the biggest move in years. We are tracing out a wave 2 of major 3 and i can tell you right now i cant predict an ultimate price target any more than Derek can. Any good Elliot technician will tell you that wave counts evolve and frequently invalidate your previous count so telling you 8 buck silver is a given based on some fib extensions or time counts is pure nonsense. If my count is invalidated and this turns out to be a big zigzag it will still go nowhere near as low as 8 bucks and the pattern will end up even more bullish than it looks now.
    There is a reason this is called a bear trap.