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With regard to the cup and
handle formation on the gold chart, a reader from Italy asks,
The short answer is jamais,
'never.' Only saints and fools approach certainty with reckless disdain; the
experienced hedge with caution.
All charting is based on probabilities. Only fools are certain of what will
happen next, and the market soon separates them from their money. In fact,
'knowing what will happen next' is the greatest single indicator of failure
in trading that I have seen. All charts, all data, are selectively twisted
and formed to support the outcome that one believes in. And when the
like-minded collect, groupthink
soon follows.
At the feast of ego, all leave hungry.
Right now this formation is indicative, a 'potential' thing that will be
confirmed IF gold can break out higher. I would put the probability at about
65%, so it is a decent wager, but not more than that. As the price approaches
a breakout point, the odds improve substantially.
The greatest negative is the possibility of a market meltdown in which
everything is sold, at least temporarily.
This same reader from Italy suggests that gold is a Ponzi scheme. That is
hardly probable since a Ponzi scheme requires a person, or small group of
people, to concentrate and promote it. In the case of gold it is quite the
opposite case, that the shorts hold concentrated power. I think he meant to
suggest that it was a bubble, and was being a bit provocative. Although you
could make the case that it is an 'anti-Ponzi' phenomenon, to the except that
a fiat currency that was based in a debt Ponzi scheme is collapsing.
Well, is gold in a bubble? Gold is the 'mirror' of fiat currencies. Are
governments and central banks doing a good job of protecting and maintaining
the value of their currencies. Is spending well in balance with taxation?
Gold is the barometer of profligacy and corruption. This is why corrupt
statists fear and despise it.
Here is an interesting interview with Felix Zulauf on the global
currency crisis and the gold bull market which is worth listening to
carefully.
If people look back to the last great credit collapse worldwide which was the
1930's, and sees what happened to currencies and gold, they will obtain some
knowledge that could very useful to them now. Stubborn ignorance can
rationalize amost anything, and there is a peculiar tendency among people to
resist the data that does not support their assumptions, until they are
overwhelmed. They still have some hope due to the somewhat arbitrary nature
of fiat currencies today, but increasingly less so for the very good reasons
that Mr. Zulauf outlines in his interview.
Gold has no liabilities if you own it, it is sufficient in itself. It is also
relatively stable in supply, and cannot be increased at will, as a fiat
currency can be printed almost at will by a central bank but with
increasingly lower marginal value in a free and transparent market.
Pierre Lassonde offers another interesting, although less rigorous viewpoint
in this interview.
As a reminder I do not subscribe to the pure hyperinflationary outcome yet,
which I think is not likely in the US at least. For my way of thinking,
organic hyperinflation is a function of a currency with an external reference
point. At the moment, the US dollar has no legitimate external standard as a
reference point, except something soft, indicative, like gold. This is a
truly fascinating and almost unprecedented historical development. I cannot
think of a comparable economic example.
I suspect we will see powerful deflationary forces that will be countered by
monetary inflation and devaluation that is not quite sufficient to break it,
because quite frankly Bernanke is no Volcker, and the monied interests will
resist a deterioration of their inordinate share of the dollar wealth of the
world. That is not to say that various countries and even regions will not be
economically 'trashed' in the process by a predatory financial sector based
largely in New York, Zurich, and London.
Within eight years I would see the US dollar financial system resolving into
a currency collapse and the issuance of a new
dollar with a few zeros, two or three, knocked off as was seen
with the rouble. It will look somewhat similar to the collapse of the former
Soviet Union, not with a bang, but a whimper.
Here is a closer look of the current 'handle' being formed, and next to it
the idealized example from an illustration of a classic cup and handle formation.
I would have preferred to have seen that lower bound set with at least one
more test. Obviously at this point a retest would certainly try the longs.
This would most likely occur if there was a major selloff in equities.
Otherwise it appears that the orchestrated selling around Comex option
expiration was the near term low.
Classic Cup and Handle
Illustration
Gold to $1800-$2000 this year, and $30 Silver - James Turk
There are many more skeptical holdouts and the merely unaware with regard to
the unraveling of the global fiat currency regime that has been in place
since Bretton Woods.
 As
the dollar reserve currency and the euro recede into history, the pricing of
gold in these currencies will become quite high, as the price of gold in old
roubles had been during the collapse of the former Soviet Union. One thing
that puzzles me is to speculate on which, if any, currencies will remain
standing and be the big winners. Few have any backing in specie.
Moscow Memories of 1997
As you will recall, the world did not collapse with the Russian Empire. Goods
flowed around and out of that region to other parts of the world, creating
severe shortages. Many were out of work, or not being paid as official
payrolls were in default due to lack of funds. Debts were wiped out en masse.
Where was the deflation?
The US may have the option to go the Japanese route of slow death rather than
a purging. A decade of stagflation may be deemed preferable to an all out
bust.
Few understand the difference between a recession and a currency crisis. And
they tend to forget even the wisdom of their own cultural heritage, embodied
in the little sayings that we so often repeat, but genuinely understand only
at those rare moments in our own personal experience.
"...the
harder they fall."
Indeed.
Jesse
Please visit Jesse’s Café Américain
for refreshing news on the markets
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