- Large movements in the price of
US T-bonds can affect the price of gold dramatically. Since I
highlighted the overbought condition of the monthly T-bond chart, some
investors have concluded that the bond bull market is over.
- I believe that this conclusion
may be a little premature. There is no question that the indicators and oscillators
on the T-bond monthly chart are overbought, but that alone is not enough
to call an end to a major bull market.
- It's critical to look at why
those oscillators are overbought, and that means giving careful
consideration to the viewpoints expressed by institutional money
managers and major commercial bank economists. Central banks usually
consult with institutional players before making major changes in
interest rate policy.
- The current viewpoint of most
institutional money managers and bank economists is not that bonds have
topped out and are about to enter a "papa bear" market. Their
view is that central bank managers and government treasury departments
have worked together to implement substantial global monetary easing, and that easing will continue for quite some
time, barring any unforeseen surprises.
- Actions produce reactions.
Global monetary easing was designed to boost economic growth, not make
the debt payable. Growth has occurred, and the long term bond market
chart suggests that global monetary easing (GME) is likely to continue.
- Please note that there is a
difference between the phrases ,
"likely to continue", and "guaranteed to continue".
- To view the monthly bond chart,
here now. Technical analysis of the bond market chart supports the
fundamental views held by institutions, central banks, and government
policy makers. Institutional money managers have moved some risk capital
away from bonds and into general equities, because they believe central
banks and policy makers are likely to continue to engage in GME for most
of 2012 and perhaps all of 2013 as well.
- Institutional money managers and
commercial bank economists expect that growth produced by GME will
continue over the next 6-18 months, and 2013 should see even stronger
growth than in 2012. They expect GDP to grow at 3-4% for the next 6-18
months, and in my opinion, they are likely correct.
- The symmetrical triangle in play
on the monthly bond chart supports the scenario that temporary weakness
in the bond will be followed by further GME policy actions, which will
produce more anemic growth.
- The bond is not falling because
of inflationary concerns. It is falling because institutions, central
banks, and governments believe that GME will produce more growth and
push the general stock market higher.
- Will GME solve the OTC
derivatives-based debt problem? No. The enormous wedge pattern in play
on the gold chart is an echo of the bond market chart, and suggests that
while it is a waste of time trying to guess whether "the low"
is in for gold, the current congestion pattern is a consolidation,
not a top, and price will be launched above $2000 this year, by the
implementation of more GME.
- Fundamentally-based liquidity
flows create charts. Charts don't create fundamentals, but they can
create additional liquidity flows. Those of you who follow the major
economic reports know that most market liquidity flows are based on
fundamental analysis, rather than technical analysis.
- On that note, yesterday was a
watershed day for the gold market. The Indian gold industry strike was
suspended, and the suspension is likely permanent. During the strike,
over $1 billion a week was lost by the Indian gold business. Without
Indian buyers in play, rallies can be feeble even if the market is
- The end of the strike is
occurring at a very key point in "technical time". The
gold chart shows an enormous wedge pattern, with head & shouldering
action within the wedge. To view my take on that h&s
pattern within the wedge, please click
- That picture speaks a million
words, and if you take the time to learn how institutional money
managers think, you'll probably have a lot more patience with your
positions. The system is already bankrupt, and debts have been marked to
- The institutional money managers
see all the same charts that you see. They know the debt is un-payable,
but that doesn't mean that the price of gold starts skyrocketing "any
moment now". A bankrupt system can remain open and continue to
operate, indefinitely. The massive wedge pattern indicates that the gold
price is coiling to strike at the $2000-$2500 price area, because of the
size of the pattern, the time length of the pattern, and because of
the institutional view that GME will continue.
- When will gold possibly "go
parabolic"? That comes after growth dies a withering death
rather than an explosive one, and institutional money managers and bank
economists call for much greater global monetary stimulation. I doubt
that a parabolic move happens before 2014, but anything is theoretically
- A parabolic move could also
occur if there is an unexpected surprise that rocks markets. I agree
with Morgan Stanley's head of global economics, Joachim Fels, that an oil price spike or a gridlock amongst
government policy makers are the two biggest "tail risks" to
the scenario that I've laid out here.
- I've noticed substantial
frustration in the gold community, but I believe a lot of the
frustration would disappear if investors could have patience with the
viewpoints held by major institutions and central bank managers.
- Simply put, there is a lag time
between the implementation of GME and the pick-up in economic activity.
That pick-up in economic activity is happening now, and is likely to
continue throughout 2012 and perhaps throughout 2013.
- That could put further pressure
on the T-bond price, but it would not "finish it off".
An oil price spike could do great harm to the bond, and a policy making
gridlock would also likely create a severe correction.
- You might feel a need for your
gold stocks to rise in a parabolic price move right now, but that
doesn't mean it's going to happen before institutional money managers
see the current economic growth begin to fade. They see "more of
the same" GME coming, which means more slow growth coming for
the next 6-18 months. In my professional opinion, that is the most
likely scenario over that timeframe.
- What that means for gold is higher
prices, but not a parabolic move just yet. Once growth deteriorates,
either later this year or sometime in 2013, I strongly believe that
institutional money managers and commercial bank economists will
pressure central banks into engaging in much more aggressive gold buy
programs, with the sole goal of devaluing paper currency, thereby
reducing the debt owed by the world's debtors to the world's creditors.
- If you feel frustration with
gold, silver, commodities, and gold stocks, you'll realize that most of
your frustration probably comes from "fighting the institutional
tide". Things don't happen before their time. Trying to make
what institutional money managers are doing fit your view is a mistake.
Fit your view around theirs. Work as a team, and you'll get richer, with
less frustration. Waiting for the system to "blow" is a waste
of time. It's already blown, it's already been marked to model, and the
creditors are going to get paid much less than they are really owed,
with heavily diluted paper currency. So, your gold positions are going
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