Gold Update – 22 Sep

Gold is off sharply at the open of the Crimex. As I post this, gold is trading at 1733. So the swing low at 1765 has been taken out and the 45 day moving average as well. The critical number on this chart is now 1705 which is a major swing low the bulls want to see hold. A violation of 1705 to the downside suggests a double top could be in play and sets up the 100 day moving average as a target around 1631. Understand this simple truth: the current price is a futures generated price, specifically the Dec contract. Futures are papre contracts traded with leverage. Panic selling occurs in leveraged vehicles because losses can pile up very quickly and margin calls, or the possibility of margin calls create a stampede out of positions. The global markets are in full panic mode because the Bernank did not QE3 and will not at this time administer another dose of heroin.

Give this some thought: say you sell a stock, your brokerage must sell your stock on the market and credit your account the proceeds generated from the sale in cash. That means the brokerage must use cash on hand, negligible as compared to demand, and then acquire more from banks. Multiply this across the entire globe and you can see how the demand for dollars spikes in a panic. When demand spikes relative to supply, the price rises. In this case the dollar rises relative to other currencies and the ultimate currency, gold. This is what is occurring today. This is what it takes to make gold money once again, a loss of faith in paper. Remember, if panicking into a currency was a solution to maintain value, the dollar would would be nearer to all time highs than all time lows and prices would be going down year after year, not up. This is temporary and if not stopped actually causes a hyperinflation.

That’s right, a hyperinflation. When the dollar rises it is more scarce relative to demand. When the dollar is scarce there are fewer available to service debt, meaning more debt is defaulted on. This causes our government and the Fed to take measures to increase the supply of dollars. Increasing the supply of dollars means increasing debt. You know where this goes don’t you? I’ll stop now, you get the picture. The shit is hitting the fan and this time it will be far worse than 2008 in the sense that there is no recovery in confidence this time. Do not be concerned with the price of gold in dollars of gold. Be concerned with the amount of ounces you own. For a time your gold will decrease in price and purchasing power, such as today, when the panic into cash occurs. Then when everyone is in cash your gold will be lower in price but increasing its purchasing power.  In the end when the final panic occurs, this time from cash because cash is trash, your gold will rise in price and purchasing power. It is the way it must be.

The weekly chart needs some attention. Price is now fallen to the top of the trend channel that has been in place going back 3 years. For these 3 years the 18 week moving average has supported price, time and time again. When stochastic crosses the 80 level lower, a run to the 18 week moving average ensues. The 18 week moving average is currently at 1663 and climbing at a steep angle. I think price could meet this average near 1700 in a few weeks or immediately in a another nasty day of liquidation. At any rate, The slope of this moving average has never gone negative since 2008, meaning 1663 appears to be a floor that will not be breached for any meaningful amount of time. If I had any cash at all i would be buying big time. When price hits the 18 week moving average I will borrow to buy gold. Watch RSI, a 3 year floor at 50 says that is as far it will go to the downside.

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