Gold -18 Apr

Paper contract gold, through the futures market, dictates the price of physical gold. This is a temporary situation that will end in crash of confidence when the ability of paper claims to hold value and to provide a path to physical gold acquisition is lost.  Here is yesterday’s chart of the price action. The short term trend is currently neutral, defined by a higher high and a lower low. If 1635 is taken out today then a new short term downtrend will be in place. Price fell below support at 1655 and now becomes chart resistance, along with the 18 day moving average at 1658. Heavy duty resistance is higher at 1680. Fairly strong support is lower at 1625. Again, nothing has really changed in the technical studies. Everything is range bound between neutral and over-sold. This paper gold market is very indecisive and unfortunately chop is the new normal when all the humans have abandoned it. Now you have algorithms that whipsaw everything into mush looking for the next power trend.

Using my way of trading, there has only been one buying opportunity in the last 30 days. This occurred on the 12th of April when price made a higher high to go along with the higher low of the 10th, defining an uptrend. Additionally, price was above the 18 day moving average. Finally, the technicals were not over-bought and price was within the Bollinger bands. All aspects are required before I would enter a paper trade. However, every day offered  a unique buying opportunity for physical gold. You see physical gold is for saving and is not used for trading or speculating. When you buy it you are parking your hard earned capital for use sometime in the future. Nothing can get me to flow capital from my physical gold except extreme need that cannot be met with fiat money. I am a saver and I choose a savings medium that can retain value over time.

Are you a saver? Or are you a speculator who chooses to take on risk in order to maintain value in your capital position? If you are you using paper gold claims to physical gold in order to save, you are not saving. You are investing in a gold derivative that incorporates leverage. With leverage comes risk. Leverage tells you that credit is present in some form and therefore performance is dependent on counter-parties and their ability to perform. As long as everyone is satisfied that claims to gold are effectively interchangeable with the real thing, the leverage is zero if you own an ETF like GLD or perhaps shares in an allocated gold fund such as PHYS. When that confidence is lost, hidden leverage comes to the stage, front and center. This leverage destroys you if you own paper and elevates you if you have been stacking physical.

The hidden leverage unwinds from paper as capital flees for safety. That flight takes capital from paper claims for physical gold to currency, then from currency to physical gold. This will continue until the path to gold is lost when demand completely exhausts supply. Bad money drives good money into hiding. This process winds up leverage in physical gold in a sense. What is really happening is the true price of gold is being revealed through the removal of false supply in the form of paper gold. To the stationary observer in the present, this appears as leverage to the price to which the physical gold was acquired. To a time traveler or a historian, this is simply real and intrinsic value being restored to physical gold. This value has been systematically diluted by the production of credit in gold over many decades.

So why play with algorithms and risky leverage? Why not stack physical gold, where every day is as good as another to buy? Why not capture the good kind of hidden leverage, the kind that offers no risk whatsoever? No such thing you say? Think again.

It is a rare opportunity I admit, but when a form of money dies there is always an opportunity to save capital in the form of physical gold and preserve wealth. History shows that money dies all the time somewhere on the planet in the form of a collapsing currency. However, it is a very different thing altogether to witness the death of a global reserve  reserve currency like the dollar. The entire international monetary and financial system is built upon it. We are living during a period that offers a once in a lifetime opportunity to capture hidden leverage in gold and actually amplify wealth. Nobody on this earth will likely get another chance after this.

This concept of gold free of the production of credit in the form of paper claims to physical gold is called Freegold. The process by which the market chooses physical gold as the premier store of value is called Reference Point Gold (RPG). The result of RPG is Freegold. These concepts are explored daily at the FOFOA blog, where robust discussion and debate occurs real time in the post comments section. Nearly four years of material is available to fully flesh out what I have briefly touched upon. I urge everyone to explore the sight and convince themselves that physical gold offers the unique opportunity of a lifetime.

Check out the Ron M’s Air-friendly PDFs link at the site. All FOFOA posts are collated into annual compendiums for easy perusal and online/offline reading. FOFOA embeds numerous hyperlinks in his posts and they are active in the PDF files. PDF viewers such as Adobe Reader and Preview include robust search tools that help source key words, topics, and phrases.

Good luck and good exploring!

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