Alf Fields on gold

There are no certainties in the investment universe. Investors are forced to weigh up the various risks and assess the probabilities involved before committing themselves to a course of action. Current Elliott Wave and technical studies suggest that the probabilities now favor a strong rise in the gold price.

It may be helpful to consider my personal assessment of the various probabilities at different points in the recent gold market correction. On 23 August 2011 when gold pushed above $1910 my guess was that there was a 90% probability of a severe correction. The target for the decline, as given in my keynote speech at the Sydney Gold Symposium in November, was circa $1480, the point at which the explosive extension in the gold price had started.

Extensions have a good record of retracing to the approximate point from which the extension began, in this case $1480. Market action during the decline is used to fine tune a more accurate end of the correction. Gold never got down to target of $1480, stopping not very far away at $1523 in late December 2011. At $1523 all the minor subdivisions suggested that there was a 75% probability that this was the low and that the market would move into a strong upward move, probably the most vigorous of the bull market. A lesser alternative considered was that $1523 might only be the A wave of a larger A-B-C correction.

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Subsequent events proved that the lesser alternative – that $1523 was only the low point of the A wave – proved to be the correct diagnosis. The A-B-C correction is shown in the above chart.

The upward move from $1523 through January and February 2012 to $1792, a gain of $270 in just 2 months, looked exactly like the vigorous upward move that had been anticipated. From $1792 a correction in the 6%-8% range was expected. That meant a maximum retracement to $1650 could be tolerated. A decline below $1650 would indicate that something was wrong with the analysis and would necessitate examining alternative possibilities.

Gold did drop below $1650, throwing a spanner in the works of the expectation that the market was in the early stages of the massive third of a third wave with a target of $4500. Once the 61.8% retracement level at $1626 was also broken, the strongest probability was that the rise to $1792 was the B wave and that the market was declining in the C wave. At this stage it began to look as if gold might still achieve the original downside objective of $1480.

The decline halted at $1528 and then started rising in a desultory fashion. The above chart was produced at that time showing that the A wave decline had lasted 88 trading days while the C wave decline had lasted 55 days. In addition the C wave decline of $264 was 66.5% of the A wave decline of $397, as depicted on the chart. The 2/3 relationship between the A and C wave declines plus the ratio of 88 days to 55 days absorbed by the respective waves, a neat 8:5 Fibonacci ratio, improved the odds that $1528 was the end of wave C. It would thus also mark the final end of the correction that had lasted since late August 2011.

The above positive assessment was not published at the time. Additional confirmation from further market action was required to be sure of the call. The required evidence of a rapid and large upward surge in the gold price plus the break of the prominent downtrend did not emerge. Gold simply churned within a relatively narrow range below the declining trend line.

A number of readers have urged me to pay more attention to time. In the past I had found that the magnitude of the waves was a much more important factor than the time involved. I had never been able to make an accurate call using only time elements and cycles. Every time I made a forecast based on time, I got it wrong. Nevertheless, I resolved to examine the time elapsed by the different moves more closely.

That gave rise to recognizing that the 88 and 55 days absorbed by the A and C wave declines respectively was the interesting Fibonacci ratio of 8:5. With the gold market churning and going nowhere, I developed an alternative theory that $1528 was not the final low point of wave C but only the low point of wave a of an a-b-c move making up the C wave.

That would explain the desultory sideways trading in the gold price and implied that the final low was still somewhere in the future. An extension of this theory was that the decline in the smaller and final wave c to the low would last 33 trading days. This would extend the previous 88:55 ratio to 88:55:33, and would mean that the time absorbed by the two small c wave declines would total 88 days (55 +33), identical to the 88 days absorbed by the wave A decline.

This was pure hypothesis. There was no real basis for this theory, but it seemed worth testing it. If it was possible to predict the day of the final low ahead of time, that would be a significant achievement. Gold had rallied to $1640 on 6 June 2012 and then started churning sideways with a downward trend.

Projecting ahead 33 trading days from 6 June 2012 produced a date for the forthcoming low of 23 July 2012. I didn’t have any idea of what the low price would be. The chart below depicts what happened on 23 July 2012.

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The low gold price on 23 July 2012 was $1564, certainly not a new low. Yet the gold price started rising almost immediately. Within a couple of days the gold price had broken upwards through the downtrend line that had been in place since the end of February 2012. This is a very positive development which will be greatly enhanced if the gold price continues to move strongly upwards over the coming days and weeks.

The bottom line is that we now have a really strong probability that the correction which started at $1913 on 23 August 2011 has been completed both in terms of Elliott waves and also in terms of time elapsed. If this is correct, the gold price should soon be expressing itself in violent upside action as it moves into the third of third wave which is still targeted to reach $4500.

Alf Field

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GTU – 30 Jul

GTU (Central Gold Trust) is my chosen proxy for physical gold for those in the  unfortunate position of being trapped in a paper position for gold as a consequence of being forced into an employer sponsored direct contribution retirement plan. I believe it offers the best possible structure to survive a transition to Freegold. Unlike PHYS (Sprott’s Physical Gold Trust), the physical gold cannot be redeemed for shares and does not offer the opportunity for a large shareholder to move on the bullion. Additionally, the board of the Trust is elected by the shareholders and is far less likely to fold the Fund for the purposes of acquiring the gold. PHYS can be shutdown at the discretion of Eric Sprott at any time.

The technical picture for GTU looks to be at a critical inflection point if you believe the Fed rumblings of another round of QE is imminent (I do). With a successful test of resistance yesterday, price closed above that level for the 2nd day. In doing so price exceeded the Bollinger band for the 4th day in a row, which is forcing the bands to expand and is indicative of rising volatility. The next level of resistance is coming from the 63.13 level and support is going to be the recently breached resistance at 62. Additionally, support is coming from the 100 day moving average at 61.38.

RSI is not yet indicating an over-bought condition with a moderate reading of 63.55. Stochastic is however in over-bought territory with a reading above 80. Look for 3 days above 80 to change the character from simply over-bought to accelerating momentum to the upside where all pullbacks become buying opportunities for a continuing move higher. MACD is breaking away from the neutral line.

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Te expanded view shows the importance of the 62 level as a pivot point and a very strong level of support and resistance for price since March. A well defined intermediate trend channel is in place and shown. Upside resistance is shown in approximately $1 increments all the way up to 65. The 200 day moving average, currently at 63.13 is a major level of resistance that if cleared will signal a major shift in sentiment to the bullish side. Major technical damage must be repaired before this chart takes on a true bullish stance. The major moving averages are all jumbled up and 18 day moving average must pull the 45 day MA up above the 100 day MA, then the 100 day MA must rise above the 200 day MA. At that point the MAs will be arranged in the strongest possible fashion, bottom up from the longest duration to the shortest duration, providing support for price.

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The 1 year chart shows price on the verge of a breakout from a year long descending triangle consolidation pattern. If the current price level can hold in support it will lend credence that the breakout is for real. the next major resistance levels come in approximately in $6 increments, at 68 and 74.

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The long term monthly chart is encouraging. I have placed an Andrew’s Pitchfork on the chart that shows potential levels of support and resistance for a continuing uptrend. Price often remains within the upper or lower trend channel, where the center line becomes a pivot point. Price is coming back up into the lower trend channel after a slight breach of the boundary. Also, price has found support where it has before at the 20 week moving average.

The technical studies indicate that bottom potential has been realized. RSI has found and bounced off of long term support at 50. MACD is bottoming and starting to hook. Stochastic is starting to bottom as well very near to over-sold territory. In fact, stochastic is at the lowest level since shortly after inception of the fund. I think a move to QE by the Fed propels price over the rest of the year to 75, and later new highs.

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Gold -25 Jul

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The Debt Conundrum

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Chris Hedges: The Careerists

TruthDig
The Careerists
By Chris Hedges
Jul 23, 2012

The greatest crimes of human history are made possible by the most colorless human beings. They are the careerists. The bureaucrats. The cynics. They do the little chores that make vast, complicated systems of exploitation and death a reality. They collect and read the personal data gathered on tens of millions of us by the security and surveillance state. They keep the accounts of ExxonMobil, BP and Goldman Sachs. They build or pilot aerial drones. They work in corporate advertising and public relations. They issue the forms. They process the papers. They deny food stamps to some and unemployment benefits or medical coverage to others. They enforce the laws and the regulations. And they do not ask questions.

Good. Evil. These words do not mean anything to them. They are beyond morality. They are there to make corporate systems function. If insurance companies abandon tens of millions of sick to suffer and die, so be it. If banks and sheriff departments toss families out of their homes, so be it. If financial firms rob citizens of their savings, so be it. If the government shuts down schools and libraries, so be it. If the military murders children in Pakistan or Afghanistan, so be it. If commodity speculators drive up the cost of rice and corn and wheat so that they are unaffordable for hundreds of millions of poor across the planet, so be it. If Congress and the courts strip citizens of basic civil liberties, so be it. If the fossil fuel industry turns the earth into a broiler of greenhouse gases that doom us, so be it. They serve the system. The god of profit and exploitation. The most dangerous force in the industrialized world does not come from those who wield radical creeds, whether Islamic radicalism or Christian fundamentalism, but from legions of faceless bureaucrats who claw their way up layered corporate and governmental machines. They serve any system that meets their pathetic quota of needs.

These systems managers believe nothing. They have no loyalty. They are rootless. They do not think beyond their tiny, insignificant roles. They are blind and deaf. They are, at least regarding the great ideas and patterns of human civilization and history, utterly illiterate. And we churn them out of universities. Lawyers. Technocrats. Business majors. Financial managers. IT specialists. Consultants. Petroleum engineers. “Positive psychologists.” Communications majors. Cadets. Sales representatives. Computer programmers. Men and women who know no history, know no ideas. They live and think in an intellectual vacuum, a world of stultifying minutia. They are T.S. Eliot’s “the hollow men,” “the stuffed men.” “Shape without form, shade without colour,” the poet wrote. “Paralysed force, gesture without motion.”

It was the careerists who made possible the genocides, from the extermination of Native Americans to the Turkish slaughter of the Armenians to the Nazi Holocaust to Stalin’s liquidations. They were the ones who kept the trains running. They filled out the forms and presided over the property confiscations. They rationed the food while children starved. They manufactured the guns. They ran the prisons. They enforced travel bans, confiscated passports, seized bank accounts and carried out segregation. They enforced the law. They did their jobs.

Political and military careerists, backed by war profiteers, have led us into useless wars, including World War I, Vietnam, Iraq and Afghanistan. And millions followed them. Duty. Honor. Country. Carnivals of death. They sacrifice us all. In the futile battles of Verdun and the Somme in World War I, 1.8 million on both sides were killed, wounded or never found. In July of 1917 British Field Marshal Douglas Haig, despite the seas of dead, doomed even more in the mud of Passchendaele. By November, when it was clear his promised breakthrough at Passchendaele had failed, he jettisoned the initial goal—as we did in Iraq when it turned out there were no weapons of mass destruction and in Afghanistan when al-Qaida left the country—and opted for a simple war of attrition. Haig “won” if more Germans than allied troops died. Death as score card. Passchendaele took 600,000 more lives on both sides of the line before it ended. It is not a new story. Generals are almost always buffoons. Soldiers followed John the Blind, who had lost his eyesight a decade earlier, to resounding defeat at the Battle of Crécy in 1337 during the Hundred Years War. We discover that leaders are mediocrities only when it is too late.

David Lloyd George, who was the British prime minister during the Passchendaele campaign, wrote in his memoirs: “[Before the battle of Passchendaele] the Tanks Corps Staff prepared maps to show how a bombardment which obliterated the drainage would inevitably lead to a series of pools, and they located the exact spots where the waters would gather. The only reply was a peremptory order that they were to ‘Send no more of these ridiculous maps.’ Maps must conform to plans and not plans to maps. Facts that interfered with plans were impertinencies.”
Here you have the explanation of why our ruling elites do nothing about climate change, refuse to respond rationally to economic meltdown and are incapable of coping with the collapse of globalization and empire. These are circumstances that interfere with the very viability and sustainability of the system. And bureaucrats know only how to serve the system. They know only the managerial skills they ingested at West Point or Harvard Business School. They cannot think on their own. They cannot challenge assumptions or structures. They cannot intellectually or emotionally recognize that the system might implode. And so they do what Napoleon warned was the worst mistake a general could make—paint an imaginary picture of a situation and accept it as real. But we blithely ignore reality along with them. The mania for a happy ending blinds us. We do not want to believe what we see. It is too depressing. So we all retreat into collective self-delusion.

In Claude Lanzmann’s monumental documentary film “Shoah,” on the Holocaust, he interviews Filip Müller, a Czech Jew who survived the liquidations in Auschwitz as a member of the “special detail.” Müller relates this story:

“One day in 1943 when I was already in Crematorium 5, a train from Bialystok arrived. A prisoner on the ‘special detail’ saw a woman in the ‘undressing room’ who was the wife of a friend of his. He came right out and told her: ‘You are going to be exterminated. In three hours you’ll be ashes.’ The woman believed him because she knew him. She ran all over and warned to the other women. ‘We’re going to be killed. We’re going to be gassed.’ Mothers carrying their children on their shoulders didn’t want to hear that. They decided the woman was crazy. They chased her away. So she went to the men. To no avail. Not that they didn’t believe her. They’d heard rumors in the Bialystok ghetto, or in Grodno, and elsewhere. But who wanted to hear that? When she saw that no one would listen, she scratched her whole face. Out of despair. In shock. And she started to scream…”

Read the rest here.

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Jesse’s Café Américain: About Those Excess Reserves At the Fed

Reserves are really potential inflation. Without velocity they do nothing more than repair insolvent bank balance sheets. If the Fed decreases interest on reserves in an attempt to ignite lending, it will signal the beginning of the end and will create the beginning of the stampede into real assets and commodities. If you were a bank would you lend to an impaired entity that will likely never pay you back or would you buy an real asset in order to attain your yield through capital appreciation? 

So the chain of causation looks like this: banks sell their toxic debt to the Fed for fresh reserves, then the banks utilize reserves to buy up gold and commodities. This in turn allows more deflationary pressure to build in their debt positions, which are then dumped onto the Fed for more reserves. End result, all debt finds its way to the Fed balance sheet and everyone’s debt comes home to roost in the form of base money on your front lawn. Hyperinflation.

 

 

23 JULY 2012

About Those Excess Reserves At the Fed

 IOER is Interest On Excess Reserves.
The next time some economist says that paying interest on Excess Reserves does not matter, show them this, and let them argue it with Alan Blinder.   San Francisco Fed President John C. Williams made a similar argument about four weeks ago. And Bernanke concurs that this is a powerful weapon in his mad scientist’s toolkit.

But then we see pieces in the financial press or on econo-chatboards like this, scornfully dismissing the notion that interest payments on excess reserves matter at all because the excess reserves don’t matter.  Base Money Confusion by Izabella Kaminska.

I have even seen the Fed arguing out of both sides of their mouth on this one.  I know there is room for disagreement, but that is just a bit too much.

I suspect that some economists argue that Fed interest payments on reserve do not matter because they do not want to deal with the political issue of paying what is essentially a subsidy to the banks for the reserves that the Fed creates for them.

And there are plenty  of economists who seem to make whatever argument that the Banks want them to make on any issue on any given day. It seems to be almost a cottage industry at some university economics departments.

Or in some cases it could be that like most money misconceptions, some folks like to get caught up in the details of the thing, putting an inappropriate linear bustier on a dynamic system process, and thereby become mesmerized by ‘chicken and egg questions,’  losing sight of the big picture but ‘proving’ some outlandish theory about how money is created and how the banking system really works.

If reserves do not matter, if they are a meaningless accounting entity, then it would not matter what the Fed pays on them, except for the purposes of a risk free handout to their banking buddies.  And there may be a valuable insight in that after all.

Regardless, I would just like the Fed to make up its collective mind what their position on this really is, and not make up whatever argument they feel suits the moment, although that does seem to be à la mode amongst economists these days. They have become as bad as attorneys and accountants.  The truth is whatever we say it is, whatever the guy with the most money wants it to be.

This might be a fine question for some astute Congressperson to pin Benny down on for the record the next time he stops by for a chat. I seem to recall the NY Fed dissing a Congressperson on this matter a few years ago when they suggested that paying interest on Bank Reserves was inhibiting the flow of money out of the banking system and into the real economy.

So the next time I get into a discussion on this with some condescending obscurantist from the NY Fed, I am just going to send them this link and let them have at it with Ben, Alan, John and the other Sorcerer’s Apprentices.

08:12 Former Fed Vice Chairman Blinder says Fed should cut IOER -WSJ

Former Fed Vice Chairman Alan Blinder, in an opinion piece, said the Federal Reserve has many weapons left to provide a boost to the economy, but the most powerful tool would be lowering the interest rate on excess reserves (IOER) held by banks.

Blinder said Operation Twist, QE3, and forward guidance are weak weapons that won’t be as effective as cutting the IOER to zero, and if nothing goes wrong, to -25bp.

He argues that doing such would provide a powerful incentive for banks to put some of their idle reserves to work, possibly lending it out or putting it in the capital markets.

Fed Chairman Ben Bernanke said last week that the Fed still has a number of tools available should it decide to implement additional stimulus, including its balance sheet, communications strategy, IOER and the discount window.

 

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zerohedge: Peak Gold?

Peak Gold

by Tyler Durden

From GoldCore,

Today’s AM fix was USD 1579.00, EUR 1294.05 and GBP 1022.34 per ounce.
Yesterday’s AM fix was USD 1565.50, EUR 1281.10 and GBP 1011.96 per ounce.

Gold fell by 0.3% in New York yesterday and closed down $4.90 to $1,571.70/oz. After a sharp drop and equally sharp bounce higher, silver rose 0.3% or 8 cents to close at $27.17/oz

South African Gold Production Continues To Plummet

After initial falls in Asia, gold traded sideways and then gradually ticked higher later in the Asian session and has seen further gains in European trading. Gold is currently set to finish the week marginally lower in dollar and sterling terms but higher in euro and Swiss franc terms.

South Africa’s gold output continues to collapse and fell a further 2.9% in May, according to data from Statistics South Africa released yesterday. The decline in gold production comes despite a 0.8% rise in total mining output in the same month (see below).

Gold is being supported by euro zone currency and contagion risk and inflation hedging diversification.

Merrill Lynch predicted gold would reach $2,000/oz yesterday due to more astute investors fearing inflation due to ultra loose monetary policies. Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research Merrill Lynch, said in a CNBC interview that Merrill believe “that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing.”

“If it happens in September, as our economists expect, we will get a rally sooner in gold,” Blanch added. ”If it happens after the election (in November), we will get the rally a little bit later; probably we will touch $2000 an ounce sometime next year.”

Demand and supply factors remain in gold’s favour.

There is strong demand from store of wealth buyers in Europe, China, the Middle East and the rest of Asia – not to mention strong demand from institutions and central banks.

A new trend seen in recent weeks is that of an increase in demand for corporates in the euro zone who are diversifying deposits in order to reduce bank, currency and systemic risk.

While some attention has been paid to the robust, broad based global demand for gold, less attention has been paid to the supply side and in particular the important gold production data.

Supply remains anaemic with the cash for gold craze seeming to have run its course, with central banks now net buyers and with mine supply not increasing sufficiently to meet demand.

 

With regard to global gold production, China, the world’s largest gold producer and now the world’s largest gold buyer, has been the only major producer to see an increase in production in recent years.

The massive increase in Chinese mining supply has raised some eyebrows with some questioning whether the figures are being exaggerated by Chinese mining companies and Chinese bureaucrats.

More recently, there is a concern that gold production in China may actually be declining as older mines reduce production.

South Africa produced over 1,000 tonnes of gold in 1970 but production has fallen to below 250 tonnes in recent years (see chart above). This is a collapse as these are levels last seen in 1922 and happened despite the massive technological advances of recent years and more intensive mining practices.

South Africa’s gold output fell further 2.9% in May, according to data from Statistics South Africa released Thursday, despite a 0.8% rise in total mining output in the same month.

 

Recently, the decline in South African gold production has been attributed to national electrical issues and power outages, operational delays and safety issues. However, the scale of decline at a time when there has not been a corresponding decline in base metals mined in South Africa suggests that geological constraints may be leading to lower production.

Other large gold producing nations have seen similar sharp declines.

Peak oil is a phenomenon many will be aware of – peak gold remains a foreign concept to most.

Peak gold is the date at which the maximum rate of global gold extraction is reached, after which the rate of production enters terminal decline. The term derives from the Hubbert peak of a resource.

Unlike oil and silver, which is destroyed in use, gold can be reused and recycled. However, unlike oil gold is money, a store of value and a foreign exchange reserve and gold is slowly being remonetised in the global financial system and indeed may soon play a role in a new international monetary system.

In 2001, the world saw what was believed to be record global gold production of 2,649 tonnes. Production then fell in the coming years despite the rising gold price.

In 2010, despite a 5 fold increase in the prices in US dollar terms, some estimates recorded gold production had risen 1.5% from the record in 2001 at 2,649 tonnes to a new record of 2,689 tonnes.

World Gold Council data for 2011 showed that production had increased by 4% from 2010 to 2,810 tonnes of gold. Much of the production increase was attributed to Chinese production data.

The Chinese production data may or may not be reliable but there is also confusion with regard to the data as there are discrepancies in the gold production data between the US Geological Survey and the World Gold Council.

The USGS has informed us that the discrepancies are due to different estimates of artismal mining data and that the USGS reports each country’s reported data.

Paul Tudor Jones’ Tudor Group released a chart using GFMS data in 2010 that showed that global gold production had peaked in 2001 and was falling (see chart above and video).

In 2009, Barrick CEO Aaron Regent claimed that global production had peaked in 2000.

He told The Daily Telegraph at the RBC’s annual gold conference in London that “there is a strong case to be made that we are already at ‘peak gold’.”

“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa’s output has halved since peaking in 1970.

Peak gold may not have happened in 2000. Nor may it have happened in 2011. However, the geological evidence suggests that it may happen in the near term due to the increasing difficulty large and small gold mining companies are having increasing their production.

It is also signalled in the fact that most of the larger gold producing countries (such as Australia, the U.S., South Africa, Canada, Peru, Indonesia) have all seen production drops in recent years.

China and Russia are the two only large producers to have seen production increases.

Peak gold has yet to be considered and analysed by the international financial community but there is a risk that it has happened or will happen soon with a consequent impact on the gold mining industry and on gold prices in the 21st Century.

The fact that peak gold may take place at a time when the world is engaged in peak fiat paper and electronic money creation bodes very well for gold’s long term outlook.

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