Monday, December 19, 2011

Gold vs. The 200 Day Moving Average

Let's set the record straight.  I really didn't want to spend time on a post today but I've been inundated with a lot of really reckless, ignorant research over the past few days about the "technicals" of the gold market.  Lately there's been many many blogs and research reports which make the claim that once gold breaches its 200 dma to the downside, the party is over.  But let's look at the 10-year track record of gold vs. its 200 dma, after all there's nothing like showing the hard data in all of its glorious golden truth:

(click on the chart to enlarge)

That chart pretty much speaks for itself.  Gold has breached its 200 dma to the downside many times over the last 10 years.  Ironically, once that has occurred - in each and every occurrence - gold has always resumed its bull trend and powered to new nominal record highs.  That evidence is indisputable.  Any research that forecasts bad news for gold based on it breaking its 200 dma is unequivocally incorrect and therefore useless to the goal of making money and preserving wealth in the precious metals market.  Unequivocally.

Let me repost the rGold metric chart, which shows the daily price of gold relative to its 200 dma.  Whenever this metric has gone below 1, which means that the price of gold is below its 200 dma, it has signalled a table-pounding - unequivocal - "buy" signal.  Here's the chart, which unfortunately ends in 2008 and I don't have the time right now make it current, but you'll get the picture:

(click on the chart to enlarge) 

Currently the rGold metric is around .94.  That is super-bullish for gold.

Any questions?  Any research on the gold market that is worth spending time on will instead focus on analyzing the fundamentals which are unpinning this ongoing historic bull market in gold.  Is there any indication that Governments are reigning in spending and debt issuance and fixing their financial markets and economies anywhere in the world?  As point of reference, let me just reiterate that the U.S. Government is on track to issue close $2 trillion in new debt this year.  The only way this will get funded, barring some Moses-parting-the-Red-Sea event - is for the Fed to fund that new debt issuance using the printing press.  That is uber-bullish for gold.  Similarly, real interest rates are negative by a record amount here and globally.  That is rocket fuel for gold.

And the best short-term indicator for gold is the current sentiment.  The investment sentiment for gold right now is at the low end of its range over the last 10 years:  LINK   Again, this indicator has always marked a turning point in the direction of gold.  I expect it will this time as well.  Furthermore, the Indians and Chinese have been out of the market for the past couple of weeks, but per that linked report, they are starting to buy again. One more thing.  On Friday the COT report showed that hedge funds are record short the euro.  The big bullion banks are taking the other side of this trade, which means they are very long the euro.   Would you bet on the hedge funds or the banks, who have inside info?  I would suggest that this is one of the reasons that JP Morgan and HSBC have been working hard to reduce their short positions in the gold and silver futures market.  I would further suggest - although don't expect gold to all of a sudden rebound straight up - that all of the technical and fundamental indicators are pointing toward the genesis of gold's next big move higher.

All bull markets end when with a massive parabolic blow-out to the upside in which almost everyone has thrown their money into the market.  Currently less than 10% of ALL institutional and retail investors will even consider investing in gold, especially gold of the physical variety.  I rest my case.


  1. Is QE the issue, or as you point out, is the mere fact of large deficit spending the issue--who pays for the treasuries is relatively unimportant --right now the Fed is saved due to a flight to the last standing paper currency-after that, all that will be left will be, ummmm, just what currency would that be?

    And I also assume besides paper money fleeing the Euro, the banks here are leveraging up and buying more treasuries with .75% financing.
    Not to mention, name me a euro country now which is in a position to buy our treasuries.

    This is one big circle you know what.

  2. Actually, the foreign participation in today's 2-yr Treasury action was the lowest since Feb 2008. Based on last week's TIC report, the Chinese have resumed selling down their Treasury holdings.

    The carry trade is not helping fund Treasuries. The Fed de facto monetized nearly the entire amount of Treasury issuance during 2010. Zerohedge did a great job tracking that, if you want to search the site to see for yourself.

  3. Dave,

    Any update/opinion on AUMN. After the merger was completed the stock has completely collapsed. The stock is now trading below it's price in early 2010 before it's El Quevar high grade silver discovery. It just doesn't make sense that a company with so much proven reserves can be valued at $200m (current market cap).

    Love the blog!


  4. Thanks JD,

    No updates. It makes no sense. I know the management is plowing forward working on the means to produce more silver output and update the 43-101 at Valerdena and continues to drill Argentina with the goal of a 43-101.

    It's a bad market all the way around for stocks right now...

  5. As an investor in AUMN, I have to say the banks are in control of the entire paper market. We just have to wait until they finally let silver and gold run. Eventually, they will jump on the long side and then look out. Unfortunately that may happen after a market collapse.

    Dave, I moved my account to Fidelity from TD Ameritrade per your advice. I talked with them about direct registration of my holdings. They claimed ignorance and said my account is in my name. What is your opinion?


  6. Buy Signal in Gold
    NEW MARKET MAPS--Low coming

  7. Great stuff Dave thank you


  8. kings of the hill....

    Inside Capitol, Investor Access Yields Rich Tips

    When Senate Democrats finally brokered a compromise over the proposed health-care law, a group of hedge funds were let in on the deal, learning details hours before a public announcement on Dec. 8, 2009.

    The news was potentially worth millions of dollars to the investors, though none would publicly divulge how they used the information. They belong to a select group who pay for early, firsthand reports on Capitol Hill.

    Seeking advance word of government decisions is part of a growing, lucrative—and legal— practice in Washington that employs a network of brokers, lobbyists and political insiders who arrange private meetings ...

  9. Anon, I'd say get ur money out of fidelity and out of the system into metal - like dave said, mb 10% can give u truly independent advice...likely reality is if u follow dave, u know more about the risks than the person whose giving u advice...

  10. Dave,

    I am currently reading "The Great Crash Ahead" by Harry Dent. Harry is a big demographic guy and believes we are heading into a 10 year deflationary period. He believes that Gold will have a major correction due to deflationary economic pressures.

    I am extremely curious on your take on this thought.

    If you do not reply here can you email me at:

  11. The people want honest government...that's what driving this...

    Ron Paul Is Now the Republican Frontrunner

  12. Gerald Celente - Sneak Peak of the Top Trends for 2012

    When asked about his new trend prediction titled ‘Battlefield USA,’ Celente responded, “It just became law. The Bill of Rights in the United States has been abrogated. They passed the new Defense Act and in that Defense Act they have in there, in clear language, anybody can be arrested under the National Defense Authorization Act....

    “They authorized the military to go in and take anybody they feel is an enemy of the state, citizen or not, no charges, detain them indefinitely and without a civil trial. No judge, no jury, no trial, no rights of habeas corpus. This is what the United States has become.

    Put it all together, it’s going on worldwide. The merger of state and corporate powers is, by definition, fascism. Now they have put the laws into place where fascism has become legalized.

    The military could come into anyone’s home, anyone’s office, into anyone’s life and lock you up. Take you away, torture you, blow your brains out and there’s no recourse at all. They are setting us up, they are putting all of the pieces in place because when the banks close and when the economy starts crashing down, now they have the goon squads in place.

  13. re: Harry Dent

    What are his credentials with regard to any kind of track record at forecasting economic trends, besides that which he exaggeratedly self-promotes in a true Harvard B-School style?

    He has no understanding of monetary theory and how the manipulation of the money supply fits into a system ruled by bankers and the politicians controlled by the bankers.

    I actually question his understanding of economic theory.

    The bottom line is this: if the U.S. Govt (and UK and EU) does not print massively, our system will implode and yes, we will have deflation. But even in that instance you want gold because if our system implodes the dollar will be useless. In that instance you want gold in order to survive.

    Yes in that model, which ignores the behavior of all Governments throughout history, gold will drop in value vs. the U.S. dollar, but that's because the U.S. dollar will absolutely worthless, other than as fuel for a furnace.

    Here is what Dent fails to understand, probably because he is too arrogant to see beyond his own nose: Mayer Rotschild: "Give me control of a country's money supply, and I care not who makes its rules." That's all you need to know.

  14. Laurie Ferber: MF Global Chief Legal Counsel, on CFTC Global Markets Advisory Committee. Where Was She?

    Close observers of the MF Global saga have been asking from the start, where is Laurie Ferber? Why wasn’t she called into the hearings last week? First to the magnifying glass was Bob English who asked in his early November essay, “Who is Laurie Ferber of MF Global?” English highlighted Ms. Ferber’s extensive background, including her directorship at Goldman Sachs & Co. (and her hand in seeking exceptions for speculative position limits while at Goldman) her legal career and various board work. English reported on the details of Ms. Ferber’s hyper lobbying activity seeking either an exception to, or prevention of, tightening of rule 1.25 — which would disallow use of customer funds for anything other than instruments such as US Treasury bills.

  15. The elitists are offended by Ron Paul surge...

    SIOUX CITY, IOWA –The alarms are sounding in Iowa.

    Conservatives and Republican elites in the state are divided over who to support for the GOP nomination, but they almost uniformly express concern over the prospect that Ron Paul and his army of activist supporters may capture the state’s 2012 nominating contest — an outcome many fear would do irreparable harm to the future role of the first-in-the-nation caucuses.

    Read more:

  16. More Deficits, More Debt

    The US government has long passed its Havenstein moment. With so-called “quantitative easing”, which is the modern term for money printing, the Federal Reserve is enabling the federal government to take the soft political option. Spending has not been cutback, despite the perennial shortfall of government revenue. This uncontrolled spending has been accommodated by money printing, which today means expanding bank balance sheets.

    In this regard, the United States is different from Weimar Germany, which was a cash-currency economy with nearly all commerce conducted with paper banknotes. In contrast, economic activity in the US is substantially conducted with bank deposits, circulated by check, wire transfer, plastic card, and the like. So ‘money printing’ today is accomplished by expanding bank balance sheets to create more deposit-currency.

    In the past year, commercial bank balance sheets have grown $611 billion. In addition, the Federal Reserve’s balance sheet has expanded $516 billion, or 21.6%. This money printing is starting to have its inevitable effect. Over the past six months, M1 is up 22.8%, while M2 has expanded 14.0%. Inflation for the past year as calculated by is 11.0%.

  17. We are Witnessing a Historic Bottom in Gold

    The source stated, “The Chinese have continued to take delivery of both physical gold and silver directly from the ETF’s GLD and SLV. They are also going directly to producers. Entities are bypassing the COMEX altogether and going straight to gold mining companies. Every single month producers have a certain amount of gold and silver they sell. Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices.”