Friday, November 5, 2010

How Far Can The Current Move In Gold Run?

I have stopped putting out price targets and timeframes for the precious metals.  What I tell anyone who asks is that I don't know where the price will be next week or next month, but I will guarantee you that the price two years from now will be significantly higher than where it is now.

I wanted to highlight a commentary posted on Zerohedge by J.S. Kim.  He addresses the growing awareness and understanding globally by investors of Anglo-European Central Bank gold price suppression.  The growing permeation of this knowledge is enabling the price-action in gold/silver right now to behave a bit diffently than during periods of extreme intervention over the past 10 years: 
Now that the price suppression schemes against gold and silver are gaining mainstream recognition around the world, I believe that the type of frothy price action we have just witnessed in the PM markets since Mr. Chilton’s announcement will serve as a sneak peak into the massive leaps higher in gold/silver prices in the years to come as the criminal banking cartel loses its grip over gold/silver prices.
I think we all pretty much get this.  What I wanted to really highlight was a comment he makes concerning whether or not the metals are technically overbought.  Quite frankly, measurements of overbought/oversold technical conditions are simply derived from psuedo-fancy statistical formulations, all of which pretty much calculate some kind of average and then measure the deviation of the current price/volumn/etc action from the mean metric calculated.

We all get that too.  But Kim asserts a concept to which I have given a lot of thought in the past, have discussed at length with colleagues and of which I believe is the case underlying the price-action in the metals today.  This idea is that, given that CB's have been massively suppressing the price of gold/silver for at least the better part of two decades (and likely a lot longer), it is likely that there is some kind of calculus which could be derived which would show that gold/silver are massively "oversold" in the context of the the last two decades.  To be sure, just using an inflation-adjusted measurement for the price of gold now vs its peak in 1980 would support this thesis.  There are plenty of other relative valuation metrics which yield the same result.  Here is Kim's quote:  
While is true that gold/silver are heavily overbought now and PM stocks are either in heavily overbought territory or rapidly approaching heavily overbought territory, during strong runs in past gold/silver bulls, the underlying metal prices and stock prices have remained in overbought territory for months on end. This alone is not a reason for a correction as Central Bankers have been fighting the fundamental weaknesses in their fraudulent global monetary system daily for quite some time now. When bankers legalize fraud through the legislation they sponsor/endorse, technical analysis is insufficient to ascertain the short-term direction of not only stock markets but also gold/silver markets. One must understand the history of Central Banker engineered attacks and price suppression schemes against gold and silver to estimate the probabilities of short-term corrections in addition to the use of technical analysis.
Essentially that comment supports my thesis by discussing the fact that long term Central Bank price suppression and paper bullion fraud schemes have distorted the true market dynamics of the bullion market AND that the growing awareness of this fact by global players might cause the gold/silver market to behave differently from a technical standpoint than it has over the duration of this bull market to date.

Ultimately it can be argued that, for the past 2 decades at least, the manipulation and artificial price suppression of gold/silver have rendered the metals extremely oversold in the context of a longer timeframes.  Accordingly, at some point, I have always suspected that we would eventually go through an extended period of time in which the metals appear to be overbought on dailies and weeklies and monthlies.  But what about decades? 

The Kim commentary, linked HERE, essentially makes the same argument and it's the first time I've really seen this idea given a full public viewing.  The other aspect to consider is that, while the manipulated "oversold" condition festered over decades, it is quite likely that this "oversold" condition will be corrected in a much shorter timeframe.  Could this be what is occuring now?  We'll know when we know...


  1. I read serious discussion about QE 3.0 already TODAY!!!

    If this gets serious I ereally cannot put a price target on Au/Ag. Higher is all I now, much higher.

  2. QE3? Try QE to infinity. Not that I'm a Sinclair worshipper but he's right and his term for it is perfect.

  3. This echoes a concern I've had, reading articles by technical analysts about "over bought", "correction due", etc. etc.. Seems to me that one of the problems that the "quants" have here, and in the banking and financial industry generally (contributing to the major upsets we're seeing) is that technical analysis works great - until we get a black swan event. Is that what we're seeing now? I suspect it is, so the usual bets are off.

  4. Jim Rikards on KWN

    "Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. And this is in an environment where various markets frequently go up and down 3% in a single day."

    So if the Fed stops ZIRP the value of it's portfolio is going to collapse even on a mark to maturity basis for the MBS's. The Fed as a bank will face an immediate liquidity crisis if they fail to continue with ZIRP. They have as we used to say in the sixties "set the controls for the heart of the sun".

    Which set of technical analysis allows for this? None do. These collapses are associted with a waterfall event and/or a severe dislocation leading to force majeure or suspension of the markets.

  5. thanks for reminding me - i need to read that Rickards post on KWN

  6. You should also catch Cazenove's Robin Griffiths who says that if the USDX breaks 74 the Chinese will throw the towel in and the next point on the chart is 59 which is the the first first waterfall on the $.