Wednesday, August 22, 2012

Gold (and silver) Is Getting Ready For Big Move

The bottom line here is that these large, well-financed entities are now anticipating inflation for the foreseeable future.  This means the ‘risk on’ trade is back in vogue, and we should see higher prices for gold and silver going forward.  I would also add that there is a great deal of money on the sidelines and this means we will see some violent action as these markets move to the upside    - Dan Norcini from King World News  LINK
The price of gold has been in a massive consolidation phase for about a year.  With or without help from another round of QE, the world's oldest currency is "coiling" for another cyclical gold bull market move higher.  Here is a weekly 3-yr chart of gold with RSI and MACD "momentum indicators:

(click on chart to enlarge)

I've circled the RSI and MACD indicators in green.  I like using a weekly chart to analyze longer term trends.  Using a weekly time frame amplifies the significance of trading indicator signals, which makes the fact that both the RSI and MACD are turning up from inordinately oversold levels even more bullish.  The price-action on this chart shows the massive line of support that has formed just below $1600.  Fundamentally this makes sense given the numerous accounts of large-scale Central Bank buying whenever the Comex manipulators have tried to take gold below $1600 during the past 6 months.

This next chart shows the rolling 12-month "rolling" rate of return on gold in terms of its standard deviation from its mean (average) 12-month "rolling" rate of return.  Without having to bend your mind around what that exactly means, think of it as the amount by which the most current 12-month trailing rate of return is either above or below it's average rate of return for the period:

(click on chart to enlarge)

This chart, which I sourced from HERE shows that each time that the calculated metric goes 2 standard deviations (green circles) below its mean, it represents an incredibly powerful buy-signal.  Again, you can look at a chart for comparison purposes, but in the previous two instances where this occurred, gold began a move up to new all-time nominal highs (as opposed to inflation-adjusted since 1980).  Given the fundamentals we all know about, I see no reason why that won't occur this time.

Here's another aspect that hasn't been a factor at all during the 11-yr gold bull:  PRICE INFLATION
As you might expect, I have a chart that shows the potential for some serious price inflation to kick in.  This is from Dan Norcini's KWN interview linked above:

(click on chart to enlarge)

In Dan's words:  "Take a look at my Grain Composite Index - if you thought grain prices were high back at the peak of the commodity bubble in 2008, you haven’t seen anything yet!  The Index is now firmly above 2008 high."

Interestingly, I have not seen it discussed, but gold has done what it's done over the past 11 years without any real fear of price inflation.  Obviously money supply inflation/dollar devaluation has been the key driver.  But big institutional investors and retail investors measure "inflation" mostly using the Government's CPI index.  At some point the fundamentals underlying the chart above plus the rampant historical and impending money supply explosion will trigger massive price inflation.  That's when the action in gold will get really interesting.

Finally, based on the large spec/commercial long/short positioning on the Comex, per the weekly COT reports, technically gold is set-up for another massive inflow of hedge fund money.  I think there's a good chance we'll see this in the next few months, especially once the Fed caves in on more QE - which it will.

From both a fundamental and technical standpoint, the indicators for gold to make a run to new highs have not been this bullish in the 11-year bull market.  Since we've been missing widespread big institutional and retail participation, if those two investing constituencies get involved, the coming move higher in gold may take all of us by surprise.


  1. Plus a little problem in the Persian gulf.....

  2. "One thing is certain - we, the consumer, are going to be reeling at the grocery store very soon."

    not really, atleast not in the US. You're looking at a 1-2% rise at most in the immediate term, which is due to the worst US drought in a quarter century. Not money printing or the fed or any other nonsense. And oil is just about in the same boat. Middle East drama is heating up and oil has spiked. Both of these price increases are event driven and for the most part wouldn't be supportive of a rally in PM's.

    “Obviously, Eric, we would not see these chart patterns breaking out the way they are unless large, well-financed, and well-connected entities were positioning themselves ahead of what they see coming down the road.”

    sounds like complete speculation to me.

    1. Dude, I don't know where you shop but here in Canada despite our dollar strengthening relative to the US$ we are still experiencing double digit inflation in food costs BEFORE the results of this year's harvest.

      Justin from Canada

  3. Gold & Silver off to the races

    by Egon von Greyerz – 22 August,2012

    Last week was the 41st anniversary of one of the most disastrous days in world history. The 15th of August 1971 was a fatal day for the world economy and is likely to lead to more human misery than any world war. This was the day when Nixon closed the gold window which led to governments worldwide creating endless amounts of worthless paper money.
    The resulting credit bubble has created a world debt exposure of over US$ 1 quadrillion (including derivatives). It has also created perceived wealth for big parts of the world‘s population – a wealth which is only backed by promises to pay and by grossly inflated assets. Few people realise that this wealth is totally illusory and will implode considerably faster than the time it took to create it.

  4. Since we've been counting on widespread big institutional and retail participation, when those two investing constituencies get involved, the coming move higher in gold is inevitable. there, fixed it for ya.

  5. Dave - Excellent post as usual. Regarding Dan Norcini, he posted an article today - Pimco Buying Gold. One of Pimco's funds carries approximately $2.3 billion in gold futures contracts. I know that their participation on the long side in the paper gold market has a positive effect on the gold price, but what if they took some percentage of that total and secured physical gold or took a substantial position in one of the legitimate gold etf's (Sprott or Central Fund of Canada).

    I know Kyle Bass insisted that The University of Texas take physical gold as one of their investments in their endowment fund. He felt that he had a fiduciary responsibility to his client and that the only one way that he felt comfortable was to go with the physical. Isn't Pimco and Bill Gross running a big risk by going the futures route with their plunge into gold?

  6. Yes, and I wonder if Gross knows what he's doing in this regard. One thing he could do is approach Sprott and have them issue him a private placement with the same terms as the public trust securities and he could have true physical gold ownership with Sprott as the intermediary in terms of managing the physical side of the trade.

    For sure, Pimpco can't truly represent that it is invested in gold unless it owns physical.

    1. I only wish I had a better choice.... much of my net worth is tied up in a Fortune 500 Corp. 401K, and the only vehicle that I have available to invest in that is not a stock or bond fund is PCRIX... and I am in fact using it now. The only way I can free the money to put (more) into physical would be to quit my excellent job... a conundrum of very high order.... 1Kg Lunar Dragon.

  7. I hope I can see a more visible graph that states this grain composition, I just want to learn more its percentage in composing it with price of gold also if posibble...

  8. And now that Gold is above 1650 and 30 for Silver what about miners. Well I guess you would tell me they have come up from GDX 39.08. Same rubbish as 2008 come up from 18 or so.

    I am so sick of that shit - miners can't even make it above the June or so high....

    The reward isn't worth the risk - if it isn't

    the Shorter and the criminal brokers - then it's
    Management - then it's
    Governments - then it's
    Workers - then it's
    Energy and OIL -

    It's South Africa, Mexico, South America - even Australia - they were the ones who started to talk about the resource tax etc.

    And the other thing is - these issues are relevant to other commodities too but the worst effected always are the Gold and Silver miners.

  9. It appears silver may be capped at $32.50 as the cartel has set up a firm cap in gold at $1700, smashing the metal down upon any threats to penetrate the critical level.

    Buy silver coins online