Gold & Precious Metals

Baron Nathan Rothschild, 18th century nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets – even if it’s your own.”

After the pivotal battle of Waterloo in 1815, rumors swirled as to who had actually won. Rothschild, who some claim had early knowledge of Wellington’s victory, used the uncertainty and panic to buy assets at bargain prices. Once it was clear that Napoleon had been defeated, markets reversed rapidly and Rothschild made a fortune.

And so it’s been down through history: Those who go against the crowd and ignore the fear often do well – sometimes very well.

Today, blood is indeed running in the streets for precious metal investors. With gold around $1,225 and silver near $20 – off 2011 highs of $1,900 and $47 – precious metal holdings have been a “nightmarish” portfolio the last couple years.

A Quick Look At The Carnage

After treading water in 2012, many of the larger gold mining companies nose-dived 50% or more in 2013. Goldcorp Inc. (GG) fell 42%, Yamana Gold, Inc. (AUY) fell 50%, and Barrick Gold Corporation (ABX) plummeted 53%. The junior miners fared even worse. They were absolutely decimated last year. Some, such as Sandstorm Gold Ltd. (SAND) and Gold Resource Corp (GORO) were (and mostly still are) down 70% or more.

Gold bulls including John Paulson and George Soros lost billions as they exited losing positions.

So what happened? Why has gold declined so precipitously? Since central banks have never ceased expanding their balance sheets (the major reason for gold’s rise in previous years) what changed in 2013?

Reasons For The Current Weakness In Precious Metals.

All bull markets have corrections and, after 10 years of steady price appreciation, gold and silver were long overdue for a sharp correction.

And it’s not just technical. Several fundamental reasons have also come into play.

First, you can’t pay your bills with gold. You have to sell to get the cash to pay and tough economic times have governments, institutions, and individuals selling gold to meet their obligations. Net selling drives prices down.

Second, central bank monetary expansion, the adrenaline of precious metal prices, is falling off. In the U.S. we have “tapering.” In Europe the monetary base is falling. Even the People’s Bank Of China is slowing its balance sheet growth (see here, page 7).

And as to all that money which has already been “printed?” It’s mostly sitting in bank vaults as bank reserves – unused and not in circulation.

Third, instability outside the U.S is growing. Unrest in the Middle East, tensions in the South China Sea, deflation in Europe, and the debasement of the Japanese yen all sends money fleeing to the perceived safety of the U.S. dollar – at least for now. A stronger dollar drives gold and silver prices down.

Finally, with gold production costs now around $1,100 an ounce while gold sells for a little over $1,200 an ounce, miner’s margins and profits are fading, dividends are being eliminated, and negative share price trends accelerating.

Beware Of Falling Knives

Are precious metals near a bottom? Well, maybe … but bottom picking is very difficult and by buying now you may just add your blood to that already “in the street” as prices continue to fall.

All markets eventually turn and precious metals will be no exception. It will likely take some kind of crisis or blow-off event, however, to reverse the trend.

So What’s A Cautious Investor To Do?

At this point it’s probably a good idea to have a small core position in precious metals This protects you from “black swan” events such as a sudden war or currency crisis which could spike precious metals very quickly. No one knows what lies ahead so keep a small core insurance position.

It may be smart to now have (if you don’t already) some physical gold and silver such as coins and maybe a small position in the miner ETFs: Market Vectors Gold Miners ETF (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ). By holding ETFs you minimize corporate risk such as bankruptcy and other negative company specific events.

GDX has holdings in 32 of the world’s larger gold mining companies. The top 3 holdings are Goldcorp Inc. – 12.0%, Barrick Gold Corporation – 10.5%, and Newmont Mining Corporation (NEM) – 8.5%. You can see GDX’s top ten holdings here.

GDXJ has holdings in 79 junior gold mining companies. The top 3 holdings are Argonaut Gold Inc. (OTCPK:ARNGF) – 5.3%, Torex Gold Resources Inc (OTCPK:TORXF) – 4.9%, and China Gold International Resources Corp Ltd (OTCPK:JINFF) – 3.7%. You can see GDXJ’s top ten holdings here.

Conclusion And Summary

Right now both technical and fundamental indicators seem to point toward continued weakness in precious metals. It is not inconceivable that gold will fall below $1,000/ounce and silver below $15. If that happens I think investors could safely add significantly to their positions.

In any case now may be a good time to start taking positions, if you haven’t already, in precious metals. But keep the positions small and add to them only on major dips.

Eventually the market will turn, probably bottoming during some sort of crisis, and then likely move quickly to the upside. That is how things worked well for Baron Rothschild and hopefully will for you.

Another Washington Currency Scheme? It’s Enough to Make You Cry

Posted by Charles Goyette - Money & Markets

on Thursday, 8 May 2014 13:19

There seems to be no shortage of bad ideas in Washington. They usually involve an unspecified cost to the people at large to provide an undisclosed benefit for the influential and well-connected. But it takes peeling the onion to see what’s really going on in some of these Washington schemes.

One of the latest — a really bad idea that popped up this week — is from Senator Marco Rubio. Rubio has been sharing a lot of his ideas about Ukraine and Russia lately. In March, he offered a package of “8 Steps Obama Must Take to Punish Russia.” Among them was his idea that we must make a renewed push for the Republic of Georgia to join NATO.

Another NATO member on Russia’s border? Bad idea. There is enough dry tinder for one conflagration already.

There is as well — if anybody cares — the issue of U.S. integrity. Rubio may be too young to remember, but the Soviet Union was still a fearsomely armed world power when it dissolved. It had 380,000 troops in East Germany, a military presence resulting from Germany’s unconditional surrender ending World War II. Now the Soviet Republics were being set free and the Warsaw Pact was expiring. It was a remarkable thing seeing the Evil Empire, armed though it was with thousands of nuclear warheads, simply come to an end. Without a shot being fired.

Screen Shot 2014-05-08 at 6.20.41 AMGorbachev was willing to let all this happen. And he was willing to let Germany reunify. But Gorbachev did ask for one assurance: that NATO not expand its war machine to Russia’s border.

It seems to have been a reasonable point. Russia, like other nations, is concerned about expansive military might on its border. That’s really the source of the flare-up in Ukraine today.

In any event, it seemed reasonable enough to President Reagan’s secretary of state, James Baker. “Not one inch eastward” were his words about NATO expansion as he discussed conditions with Gorbachev in Moscow. The deal was confirmed in the Kremlin the next day by Germany. Chancellor Helmut Kohl agreed, while his foreign secretary, Hans-Dietrich Genscher, assured the Kremlin that “for us, it stands firm: NATO will not expand itself to the East.”

And with that the Cold War — having bled the people of two continents for more than a generation — simply died.

Still some people would like to see it resurrected. Rubio has joined 20 other senators as a sponsor of the Russian Aggression Prevention Act of 2014. It calls for more armaments for Ukraine. It authorizes increased spending on NATO. It demands joint military exercises with Ukraine, Georgia, Moldova, Azerbaijan, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia.

Perhaps its least noted provision is the most loaded with explosives. It appropriates $10 billion for the U.S. to meddle in the internal political affairs of Russia, in the same way that the government spent $5 billion meddling in the internal affairs of Ukraine and micromanaging a regime change in Kiev.

Bad ideas all.

But now Rubio has offered another big idea, launching it on the editorial page of Tuesday’s Wall Street Journal. Rubio is calling for the establishment of a “currency board” to prop up the value of the hryvnia, Ukraine’s national currency. Rubio says Americans must extend to Ukrainians the benefits of having “a trustworthy sovereign currency.”

Shouldn’t the trustworthiness of Ukraine’s money depend on Ukraine’s fiscal and monetary probity? The world is crawling with countries that would like to have trustworthy sovereign currencies but are unwilling to act responsibly to get them. Why then should the American people, still straining under the “new normal” conditions of their own economy, be taxed to provide for them what they are not willing to provide for themselves?

If Rubio understands exactly what a currency board is, it is not apparent in the text of his proposal. One should always be skeptical of grandiose government plans and schemes that don’t come with hard and reliable numbers attached. Rubio offers not a single number that would make clear the cost involved in funding a reserve sufficiently large to provide an unlimited liquid market for a broken currency at a fixed and artificially high price.

Ukraine is free to establish a rule-bound exchange rate using its own currency reserves, but Rubio has his eye on your money, citing IMF loans of unspecified scope. Of course the IMF is a device for laundering U.S. taxpayer money, since we are the largest contributing nation. Right now Congress is considering a measure that effectively doubles the U.S. commitment to the IMF, a package to approve $65 billion to IMF core funding and about $106 billion for an IMF supplementary fund.

Despite its failure to meet the terms of two prior IMF loans, the institution has approved a new $17 billion package for Ukraine. In the air around these multinational deals and proposals like Rubio’s, one catches the desperate scent of bankers anxious to be spared the risk of a default. A good chunk of the new IMF package will be used by Ukraine to pay banks and Gazprom, the Russian gas giant which is owed $2.2 billion.

So to peel the onion: Americans will borrow money from foreign creditors like Russia (yes, Russia is a major creditor of the U.S. Treasury) and China to launder through the IMF to give to Ukraine which in turn will give the money to multinational banks and Russian plutocrats. It’s enough to bring a tear to your eye.

And now we are asked to fund a currency board to prop up Ukraine’s hryvnia.

What about our own currency? Has Senator Rubio looked at the fundamentals of the dollar lately? It would make a grown man cry.

Best wishes,

Charles Goyette

P.S. Don’t wait one moment longer to read the shocking truth behind the most devastating scandal of this or any other century!

 

John Mauldin’s Knock on the Side of the Head to World Leaders

Posted by John Mauldin via The Gold Report

on Thursday, 8 May 2014 13:13

John MauldinThe future will be decided in a race between global advances in demand for resources, complex technology and biotech innovation, and growing sovereign debt. In this interview with The Gold Report, Thoughts from the Frontline author John Mauldin points to the sectors that could benefit from the upside of improving world demand and the possible downside of a fiscal collapse in the geographic hot spots of China, Japan and Europe.

The Gold Report: John, you’re one of the best-connected newsletter writers in the business. When you and I last chatted, the fiscal cliff was looming. Will the U.S. continue to lurch from one politically motivated crisis to another artificial crisis, or have politicians in D.C. learned their lessons?

John Mauldin: I guess it depends on which politicians you’re talking about. There are some politicians who get it. There are others who don’t. I think that government is still the solution to the problem. In the end, it’s going to take the equivalent of a knock on the side of the head by a two-by-four in the form of the bond market. Or voters could express their frustration with the direction of the country at the ballot box. That’s possible. Maybe the Republicans can realize that where they are is not where the voter population wants to be. They would have to change some of their programs to adapt to a younger generation and single women, because that’s where the Republicans are losing their message of fiscal conservatism, which is actually quite popular in those demographics. It’s all the other baggage that goes along with the Republican brand that is the problem. The same thing is true for Democrats. Their constituency is also fiscally conservative. 

Perhaps after 2016, we could see a move to balancing the budget, which is really all we need to do. To do that, we have to figure out how much healthcare we want and how we’re going to pay for it. That’s going to take some compromises on both sides. I think both sides recognize that at the end of the day, if we don’t solve that question, then all the other questions become secondary.

TGR: You’re talking about compromise. The fiscal cliff was partially a crisis around using the raising of the debt ceiling to impact policy. Will that continue to be a flash point or have people decided that that’s not the way to fight?

JM: Democrats and Republicans alike have used the debt ceiling a handful of times in my lifetime. This last time it was politically not rational to use it, so it didn’t get used. But we’ll see it used again. There has to be some moment of crisis, something that forces people to compromise. Seemingly, we just can’t be rational and sit down like adults.

TGR: You are going to be speaking at the Strategic Investment Conference in San Diego along with Newt Gingrich and John Hunt. Your specialty is explaining the forces driving the global economy and investment markets. I have to ask the question everyone watching the upward climb of the indexes wants to know: Are we in an asset bubble? What is supporting it? What could pop it?

JM: I don’t think we’re in an asset bubble. We’re in a period of very high valuations, but it doesn’t look like bubble territory. We have seen serious bear markets start at this level, but there is nothing to say that it couldn’t go higher, and I’m not talking about in terms of valuations or price. What’s driving the market is sentiment, the story. What’s driving it is trust in the central bank. I’ve been writing for years that if there is a bubble, it’s the bubble in the belief that the Federal Reserve can actually control things, that it is actually in charge and that the markets themselves don’t have do anything but just follow the path of the Fed. That’s a lesson that always ends in tears. Central banks and policymakers can’t control things. When valuations get stretched too far, they snap back. When it comes to popping this current valuation expansion, it could be a China slowdown or international debt challenges. Bill White, former chief economist for the Bank for International Settlements, who is now at the Organisation for Economic Co-operation and Development, is arguing that we spent the last five years trying to increase demand in the economy when we should have been repairing the balance sheet. We haven’t addressed the primary cause of the crisis, which was out-of-whack balance sheets. We haven’t reduced the debt. We haven’t been reducing leverage. There are ways to deal with debt, but none of them are pleasant. None of them are going to make people happy. The reality is we still have too much debt and we haven’t dealt with it, especially in Europe. Europe is still a problem.

German banks are significantly overleveraged; they have a lot of bad debt on their books. We are a few sovereign debt crises away from a serious banking crisis there. Think about this. We have allowed Spanish, Italian and Greek bond rates to fall to precrisis levels, and yet the debt/ GDP ratios for every one of those countries are significantly higher. Spain and Greece have 25% unemployment and 50% youth unemployment. France’s GDP is shrinking, not rising. I think that Europe could be a serious problem when markets realize some European countries can’t pay their debts and start asking for higher interest rates. And it accelerates rapidly. It’s the old Ernest Hemingway line, when one of his characters asks how the other went bankrupt. And the guy said, well, slowly, then all at once.

TGR: We have been talking about the market as if it’s one thing, but are commodities, technology, banking and energy all reacting differently, both in the rise and what sounds like the inevitable fall? Will some do better than others?

JM: Yes, they all do act differently. Not everything is going to fall. There are always stocks that create value, businesses that have figured out a new approach. There are things that are solid. We are still going to buy Coca-Cola, soap, food. We’re going to need to consume energy. The price that we pay for a dollar’s worth of earnings may change, but the underlying true value of the company will still be there. Sometimes we just have to recognize that we need to accumulate assets that are going to be valuable at the other end of the crisis.

Governments are going to have spastic-type movements if they want to monetize debt as they try to minimize the effects of their bad policies. And it doesn’t work. The cure central banks and governments have come up with is quantitative easing (QE). That makes the problem worse and can lead to catastrophic problems.

TGR: How close are we at this point in Europe or in the U.S. to a catastrophic problem?

JM: We could see another crisis in Europe within the next few years. The U.S. is still some time away. Japan is in the process of destroying its currency. I’m hedging a significant part of my mortgage in yen, and I’m buying 10-year options on the yen with out-of-the money strike prices because I think the yen is going to go to 200 over the next 10 years. It may go much higher. Currency markets are terrible in Japan. Japan has been called a widowmaker for very good reasons. I think Japan is committed to a serious process of monetization. It could be putting as much as $8 trillion ($8T) into the world’s economy through QE. That would be the equivalent of the U.S. printing $32T for its balance sheet. At 250% debt/GDP, it has painted itself into the mother of all bad corners. If you’re sitting with a long bond position entirely in Japan, you’re not going to be very happy at the end of this 10-year process. If you are short the yen and you’re sitting in the U.S., you’re going to be able to buy a Lexus cheaper than you can buy a Kia. Sony TVs are going to get cheaper and cheaper. Their robots might be cheaper. So it might be a good thing from our point of view, but not from the Japanese retiree’s point of view.

The same problem could be lurking in the U.S. if we don’t get our act together. I’m still optimistic that we will. We did it in the 1990s. Who knew we’d be nostalgic for Clinton and Gingrich? We could make the same decisions again. I’m less confident that France and Italy will be able to make those decisions. I think there could be some problems.

TGR: If we’re looking at a looming sovereign debt crisis in Europe and Japan, what asset classes should U.S. investors be considering?

JM: My view is that given the rise of energy production, we’re going to see the dollar get stronger, not weaker. I know people are talking about the end of America, the end of treasuries—I don’t believe that’s going to happen. If we go back into a QE program in a few years, we could see an inflationary period at the beginning of that cycle. But that’s off a ways.

U.S. investors do need to watch out for disruptions in the rest of the world. That could reduce the consumption of commodities. That’s not a very good prospect if you’re in South Africa, Canada, Australia or Brazil, one of the commodity-producing countries.

TGR: John, you’ve named China as one of the biggest macroeconomic problems in the world today. Is the problem the debt from recent expansion, or a slowdown in the expansion?

JM: The answer is, probably both. Since the end of World War II, we have had the Italian miracle, then the Latin American miracle and the Japanese miracle, followed by American, Irish and Spanish housing miracles. All those ended in rather spectacular busts. China’s miracle has the same two components: rising leverage and excess construction. China’s leaders are very cognizant of this. The proposals they’ve made are some of the most far-reaching since Deng Xiaoping. They could really be dramatic change-makers if they do what they say they’re going to do, but that path is going to produce slower growth. The Chinese have to figure out how they are going to restructure their debt while protecting consumers and depositors. They seem to be doing that. But it’s a very difficult path, because they’ve expanded their debt by massive amounts, which historically hasn’t ended well. Now they are trying to be proactive about it rather than just pushing it to the end. So I’m hopeful that it’s just a slowdown, but I’m cautious in saying it could be more if they make a policy mistake or something happens out of the ordinary.

TGR: Even with the slowdown, China is growing. It’s just not growing as fast. Wouldn’t that be good for stocks?

JM: When I was in South Africa, I met business owners who had factored in 7% and 8% growth to their business plans. Chinese growth has fallen pretty seriously. The world has gotten used to its built-in models.

TGR: There has been a lot of news recently about conflict in the South China Sea and Ukraine. To what extent do you think that war might be a black swan that will impact markets? 
JM: God, I hope not. War would certainly affect markets, potentially significantly. I just hope cooler heads will prevail. I can’t see the U.S. going to war over Ukraine. We’ll just increase sanctions. Will that hurt Russia? Yes. It’s already hurting. Money is fleeing the country. Stock markets are down. Russia seems to be willing to pay the price to have Crimea. Maybe it’s going to try to figure out how to absorb part of eastern Ukraine directly or as an autonomous region so that it doesn’t have to worry about its border.

TGR: John, you’re always very positive about technology and the impact technology will have on our lives. What technological advances are you most excited about now?

JM: I continue to be mostly excited about biotech, maybe because that is what’s going to personally affect me. We got rid of smallpox, diphtheria and polio—those were big changes. We’re going to see those types of events happening every year now. I think there’s potential for a cure for cancer on the horizon, for liver disease, for chronic heart disease, for arthritis, Alzheimer’s. Those things are coming soon. What those dramatic changes mean for many of your readers is that they need to plan to live a lot longer.

Energy is also exciting. After a couple more decades of improving solar technology, sun power will be cheap enough to replace oil. In the next 20 years, we’re going to become natural gas exporters. That will do great things for the economy.

Most of the developed world is still trying to rise up through the second industrial revolution. They’re coming at it much faster, but they have a long way to grow. As they go through that, they’re going to want more protein, more metals. The growth in biotechnology is a function of Moore’s law. We’re seeing more change. We’re going to see, in the next 10 years, some of the most incredible advances in human history.

We’re going to see changes in computing power. I’m talking to you on a mobile phone that is 1,000 times more powerful than the phone I had 15 years ago. In another 15 years, I will be talking on a phone that will be 1,000 times more powerful than the one I have today. If the trend keeps going, it will be the size of a button, but the possibilities will only be limited by the scope of our imagination. Facebook and Google are buying high-altitude balloons and solar-powered drones with advanced communications systems that can track anything. Everyone will be connected, not just in the U.S. but throughout the Middle East and India. Those kids are going to have access to systems that will allow them to improve their lives and their families’ lives.

The amount of change that we’re going to see is simply an accelerating trend. That’s in juxtaposition to the amount of growth we’re seeing in sovereign debt, which is destructive. The question becomes: Can government and central banks destroy wealth faster than technology and humans create it? And it’s going to be a race. In some countries, citizens will lose. Some countries’ citizens are going to win. I think each country, each region, has to be responsible for deciding that it wants to be in the winner’s category.
TGR: John, thank you for your insights.

John Mauldin is a world-renowned economist and financial writer of the New York Times best-selling books Bull’s Eye Investing, Just One Thing, and Endgame. His most recent book is The Little Book of Bull’s Eye Investing. Mauldin’s free weekly e-letter, Thoughts from the Frontline, is one of the most widely distributed investment newsletters in the world. Launched in 2000, it was one of the first publications to provide investors with free, unbiased information and guidance.

Mauldin is also the chairman of Mauldin Economics, a company created to provide individual investors with his big-picture thoughts on the global economy, as well as actionable investment and trading strategies typically deployed by institutional money managers on behalf of their high-net-worth clients, but at a fraction of the cost.

Mauldin is the president of Millennium Wave Advisors, an investment advisory firm registered with multiple states. His track record of success vetting and consulting with money managers spans over three decades. His passion is to understand the world of economics, investment, politics and science, and to determine how it may all come together in the future. As a highly sought-after market pundit, Mauldin is a frequent contributor to publications such as The Financial Times and The Daily Reckoning and is a regular guest on CNBC, Yahoo! Daily Ticker and Breakout, and Bloomberg TV and Radio.

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1) Karen Roche and JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provide services to Streetwise Reports as employees. They own, or their families own, shares of the following companies mentioned in this interview: None. 
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Precious Metals & Big Cap Tech, The New Odd Couple

Posted by Rambus Chartology

on Thursday, 8 May 2014 13:02

Before we look at some charts tonight I would like to follow up on a post Sir SA Viking did at the Chartology Forum today about not trading in the first 30 minutes of a new trading day. He is absolutely correct. If you’ve been trading in the markets for any length of time then you have heard the expression that the first 30 minutes of trading is for amateurs. The reason for this old adage is because a lot of amateurs will trade on the previous days price action and have to get in a trade no matter what. Many times you will see the smart money fade the open after the first half hour of trading trapping the new guys that just had to buy. The only time I will trade in the first half hour is when we have a nice profit and the price action is close to a price objective that was laid out previous. I will usually try to sell in the first 15 minutes if possible.

I also want to talk about using sell/stops. I personally never use sell/stops as it shows the specialist, the market maker, where all the treasure is buried. They will then run the sell/stops, taking in that new inventory of stock, with the purpose of selling it higher. I’m between a rock and a hard spot using sell/stops for our members as I know many need to know where to exit if things go wrong even if it’s a fake out before the breakout. As I’m watching the market very close each day I personally don’t need them. I’ve stated this before that I may not elect to execute a sell/stop if it is hit because it’s for those that need it. If I do decide to execute a sell/stop I will always tell you for future reference.

If you remember our sell/stop was hit this week on our DUST trade by about .15 cents or so and then the price action reversed back up. That was a perfect example of running the sell/stops and then reversing the move once the stops were hit. I wish there was a better way to do this but it is what it is. It’s all part of the game.

Precious Metals

The first chart I would like to show you tonight is the one I posted today on the GDX. So far this downtrend has four separate chart patterns in it. The top is comprised of the blue 5pt bearish expanding rising wedge reversal pattern. The second pattern is the red bear flag. The third pattern is the red bearish rising wedge and the fourth and most important chart pattern is the potential blue bearish falling wedge which should be a halfway pattern to the downside.

GDX-2-HOUR

This longer term daily chart for the GDX shows how small the bearish falling wedge is on the chart below, in red. As you know I’ve been looking at this possible 4th reversal point on the much bigger blue falling flag as the reversal point to get us back down to the bottom of the blue falling flag. The little red bearish falling wedge should get us down to the previous low at reversal point #3. At this moment this is our primary price objective. Keep in mind that I’m also looking at the blue falling flag as a halfway pattern. Note the blue bearish expanding rising wedge at the top of the chart and the fourth reversal point. That 4th reversal point marked the beginning of that big impulse move down to reversal point #1 on our blue falling flag. If we have just put in the 4th reversal point, in the blue falling flag, then we should see a similar move that matched the first leg down out of the 4 point point bearish expanding rising wedge down to the 11.40 area or so. This is the potential huge reward I’m looking at right now. I can tell it’s not going to be easy as you are already finding out by this little consolidation area we’ve been in for several weeks now. The price objective down to the 11.40 area is not a pipe dream. This is how markets work. They build a top or bottom and then have an impulse move followed by a consolidation pattern. We’ve been in our latest consolidation pattern for 10 months so far as it’s correcting that big impulse move down from that 4th reversal point in the blue bearish expanding rising wedge at the top of the chart.

GDX-2222

Lets now look at the daily chart for gold I’ve been showing you that shows how an uptrend and downtrend work. The blue arrows on the left side of the chart shows a beautiful uptrend where each minor low is higher than the previous low. Since the top was put, top red arrow, just the opposite has been happening. As you can see gold has been creating lower lows down to the current price action at the 1265 area. Gold has made three attempts to break below the 1265 area that would then confirm a new low which would also confirm the continuation of the downtrend channel. You can see how violent the price action is becoming between the upper and lower brown shaded support and resistance zones. The bulls and the bears are fighting it out for control of the trend. How long this battle goes on is anyone’s guess but the sideways trading range, rectangle, is trying to finish up its fourth reversal point that we have to see at a minimum to create a consolidation pattern. Now that we have more information we just need to follow the price action for more clues as to when a breakout may occur. It could happen tomorrow or next week or when it just good and ready to show its hand. There is no doubt we’ll be on top of it when its ready to move.

gold-day

Big Cap Tech

I will be spending more time covering this sector and others in the General Markets as it appears
a clear trend is developing . As Most Members know , I have never met a Trend I didn’t like .

Let us turn our attention to a few big cap tech stocks, recent darlings that aren’t looking very hot anymore.

The first chart is a weekly look at AZMN that is showing a very well defined H&S top complete with a breakout and backtest.

amzn

EBAY has been chopping out an 11 point blue rectangle for well over a year now. You can see it had a symmetry false breakout from the bottom rail and then one through the top rail that may have been the exhaustion move where it finally ran out of gas. Remember an even number of reversal points equals a consolidation pattern and an odd number of reversal points equals a reversal pattern. As you can see EBAY is strongly testing the bottom rail right now. A solid break will create a very large top reversal pattern.

EBAY

The daily chart for GOOGL shows us a double H&S top that isn’t one of the prettiest H&S tops I’ve ever seen but it’s making lower highs and lower lows which is creating a downtrend. It will be interesting to see how GOOGL deals with that huge gap, brown shaded area.

googl-day

This long term weekly look at GOOGL shows how I’ve following this stock through the years. What is the most important thing to understand is where the H&S top, I showed you on the daily chart above, has formed on the weekly chart below. If there was ever a place to look for a H&S top reversal pattern this chart shows that place in spades.

googl-weekly

NFLX has been a high flyer but it to looks like it’s building out a H&S topping pattern. Note the beautiful H&S top that was made in 2011 and the decline that followed.

netflix

The last time I posted this chart for PCLN was when it was breaking out from the H&S consolidation pattern back at the beginning of 2013. You never know what kind of price rise you’ll get only that it should be a good one when a stock breaks out of a fairly large consolidation pattern. This chart also shows you a perfect example of how support and resistance works. Notice the eight point blue rectangle that formed back in 2011. Once the price action broke above the top blue rail it then reversed its role from, what had been resistance to then support as shown by the double headed H&S consolidation pattern. That is perfect Chartology 101.

pcln-777

I think some of these charts above are showing you why the NDX 100 is trading way below the Dow and SPX. These big guys led on the way up and are now going to lead on the way down. There are many more examples I could show you but I think these big cap tech stocks paints a pretty good picture of what is going on below the surface.

This is the why behind our recent addition of SQQQ, the 3X Bear Big Cap Tech ETF to our Model Portfolio

Stay Tuned

All the best…Rambus

http://rambus1.com/

 

 

John Embry said last month that the rally at the beginning of the year was encouraging, but to remember that sentiment for gold was still extremely negative. He says that the stock market’s new highs are a result of the Fed ‘jamming cash into the economy.’ With nowhere else to go, cash is creating bubbles in stocks, real-estate and bonds, he warns.

Hello John. Gold has fallen back down over the last month. Do you think optimism for a fast recovery in gold has fizzled out?

John Embry:I believe that is probably a fair assessment of what has happened since. I think that the decline in the last month has hurt confidence in the West. But I can assure you that the Eastern interests are rubbing their hands and piling into all the physical gold they can get. Once they realize that there is a limited amount remaining for them to pour their U.S. dollars into, I believe the price will move up sharply.

I think that people should be focusing more on the eventual upside — which is going to be huge–than on the short-term downside which is due to the paper markets.

What is your view of gold in the next few years? What if we continue to have low inflation, or even deflation? How will gold fare?

Well, I don’t think that the situation that we have here is sustainable. We are going to have to create a sufficient amount of money to keep the debt load afloat. We are going to have to keep interest rates low because if those basic requirements are not met – that is lots of liquidity and maintenance of low interest rates – the system is going to collapse.

I think that’s why you own gold; because the odds favor something going badly wrong – a ‘black swan’ if you like. And to continue they will have to jam liquidity, and at some point there will be a massive recognition that the money is no good and people will want out into real things. So I don’t worry about low interest rates and low inflation keeping gold low.

Low interest rates suggest that there is a low demand for capital in the economy. High amounts of cash on corporate balance sheets also indicate that companies are no longer finding profitable opportunities to deploy cash. Do we need to see a higher demand for capital in order to see higher inflation and rising interest rates?

Well, yes, companies are finding it hard to re-deploy capital – and for good reason. There are just not enough credit-worthy borrowers or investment-worthy opportunities to exploit. This happens because the economy is so weak. I don’t believe it for a minute that the economy is as strong as people suggest. As the economy continues to weaken, inflation becomes a currency event.

It’s not inflation like in the 70s’, where a higher demand for things led to prices going up. This time, it’s the currency that is being severely debased and that is what will lead to – I believe – hyperinflation before this is over.

In a weak economy, where there is nowhere for companies or banks to deploy capital, could cash continue to accumulate in banks and corporate balance sheets, preventing this cash from causing inflation?

Well, I guess that could happen. But the question becomes: Why would you want cash, when it generates no return?

I mean, I don’t accept the fact that there is no inflation anyway. I am a big believe in John Williams’ ShadowStats. I think his inflation number may be too high at 5 percent or so right now.1 But the real number is probably somewhere between that and what they report. So if you’re putting your money in bonds, particularly in the short-term ones, you’re losing purchasing power every single day that is sits there.

So we are waiting for investors to recognize this guaranteed loss in purchasing power from holding bonds?

Well quite frankly, Henry, I am amazed that people, given what is unfolding, are prepared to hold bonds. I my view, these things won’t buy a loaf of bread by the end of the experience. And yet there are trillions and trillions of these bonds in the hands of investors everywhere. Now, obviously, nobody wants to buy American bonds quite so much. That’s why the Fed has been forced to step in and buy so many of them.

I think that the next shoe to drop will be the geopolitical mess that is unfolding in the Ukraine and elsewhere. I believe there will be others: the Chinese have already stated their intention of diversifying away and pricing everything in Yuans. I think the Russians are going to head in that direction too. I believe there is going to be an overhang of U.S. dollars in the market, which is going to lead to the price of the Dollar declining. It’s not that the Dollar is particularly overvalued against Euros or any other currencies. It’s just that people are going to want to get rid of all of them, and I think the Dollar is extraordinarily vulnerable.

What else is on your mind today that is important for gold and silver investors?

Well, there is something I would like to comment on. It’s this whole paper gold market. I don’t think that people fully understand what a Ponzi scheme it is. I’ve seen numbers, which could even be too conservative, stating that there are at least 100 claims on every single ounce of gold in the Western system.

This continues until it doesn’t, but the minute that it stops, people will be asking themselves what they really own through their ‘paper gold’ vehicles. I think that this will have an unbelievably large impact on the price of physical gold. I believe that to own gold, you should only buy either physical gold or a vehicle that is backed by the metal such as the Sprott Physical Gold Trust, where there is an audit showing that all of the physical gold is there. That is not the case of 90 percent of the ‘paper gold’ products out there.

I think that could be a real catalyst for dramatically higher gold prices soon.

Do you see a chance of a weakening of demand from India or China?

Oh, not at all. I think that the Chinese have changed the whole ball game. You could measure how much gold was being imported into China through Hong Kong and they were importing staggering quantities. They were essentially buying up the equivalent of the world’s entire annual mine production outside of China. Now, they are going to start taking gold in more clandestinely through Beijing and we won’t know how much they are buying, but I think they will buy as much as they can get their hands on.

James Turk had an insightful comment about the gold market; he said that a lot of the physical gold getting into the market were old, 1960s’-style bars. That suggests that we are running out of gold in the Western world.

Why have we experienced new all-time highs in the stock market and record profits from big corporations when the economy is so fragile?

Well, I think it’s very simple. You alluded to it when you said that people don’t know what to do with their money. As more money is jammed into the system by the Fed, the money has to go somewhere. What’s happening is that it’s creating bubbles in lots of things – stocks, bonds, or urban real-estate. Sure, profits look good, but there is a lot of phantom accounting that can make profits look a lot better than they are.

I tend to look at the top line, which is not nearly as good in most instances as the bottom line, which you can tamper with through accounting tricks.

So, I think we’re doing what we did at the end of the 90s’ with the tech bubble. I think we are just having a more widespread bubble in stocks.

What do you make of the Fed tapering, which has taken QEdown to 45 billion dollars2 from 85 billion dollars per month?

Well, quite frankly, I don’t believe a word from these people. Why was Belgium the biggest buyer of Treasuries in the most recent period? Belgium — they’re bankrupt too! So, I would not be surprised if the Fed is operating in some back-door way. If the Fed tapers, somebody still has to buy these bonds.

You see, the U.S. is faced with two challenges, which are mutually exclusive. On the one hand, they are trying to protect their currency, and on the other trying to protect their economy. And I think that one of these will surely fail. And I suspect that the easiest route will be to let the Dollar go eventually than to let the whole economy go. If they continue to tighten up and taper, I think the economy will buckle, and I think that’s the last thing they want.

‘Tapering’ will continue until the pain becomes too strong, at which point it will be violently reversed.

Will the Feds have the capacity to ramp QE back up in order to save the bond market?

Well, I think they will have to at some point because it’s becoming abundantly clear that the previous large buyers, for various reasons, are not buyers anymore – the Chinese and the Japanese for instance.

The Japanese have their own problems to worry about. The fact that Belgium shows up all of a sudden as a large buyer tells you that there is something very wrong in this market.

http://sprottglobal.com/

1 http://www.shadowstats.com/alternate_data/inflation-charts

2 http://www.foxbusiness.com/economy-policy/2014/04/30/fed-continues-taper-holds-rates-steady/

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