The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, April 15th, 2013.
Lies, lies, lies - and propaganda - anything to get the stock market higher and keep the canaries contained. The powerful and plugged-in bankers and bureaucrats are having their way right now, but this will end abruptly at some point when building pressures in the system blow. These characters have us on a collision course with an increasingly unpalatable future the longer they continue jamming the status quo (think financial repression) down our throats. Increasingly desperate measures are required to maintain the illusion, which is why they continue to attack precious metals - the ultimate canary in the coalmine. Money printing is exploding all over the world and its effects must be hidden, so the moneychangers have programmed the computers to sell precious metals, led by easily manipulated shares; however this scheme will become increasingly difficult in the future.
With the Keynesian Experiment running out of gas because of diminishing returns, primarily due to insane and self-serving policy on the part of 'the powers that be', cracks are increasingly showing up, which will ultimately force a change in mainstream script. Right now the storyline is everything is 'just fine' and big brother has all 'well in hand'. (i.e. with QE, etc.) Sooner or later however, increasingly meaningful, bad news, technical divergences and analog based comparisons will become a factor in the equity (and debt) complex(s), which will force a change in official policies and script as well, along with institutions that serve them, especially if the flash crash cycle excerpts its influence. This entire rally in stocks has been nothing more than one gigantic short squeeze, with the trashier the stock (therefore more heavily shorted), the bigger the likelihood of it outperforming. This can only end one way - with a crash at some point.
And unfortunately it appears it will take a substantial hit in the stock market before central authorities, led by the Fed, will change their storyline. The set-up right now is similar to that just prior to the crash of 2008 in that the real economy is cracking up, which as alluded to above is showing up increasingly in a plethora of important measures and divergences, but the stocks remain resilient despite this due to just the right amounts of money printing, financial repression, and misplaced speculation. (i.e. shorting.) Again however, if history is a good guide, this should be coming to an end quite soon. After that the Fed will be forced to drop its bullshit storyline that the economy is 'so strong' they might need to cut back on QE with the economy literally crumbling at the very feet of central planners. But such talk would make for 'bad propaganda' to the bunch of crazed egomaniacs running the show now, so you will never hear or read those words in the mainstream - not yet anyway.
What's more, with the real economy so weak right now, all this will appear quite tragic in hindsight if central planners are unable to get the economy back on track again (think the Japanese experience of perpetual recession / depression), because in fact the need for speed is reasserting itself right now, meaning the longer they wait in not accelerating money supply growth rates, the harder it will be to revive their precious fiat currency based economies later on. Again, right now central planners think they have everything 'just right', as in the 'goldilocks economy'; however they have just been getting lucky due to the natural tendency of speculators / asset managers to become increasingly bearish / protective the more prices rise by buying puts against the market(s) - it's a 'natural tendency market price managers prey on - which has been maintaining the perpetual short squeeze in stocks.
This is set to change however, because at some point this tendency to buy puts on stocks will be exhausted, and it will become evident that the amount of money printing by the Fed is insufficient (believe it or not) as the markets decline. The daily POMO injection will need to be increased quite a bit in order to revive the fiat currency economy(s) and stocks this time around, where the rate of change in key money supply growth measures will need to be turned up - way up like back in 2008. (See Figure 1) Again, right now central planners think they are winning because stocks are still rising, which is why they have the audacity to babble about cutting back on QE, austerity, and the Sequester. But believe me this will all stop once stocks turn lower in earnest. It will not take long for them to change their tune. This is when the dollar($) will turn lower, and precious metals higher - and not before - at least not in earnest. (See Figure 1)
Side Note: Monetary base growth rates will increase geometrically in the US, like they did back in 2008, and recently in Japan, when central authorities panic, which will only come when they see equity prices falling uncontrollably once again. So, don't expect to see a lasting 'reversal' higher in precious metals until this occurs despite what the 'tinfoil hat crowd' in the gold community would like you to believe. They are correct that precious metals are now oversold and in need of a bounce, and a bounce will likely occur at some point soon all things considered, however a sustainable move higher will not occur until broad money supply measures begin to increase with vigor.
Because in actuality bearish precious metals speculators are acting rationally all this be known, although Goldman recommending shorting gold after the big decline its already had is likely not 'well meaning' advice - of this you can be sure. Here, even though we might see another hundred or two on the downside yet to go (see below and attached charts); still, we are more likely approaching a bottoming in gold rather than lasting period of accelerated selling, but it's with calls like this they pay back government affiliations for all the privileged information they get. At the same time however, if one were a typical hedge fund manager looking at the overall situation right now, again, selling gold does not look like such a bad idea from the perspective even if much of the selling is contrived; still, it appears central planners have it wrong and are about to crash the system, which may explain not only Goldman's position, but also, the conviction in which precious metals are being sold. (See Figure 2)
And as you can see above, with this logic in mind, along with technical considerations (sector wide), gold now has a better than even chance of falling all the way down to $1300 (rather quickly), which is important Fibonacci resonance related support indicated above. And the bad news does not end there. Going back to the attached charts published yesterday, one should pay particularly close attention to Figure 5, the Dow / TSX Ratio, which has now broken to the upside, triggering a legitimate deflation signal. What this means is if central authorities don't begin printing copious amounts of increased currency soon, the world might slip into a similar condition only comparable to the 1930's, which will eventually bring extreme inflation and war in all likelihood. Before this happens however, what I am calling misplaced policy, the lack of money printing to keep all the fiat currency economies of the world inflated, may crash equities, now primarily being signaled by precious metals, commodities, and Asian stocks.
But what would really scare people is if precious metals don't bounce up right away from this drubbing, which is scary in two ways. First, traders will realize their losses may be permanent, which should blow a few brain circuits finally, likely giving the trade a new found respect for the precious metals markets, a prerequisite to a lasting recovery. This psychology is necessary because precious metals pricing is still being determined by the faulty and fraudulent North American paper based mechanisms, or markets if you want to call them that. And second, which is the possible bad news for everybody, if central authorities (including the Chinese) don't change monetary policy soon, a lasting deflationary cycle could grip macro-conditions sooner than later. Again, this would be similar to what occurred in the 30's, requiring World War II to get the global economy jump-started. (See Figure 3)
This is why precious metals shares have at least 15% further downside from Friday's closing levels before some sort of bounce should be expected, because the Amex Gold Miners Index (GDM) will not hit support, not that this support will hold, until 760 is vexed. And if that support on the GDM does not hold, then the head and shoulders pattern in the Amex Gold Bugs Index (HUI) will release to the downside and it will be sub - 200 faster than you can say - but I thought precious metals were in a bull market. The thing is with the faulty and fraudulent market mechanisms that are based more on sentiment (and money flow) and computer algos (than fundamentals), where they are programmed to part overly bullish speculators with their money on an aggressive basis, our buddies down at the bank are attempting to change your mind about that, along with exploiting you to the maximum. So, keep buying those call options if you like losing money. (See Figure 4)
You see, it isn't that there's not enough money printing and printed money already in existence to see gold and silver prices higher, it's just to get around all the programs central planners have to keep precious metals down, money printing needs to be 'full throttle', meaning the growth rate of the monetary base needs to be much higher if the idiot speculators never develop any respect for the market and stop buying call options. So, we need a little cooperation from the speculators, where again, if North American faulty and fraudulent paper pricing mechanisms are still to set prices, we need them to develop a healthy respect for the metals, which I can assure will be happening soon now. The powers that be want people to stop buying physical gold and silver because they know the point of ubiquitous force majeure is not far off now, where prices will rise uncontrollably afterwards. So, their idea of a solution in this regard is to topple naïve and wrong-headed speculators over, like now. Unfortunately for investors we have this untenable volatility to live with, but such is life with such a stubborn and greedy crew of idiot speculators now being purged from the precious metals markets, hopefully for a long time.
In the possible good news department it should be pointed out the standing channel target for RSI on silver's monthly chart will finally be reached with this rout, with the chart available for your inspection attached in the above, Figure 4. In terms of pricing, the standard point and figure measure is to $17 for silver, which is possible given overall conditions. Of course all the silver mines in the world will need to shut in production at those prices, along with gold producers with prices down around $1300, but that's just fine with the Boys From Brazil because they will swoop in and buy everything up at distressed prices. This is to ensure the people in resource economies continue to work for their masters in the core urban centers, led by New York. If such talk is too tin foil hattish for you, at a minimum this entire exercise will maintain the status quo illusions a little longer by hammering commodities down in deference to the messages being thrown off by collapsing precious metals, which will likely keep stocks and bonds in play a few months longer.
One day bearish speculators in the derivatives markets will become exhausted here too like what is now happening to permanently bullish precious metals speculator numbskulls, which will crash stocks too. One should remember this is what may need to occur before central planners finally alter monetary policy and begin printing with abandon again (everywhere), or maybe not. Surely central planners realize this is not the year 2000, with consumers and governments still flush with cash, employment strong, and the rest of the economy still ticking along - tickety-boo. So, that's why you can expect the Fed (and friends) to change its tune (policy stance) much faster once stocks begin to tumble, which is why precious metals will likely fall further in the initial stages of a sell-off in stocks, but also bottom much sooner than they did in 2000 (seven-months after stocks topped in March), as long as monetary growth rates are sufficient.
But they need to go along way from where they are currently to become sufficient and save their precious fiat currency economies with some degree of hyperinflation.
Heavy on the sarcasm.
With gold down $100 overnight due to follow-through Asian selling, a bounce is bound to materialize at some point here, as most people do not realize the seriousness of what is happening. Traders should use stops if so inclined, but I am warning you, it doesn't get anymore dangerous than this, so be careful. Gold and silver (and their related equities) could keep falling all the way to the above stated targets ($1300 and $17 respectively) very quickly as offside speculators are forced to continue puking up the positions due to margin calls etc. Remember, we are not looking for a lasting bottom now until May with Friday's failure.
Investors want to wait until they hear the words come out of the Fed, we are doubling our QE program because of unexpected weakness (in stocks and / or the economy) - that's when one will know you have a wind at your back. You may miss the first $100 of the recovery, or more, but at least you will have a positive monetary backdrop to underpin prices.
Any other behavior at this point is foolish speculation by definition, although beginning to chip away at physical purchases at $1300 gold and closer to $20 for silver (it will likely not make it all the way to $17 this time around) is likely not a bad idea, leaving room for further purchases later on. Why buy precious metals stocks at these prices when you can have the physical, escape the fiat currency economy, and all the uncertainty associated with it from faulty and fraudulent market mechanisms, to government corruption / confiscation, to bad company managers, which is most of them.
Physical is a gift at today's prices for the long-term - with lower prices a distinct possibility (probability) however.
It appears cash is king these days, as long as it's not in the bank.
Good investing all.