The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, December 10th, 2013.
What does this mean? It means that the manias, producing new highs for stocks, and lower lows for precious metals, would continue until speculators are broken; which again, is not the case as of yet, especially with widely followed websites that hair-brained (semi-conscious) speculators act on continuing to spew out barrages of this kind of junk. We of course know this from our own studies of 'true sentiment', as measured by still not widely followed (and for this reason still useful), open interest put / call ratios, updated here for your inspection. So, in terms of a successful speculator's prospects, for as long as present day economies survive, our "Road to Perdition" is to continue fading the masses until the larger speculative community breaks, and the gush of malignant insides come bursting out for all to see.
Because in case you didn't know, we at are 'peak everything' that's important to our continued existence, with rising stocks manifestation of our denial. Peak denial, peak oil, peak growth, - does this mean peak people too? While only the Shadow, and anybody else with an ounce of common sense, may know the answer to this question, one thing is for sure - we need to change everything to survive - our culture, society, mores, economies, politics, leaders - everything. We need a new Road to Perdition! We need radical change in the way we live if we are not going to be our own end. War, pollution (causing poisoning and climate change), over-population, disease, avarice (radical politics, theft, fraud, etc.) - the list of 'things' that are threatening to take their toll on people with increasing force is growing; and again, conditions associated with these 'things' are intensifying. The 'system', our 'Westernized society', is breaking down.
So, the question arises, 'how do we get to Perdition - our own Perdition if you will?' In answering this multi-faceted question, we could go into the broad range of topics mentioned above, however to be practical, we will stick to our area of expertise, that being the financial aspect, and more specifically - precious metals. Right now the 'establishment', what I have labeled 'the bureaucracy', who includes the plutocracy, kleptocracy (think bankers, media, etc.), and just about everybody else working against the best interests of the people, are doing their damdest to keep a lid on precious metals (and interest rates) in order to give the impression 'inflation' is under control. The technical explanation is the currency debasement rates have slowed, where the masses are 'conditioned' on this daily with 'taper talk', therefore diminishing the need to hedge such risks. This is of course false however, sophisticated obfuscation and lying at it's best.
Speaking in terms of the Dow / Gold Ratio (DGR) in this regard, with the Dow being the establishment's 'ultimate barometer' on the 'condition our condition is in', and gold, its antithesis, what has happened over the past two years is a cyclical correction of the long-term (secular) decline in this relationship, engendered by degrees of denial, disinformation, and dysfunctional markets of unprecedented proportions. And while this is likely to continue into next year, possibly taking the DGR back up through 233-month exponential moving average (EMA) discussed on these pages previously, to mid-range resistance at 20, which would represent in excess of a 38.2% retracement of the 2001 to 2011 decline, at some point the establishment's smoke and mirrors tactics will fail, and the flow of funds will return to gold - not that it ever faded in the East. It's important to note I am not suggesting the DGR needs to run all the way up to 20 before it reverts back to the secular trend, however this is a possibility. The more likely outcome is still a reversal at 14.5, the 233-month EMA in my opinion.
So the question begs, is 'taper talk' just that, talk, or will a new Fed chair, an inexperienced and eager to please Janet Yellen (because she's the first woman in this position), actually adopting the orthodox view consistent with massaged externals (think unemployment rate, various statistics, and stocks), and attempt a taper? (i.e. defacto tightening.) As you may know, deteriorating fiat currency economies need ever-more stimulation, not less, making such a move dangerous to say the least, with the big question here being - does she know this? (i.e. this is important because the Chair has ultimate say.) Because if she doesn't, and the market discovers this in January (don't expect tightening in December), that would be a very big deal - a very big deal indeed. Because the bond market would likely fall out of bed at that point, potentially causing the Chinese (and other foreigners) to actually begin selling Treasury holdings, sending interest rates into an uncontrollable escalation. And you know what this would do to the stock market, with the Dow at center. (See Figure 1)
Aside from this however, there's likely just a few too many speculators that know about the tight 1929 analog similarity in the charts for history to repeat, however rhyme it will do undoubtedly at some point, with the inevitable crash that always follows profound manias. But whether stock top before January, or after, doesn't really matter in the big picture, because aside from the DGR needing to make a 38.2% retracement (at 17.5%) as opposed to 23.6% (233-month EMA at 14.5), for the most part the majority of the counter-trend move is behind us, and investors / traders should be thinking about positioning for the future sooner rather than later. Certainly tax loss selling is pushing precious metals shares lower, which should last until month's end. But we are not talking about talking about precious metals shares here, because until the CDNX (discussed here) hits the head and shoulders pattern target of approximately 400, any rallies should be fleeting for this group. (See Figure 2)
No, we are referring specifically to gold (and silver) bullion here, ensuring the base in your precious metals portfolio is strong in this regard. How much should one have in bullion? I am not a 'traditionalist' in this regard, where having up to half of one's net worth is not out of line in my opinion considering what's coming down the pike. (i.e. system and monetary resets taking gold to $50,000 possibly.) Therein, and as you can see above, not only are fundamental considerations still wildly bullish (despite what you hear in the mainstream media and the fact little gold remains in the West), but also technicals are now in position to sponsor a lasting rally in gold.
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