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XMFSinchiruna (27.12)

Response to a Fellow CAPS Blogger

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November 23, 2009 – Comments (2)

CAPS blogger Entrepreneur58 posed a question through his blog today regarding the disappointing profitability from gold miners thus far in the multi-year bull market. As my response rambled on into more of a treatise on this particular moment in the gold bull market, I thought I'd respond in a new post to update my readers on what I make of the recent price strength.

Here is my response to Entrepreneur58:

The answers are all there for you within my articles from the past 2 years.

The profits will flow heartily once gold revalues from its presently disconnected price position.

You see, for all the fuss made over gold's advance from the worst levels of the last correction to today's new record, the fact is that relative to the fundamental developments that accumulated during the manipulated technical correction in gold (coinciding with a manipulated and ill-informed dollar rally), gold remains tremendously disjointed from an adequate reflefction of the fiscal state of the western world.

A lot of gold's strength in recent days and weeks is reflective of an investment community that is just now finally educating itself with respect to the implications of this fiscal, monetary, and de-leveraging crisis.

So, getting back to the lack of profits from miners thus far, this is reflective of that price weakness. Gold has hovered closer to the cost-of-production because the manipulators had their way with gold. Anyone who dismisses this interpretation as overly conspiratorial simply needs to review the evidence more objectively. Without a trace (except on the TOCOM), the bullion banks like Goldman Sachs have exchanged what amount to market-making alternating short and long positions on the futures market for gold. I have reviewed corresponding evidence with respect to silver as well. Stay with me ... I'm about to close the gap ...

What's happening at the moment is that big money has stepped in more firmly long, and the bullion banks are losing their grasp of the market control. Short positions are getting busted by the relentless climb in this breakout, and new buyers like the central banks and massive hedge funds are pouring into gold with a conviction that they didn't have before. No longer dominated by split-nanosecond, computer-driven trading managed by black box algorithms, the big money is now investing long gold (and soonafter silver).

And so, we have more than a breakout. It's rather a shifting tide ... a new chapter in the multi-year bull market for gold and silver. I had been anticipating a pullback before we hit these numbers, but at this stage I am starting to appreciate the potential to extend some distance further before retracing.

A decoupling in the degree of daily correlation between gold and silver and the movements in the USDX will only accelerate from here. When some of what investors seek is shelter from all forms of fiat currency irrespective of their source, you get, again, a tidal shift in the bull market. This is what many hedge fund managers are stating as their rationales ... we have reached that stage. This means the dollar can even slow or cease its descent relative to other currencies for a while just as gold and silver could conceivably continue higher.

All the comparisons made between this precious metals bull market and the 1980 spike simply cease from this point forward. Although we have not yet taken out even that inevitable inflation-adjusted high from the 1980 top, we have entered completely untested waters in the history of global finance... a potential revaluation of gold against all fiat currencies. The scale of the global derivatives market and the degree of global exposure to impaired USD holdings will bring the impacts of the crisis to bear on all currencies. This is why China is PO'd, and their cautionary rhetoric speaks volumes for those familiar with Sino-American relations.

The other aspect of what I'm saying here, which I beg Fools to consider, is the extent to which equity markets could be in for a tidal shift of their own once the reality of our still-in-crisis financial situation sets in with the market as a whole. Over the long haul I see inflation helping to bolster equity markets in the face of mounting headwinds, but at some point I believe there will be another re-pricing event along the lines of what we saw in 2008. How do I know this?... because nothing has been fixed. History suggests that de-leveraging events have a way of running their course regardless of interventions. The well-connected, very wealthy set know this, which is why the big money is moving into gold. As I always take care to point out, I derive no pleasure whatsoever from delivering such a negative outlook for the equities markets or the USD, but I can not change what I perceive.

Thank you all as always for hearing my opinion, sharing your own, and keeping this great community apace with a rapidly shifting investment landscape.

C

2 Comments – Post Your Own

#1) On November 23, 2009 at 8:42 PM, jesusfreakinco (29.02) wrote:

Chris,

I believe they are currently supressing miners, having given up on suppressing gold.  They are underperforming the metal relative to what I would have expected in the past few weeks.  They've somewhat given up on manipulating gold as it reaches a new normal level (what that is remains to be seen still - could be 1200, could be 1650).  However, miner shares are easier to manipulate. 

If it weren't for GLD, they'd all be up quite a bit.  With the launch of GDXJ and Paulson new fun on Jan 1, I expect 2010 will be a very good year for those of us that have held miners for the past few years.

JFC

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#2) On November 23, 2009 at 11:14 PM, oSUNo (44.68) wrote:

  "Without a trace (except on the TOCOM), the bullion banks like Goldman Sachs have exchanged what amount to market-making alternating short and long positions on the futures market for gold."

 

No bank, under regulation, could possibly carry out such a sting - not because the Fed would notice (although they probably would) - but because other banks would most certainly notice and would demand redress for any of their losses incurred during the sting as well completely trashing the then good reputation of Goldman Sachs. 

 There was manipulation of the gold price alright, by top and tail dumping and buying. It was by private account holders, not the banks themselves, for the above reason.

 

 "When some of what investors seek is shelter from all forms of fiat currency irrespective of their source, you get, again, a tidal shift in the bull market. "

 

There is roughly 1 Trillion dollars worth of gold bullion IN ALL THE WORLD in all of the history of mankind, and at least a third of that is sitting gathering dust in Swiss bank vaults.

 

By comparison, the currency market - forex - turns over USD 1.3 TRILLION EVERY 24 HOURS continuously EVERY WEEK DAY of the year.

That's seeking shelter? 

 

 

 

 

 

 

 

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