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XMFSinchiruna (27.52)

Taking Stock of Gold

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December 15, 2011 – Comments (13)

Jim Sinclair offered his typically well-formulated perspective on gold's current status during his latest interview with King World News:

“Technical analysis, when looked at, is really everybody looking at the same thing. So the sellers are chasing each other trying to find the bid. I believe that what started all of this is purely political in nature. I firmly believe there is no political will on the planet anywhere, but especially in the Western world, to invite a severe deflation.

As the deflationary forces continue to surface you will see the absolute opposite. I firmly believe you are more apt to have QE to infinity than you are to welcome rising unemployment and declining business activity.”

When asked about the technical damage in the gold market, Sinclair stated, “It isn’t really longer-term. The technical damage right here and now is something that from today’s lows could be corrected in a few days, easily repairable. 

You’ve got support between $1,549 and $1,577. You’ve also got it overlaying $1,519 to $1,572. There is every possibility that you’ve seen the absolute worst of this as we’re talking now. 

The most important thing is volatility. One thing this shows you, and it increases continually, is this is the wildest chop we’ve ever been in, in the history of trading gold, in terms of ups and downs. It means to me that gold is going to rise to prices even higher than I expected....

“I don’t see gold trading significantly lower than it is trading at right now.” 

When asked what his father Bert Seligman and legendary trader Jesse Livermore, who were business partners, would be thinking on a day like today, Sinclair replied, “If this isn’t a sign of capitulation, I’ve never seen one. Today I think that’s just what you’ve seen.

You’ll know very soon. It will depend over the next few days whether or not this supposed technical damage is not technically repaired.”

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If you haven't already, check out the link MoneyWorksforMe provided on his blog. Gold commentator Peter Grandich puts his money where his mouth is. Now THAT's conviction!

http://caps.fool.com/Blogs/quot-a-million-reasons-why-i/680007

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Brigus' initial resource estimate on the Contact and 147 Zones is a thing of beauty, and they still have 95 completed drill holes with assays pending!

http://www.snl.com/Cache/1500038314.PDF?D=&O=PDF&IID=4288058&Y=&T=&FID=1500038314

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Chris Powell did a great job responding to the Bank of England's recent denial of engagement in gold swaps and loans:

http://gata.org/node/10778

Yet Norman also echoed Keating's rationale for keeping the Bank of England's gold transactions secret, at least until the British government's Treasury should choose to disclose them. Norman wrote: "There is also a strong interest that certain financial markets participants would have in knowing about EEA gold transactions (whether sales, purchases, loans, swaps). If the bank were to reveal how much gold had been swapped or was on loan prior to the scheduled release of information, this would set a precedent to allow financial market participants to establish what (if any) gold transactions had been taking place -- potentially on a daily basis. Such disclosures could also, in my view, provide an unintended signal to the markets, and, in turn, be misinterpreted with ensuing potential harm to the government's financial interests."

While, as Norman indicates, the Bank of England may not have undertaken gold loans or swaps from 2007 through the middle of this year, the bank's new statement seems to acknowledge that, since the bank does not want to disclose contemporaneously any position the bank may have in the gold market, the bank still may be, like other central banks, intervening in the gold market surreptitiously at any particular time, including the present. Of course this long has been GATA's complaint, and of course most central bank business throughout the world, which includes a lot of market intervention, continues to be conducted in secret, precisely for the objectives of market manipulation.

Further, the Bank of England is disingenuous in its expression of concern about the market frontrunning of its gold transactions that might result from transparency. After all, while the bank's gold transactions are to be kept secret from the public and the market generally, they are no secret from the bank's own gold clients. The bank's own gold clients certainly know when, say, they have obtained a big gold loan from the bank and when they themselves might bomb the market with it, and with this insider knowledge they certainly can figure out how to position themselves in the market for maximum profit at the expense of market participants lacking this inside information.

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Finally, Trader Dan's "Gold Charts and Thoughts":

http://traderdannorcini.blogspot.com/

13 Comments – Post Your Own

#1) On December 15, 2011 at 10:41 AM, motleyanimal (84.85) wrote:

Thanks for the info. Have you read this about Brigus?

Calais Resources, Inc. ("Calais" or the "Company") (Pink Sheets: CAAUF), a development stage mineral exploration company, would like to take this opportunity to update our shareholders and the market on recent developments for the Company.

Calais has a note that was fully due and payable on December 1, 2011 to Brigus Gold Corp. ("Brigus"), in the amount of approximately US$10.5 million, including principal and accrued interest, which loan is secured by the Company's Colorado assets. Calais is in preliminary discussions with Brigus and others to negotiate the payment of this note, however, the Company cannot guarantee that a satisfactory agreement will be reached between Calais and Brigus or any other parties. Calais will update the shareholders and investors from time to time on the status of the note.

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#2) On December 15, 2011 at 10:47 AM, motleyanimal (84.85) wrote:

Some more information below.

http://www.calaisresources.com/en/news/news2011/news011811.pdf

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#3) On December 15, 2011 at 11:00 AM, XMFSinchiruna (27.52) wrote:

Interesting ... thanks for posting!

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#4) On December 15, 2011 at 12:25 PM, DJDynamicNC (25.53) wrote:

"As the deflationary forces continue to surface you will see the absolute opposite. I firmly believe you are more apt to have QE to infinity than you are to welcome rising unemployment and declining business activity.”


I should certainly hope so. The whole point of a fiat currency is that it allows you to do this and similar such actions.

Anybody who thinks preventing inflation is more important than people having the ability to make a living has a curious set of priorities.

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#5) On December 15, 2011 at 1:30 PM, SkepticalOx (99.46) wrote:

According to Ron Griess (courtesy of Barry Ritholtz's website), the 300 day moving average is more appropriate to use for gold (it has yet to cross it). 

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#6) On December 15, 2011 at 9:32 PM, jwebbzor (< 20) wrote:

I don't know enough about Calais Resources to guess what Brigus Gold will get as compensation for the $10.5 million in financing that is due.

Any predictions?

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#7) On December 15, 2011 at 9:45 PM, SN3165 (< 20) wrote:

Pilot golds cash balance is roughly HALF its market cap at the moment.

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#8) On December 15, 2011 at 11:50 PM, motleyanimal (84.85) wrote:

jwebbzor

That's the problem. I've gone over the Calais website and documents and still haven't figured out what its worth.

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#9) On December 16, 2011 at 3:00 AM, amassafortune (29.58) wrote:

Having lived through inflation, I can tell you that inflationary periods also lead to "rising unemployment and declining business activity.”

Imagine inflation at 1% per month as it averaged from 1979-1981. If you own a home, it doesn't seem so bad at first. On a $200K residence, you are gaining about $2k per month. You don't feel great though, because food, clothing, utilities, insurance - everything you need to spend money on, is going up now, but your paycheck only changes with the annual review.You may be breaking even due to some assets appreciating, but you'd need to sell them or borrow against them to feel the gains.

Finally, your annual review rolls around and you hope for at least a 12% raise so your standard of living can break even for the year. Your boss, however, needs to cover 12% of inflation, too. The only thing is she's already had to borrow at higher rates just to keep up during the fiscal year. Those product price increases helped, but higher selling prices resulted in lower unit sales. To keep the business plan in check, you get maybe 8%. There were also a few layoffs due to fewer units being produced, so you may grumble, but you don't complain much and find somewhere to cut the 4% out of the family budget.

Every family like yours begins to cut to make up for their lost buying power and begins the cycle of reduced economic activity despite inflation - stagflation. It was a good way to lose an election back in 1980. Blindfolded hostages did not help, either.

After a few years of this, you are now a compounded (-4x3) 13% worse off, even though you had your best three annual increases ever, 26% compounded over three years.

You are making more money than ever before, your mortgage-to-equity ratio shrank by 1/3, and your standard of living is lower than when this all began.

But guess what? Your employer during that time saw a 39% increase in expenses. She continues to cut the workforce as unit sales continue to decline. Overhead, though, is stubbornly inelastic.That 38 cents per hour for Chinese labor is looking pretty good. 

Fast forward through the Clinton years when growth and inflation were mostly in the 3% range. Social Security ran a surplus as did the federal budget for a short time. It was difficult getting gold to stay anywhere near $400/oz in that climate. These are the surplus years that some economists expect to help buffer the economy during a recession. 

Enter political change. The Reagan tax cuts were such a hit that proposed cuts became a stable of the election diet. Add to that, an investment community that demanded either growth, an increasing dividend, appreciating share price, or one-time distributions. "Saving for a rainy day" was transformed into "return value to shareholders."

Finance and monetary policy soon superseded savings and investment as the preferred economic fuel. The Fed's seeming ability to control and shorten recessions lulled most into thinking deep recessions were gone forever. I never though I'd see anything like 1983 again. 

So no, inflation does not help most in their ability to make a living. 2008 levels were achieved by debt and leverage - future demand was pulled forward simply because some wanted it sooner. Now, we must endure a period of lower-than-normal growth to make up for the excess.

Severe inflation or deflation will compound stagnation. I favor slight deflation because that 38 cent labor is what took the jobs. We need this holding pattern to allow time for foreign inflation to reverse that labor equation. That is when job growth will return.

The U.S. has seen the greatest redistribution of wealth since the 1920s. The wealth accumulators, who have taken to mis-labeling themselves as wealth creators, want their asset prices back at 2008 levels. Inflation favors them because, as illustrated above, inflation inflates assets, even as it destroys vibrant economies. 

Think of the greatest wealth and jobs creators - Henry Ford, the Wright brothers, Edison, Bell, Gates,Jobs...(and now I hesitate) Walton...

Could you live as well if you never heard of an ETF, HFT, repos, swaps, MBS? If you had to pick, would you choose any of those financial or debt inventions over your car, airline, iphone, computer, or knee replacement? 

It is time for an inflationless reset. Let's get most of those top university grads out of finance and back into enterprise that returns value to the economy and the country. 

Gold is a great store of value, and it's prudent to have some for the next few years, but it is also an economic thermometer. When the gold fever finally breaks, as it last did in 1981, we'll be on our way to recovery.  

 

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#10) On December 16, 2011 at 11:06 AM, hsolliday (< 20) wrote:


 Chris, Have you noticed that AUQ has been badly underperforming lately? I have been adding to my position but I would appreciate your thoughts regarding its relative attractiveness right now. Thanks, Herb 

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#11) On December 16, 2011 at 11:45 AM, XMFSinchiruna (27.52) wrote:

Guess its time to liquidate my pm portfolio and go back to captaining yachts.  NOT!  :)

http://www.bloomberg.com/news/2011-12-16/gold-no-longer-a-safe-haven-ubs-says-in-cio-monthly-letter.html

When the USD as perceived safe haven comes under increased scrutiny, where do you think safety seekers will turn?

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#12) On December 16, 2011 at 12:32 PM, XMFSinchiruna (27.52) wrote:

hsolliday,

http://www.fool.com/investing/general/2011/12/15/tale-of-the-tape-a-rough-year-for-gold-and-silver.aspx

more to come on AUQ later today...

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#13) On December 16, 2011 at 4:51 PM, XMFSinchiruna (27.52) wrote:

hsolliday,

More thoughts on AUQ:

http://www.fool.com/investing/general/2011/12/16/learn-to-strike-where-golden-achievements-fall-on.aspx

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