Gary’s Tuesday Market Commentary
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If crude does take a dive, Tenyear, I suspect it is lights out for gold. And there will be no question whatsoever about the deflationary implications of it all. As an aside, it was declines in commodities that preceded the crash of 29.
That is an interesting observation.
That is bird poop!
How so Dick? Please explain your objection.
The purpose of the market crash in October 1929 was to shear back the wealth of the non-aligned rich.
The elite had advance warning as to Federal Reserve policies which intentionally caused the October ’29 crash.
https://www.bullionbullscanada.com/silver-commentary/22976-interview-with-charles-savoie
Did a bit of additional research on Mr. Savoie and I will say that David Morgan certainly respects him.
Definitely would be worth having on KER.
Steve St Angelo posts a fair bit of his stuff at http://srsroccoreport.com/
He gets into the end of things that many prefer to avoid–the powers in the shadows, so to speak.
Would it then be prudent to proclaim the obvious in that the Fed did not do enough to avoid the deflationary spiral? I dunno what else they could do. Maybe under this notion, oil will dive but gold will go higher.
There is no deflation. Just because commodities are dropping does not signify deflation. If there was real deflation then stocks would be crumbling. It’s just that most of the inflation is flowing into the stock market because stocks have implicit Fed protection. So traders aren’t willing to risk money in commodities when they have a guarantee of a safety net in stocks.
The “implicit protection” is a good point, Gary.
That makes no sense Gary. You contend that there is inflation seeping into the economy via stocks yet deny price declines in commodities are deflationary. May I be the first to alert you to the fact that commodities are the basic inputs for all manufactured goods. So if prices fall then what do you suspect will happen to final goods?
Before you answer, I will suggest that in fact corporate earnings will rise if end product goods do not decline sympathetically with the fall in commodities. So the effect will actually be beneficial for companies bottom lines and most consumers will never know the difference anyway when better prices do not feed through to their daily needs purchases.
But that is a strategy taken from a deflationary trend that supports revenue growth and earnings in spite of the fact that final goods prices should (in theory) be falling and the lower costs passed along to consumers.
My belief is that we will not enjoy lower prices but that companies, mainly the multinationals and majors, will enjoy a larger differential between the costs of production and what profits arise once sales are complete. The advantage will not be passed along to the general public.
Explain why it would be “lights out” for gold.
Thanks
Most of the commodity complex is in decline Al. With oil joining the trend it would signal precious metals keep declining along with all else. The case for miners is different however as lower energy costs could enable better profitability even with somewhat lower metals prices. In other words, the cost of getting gold out of the ground would also be in decline so many mines could still be profitable at lower prices.
The WGC states $3,000 per oz is needed for profitability:
http://www.reuters.com/article/2012/05/15/peru-mining-wgc-idUSL1E8GF0AR20120515
$1300 gold and $23 silver is the threshold profitability so the paper pushers are bankrupting the industry right now.
The industry is dying the death of 100:1 paper cuts for the beloved fiat masters.
There are companies that are profitable at lower prices. The average, as put out by the WGC, though is correct.
Matt, if you had no noticed yet, most commodities are down, in decline or suffering periodic reversals equal to gold if not worse. So the observations about gold need more elaboration from those who claim manipulation of price unless they can also tie their ideas to the whole commodity complex. I do not think that paper pushers are having the kind of effect some people believe. Rather, metals are being starved of capital as they are out of favour and most energies are being directed at the stock markets.
Good point, Bird.
I have a different view of commodities Birdman. It depends on the time scale you’re looking at. Long term, since year 2001, they’ve risen dramatically. The charts don’t yet give a clear signal of whether that secular bull is over or not. Yes, we’ve had a cyclical bear since 2011. They fell strongly from early 2011 to early 2012, and then have been fluctuating in a range since then, equal to the levels first reached in 2008 after a dramatic climb. And yes, they’ve fallen strongly over the past few months. But I’d like to see how this short term decline ends, and the nature of the next up-leg before drawing conclusions. Short term deflation of commodity prices, yes. But I doubt this is a new secular trend, and I don’t think anyone’s going to be enjoying a new era of cheap natural resources any time soon =.
I believe it has…. Sept-Dec of ’13… $112.50 to $92.50 …. roughly $20… we’d need to see about $87.50 for this decline to equal that one. I see all the signs of a bottom here… MACD…. Stochs…. RSI…. %R…. on both daily and weekly.
I dunno Gary. The Euro has dropped below its November 2013 lows. More declines to come. I know it is sometimes hard to believe your eyes but that is what it has done and as I have repeated here many times this is negative for precious metals. We are seeing that relationship reinforced today as silver dropped hard as the dollar rose.
I’m convinced that gold is indeed in an intermediate decline and locked up my gains a couple of weeks ago. Now I am focused mostly on stocks with leveraged positions. Our TQQQ positions is up 12% and UPRO 8% in the last two weeks.
We have a break even stop so no risk in the position at this point.
Hi, Bird
Hope you are doing well. Regarding the euro/gold relationship… In looking at weekly charts on http://www.finviz.com for gold and the euro, there are some interesting examples of the relationship not working as advertised. For example, in 2010, the euro was down pretty consistently over the course of the year and gold experienced an uptrend.
All that said, I am not a dollar bull here. The rest of the year should be interesting either way, though. Have a good one.
Hello Eric, good to hear from you. I often say that gold is a moving target. It does not seem to follow hard and fast rules of correlations with anything other than interest rates over long periods of time. Over briefer time periods it can move inverse to dollars as one example but I watch it carefully to see what is affecting it day to day as nothing seems to hold for long. The list of variable is long though. Whether it be inflation numbers, policy moves, rate changes, demand, pure sentiment or even war and upheaval. No question it is a challenge that we need to keep on top of. A big move like a devaluative policy by the ECB is sure to have an impact though so I would be reluctant to leave that out of the equation in estimating future pricing especially at a time when sentiments are otherwise poor. Cheers.
I agree, Bird.
Interest rates are what most people understand the most and so, obviously, they will be the strongest correlation.
The overwhelming negative for PM’s is a corrupt paper price setting mechanism.
America has been seen to have no gold so the dollar is a farce based upon their war machine predicated on a paper scam.
Couldn’t the decline in oil price be an financial attack on Russia?
Saudis have increased oil production to get the UK and US to bomb the Islamic nutjobs in Iraq who are murdering innocent people. Probably would be easier if the Saudis stopped, allegedly, funding the nutjob medieval religious fanatics.
Probably would, Bob!
Indeed Robski. I had considered that idea too. Falling energy and resource prices hit a poorly developed country like Russia on all fronts at once. They are just not as diversified economically as other major commodity exporters like Canada, Australia and Brazil to withstand the pain for long periods of time without being crippled.
I think we’re in deflation. US/EU/JP printed maybe $10T, and that’s insane, but the global DEBT must be north of $100T. The stock market went up, not because of inflation, but because the Fed loaned printed money to the banks, who put it in the market. To me, the stock market is 100% the wrong place to be. The time to play that was when QE was in full force, but now w/Tapering, and that nearly done, I think it’s VERY risky to try to eek out any more gains.
I think gold is going UP soon. Massively. I’m not in yet but if we breakout/up, then this is where I’ll be.
The general consensus seems to be that it will happen this Fall.
I am not in that camp…..so no consensus Al!
Ha…..Birds not fallin for that..CLAP TRAP. ..
Chart-wise, on the weekly gold chart, remember we put in a solid double-bottom this past Christmas, and then a higher low in early June. If we break UP, then this confirms that the NEW TREND is UP, as we’d be making higher lows and higher highs.
Remember too that in inflation, there’s not massive unemployment – which we have now, plus wages aren’t rising. The DEBT is MASSIVE. Gold is the only safe haven.
I don’t disagree with you Bill. We just have smaller and I feel saner amounts in that sector. Now admittedly, if we had more capital the absolute number would be greater but the percentage would remain the same.
Hi, Bill
Also in your favor, I believe, is how the mining shares have been acting. They are often a good leading indicator. If gold was ready to break down, perhaps the miners would be acting worse than they are — would have had a decline on the order of the one experienced during March to June. Instead, most of the mining shares I monitor are hanging in there — leads me to believe that the intermediate trend could be up this time.
Heaven knows, I have been wrong at times in the past, but I am positioned in accordance with that gamble. have a good night.
The thing is that most of the debt has been moved to Gov. balance sheets so it has 0 chance of defaulting and becoming deflationary. Governments can print as much money as they like. The only limit is the currencies ability to hold its value under a printing spree. If it fails then you end up with a hyperinflation.
If they end up printing the $100T that they owe, I’d agree. And maybe they will. This whole thing is insane, living beyond one’s means, getting something for nothing.
There is little to zero chance that the US upholds it’s debt and/or liabilities.
This was made official in ’71 under Nixon.
The rest is the decline of empire upheld through military means.
http://en.wikipedia.org/wiki/Sovereign_default
HOUSING NUMBERS………..ARE APARTMENT STARTS…………only 6k starts in residential housing. RENTERS……..
Still looks like a return to prec. metals lows to me.
Oil has not had this lengthy of a downtrend since May-June 2012. RSI has not been this low since last November….money bubbling up stocks, deflation taking down oil or is it perhaps too much supply?
https://finance.yahoo.com/tumblr/photoset-crude-oil-is-about-to-make-a-serious-move-i-013833883.html