Morning Macro Update: "The Only Way Gold Will Drop Is If Sovereign Restructurings Are Allowed"

Tyler Durden's picture

Submitted by Nic Lenoir of ICAP

The only obvious market going anywhere this morning is Gold. The precious metal broke out yesterday and made all time highs against the green back. As we have discussed at length recently whether it is from a fundamental or a technical standpoint it is the only trend with shorting EURUSD that is clearly established. Back before September 2009 I was a bit dubious as to whether major upside was in the cards for Gold because as we have highlighted several times before I think the deflationary forces at work are huge. However, ever since 1,000 was bypassed again we have validated a technical breakout. What's more: monetary policy by central banks and governments around the world is nothing shy of a race to the bottom as sovereigns have been printing the money needed to make good on their liabilities an that of their private sector. The recent European bailout which was 100% predictable confirmed the trend and the gold market acknowledged it breaking out yesterday. The next key target on the upside is 1,381. We recommended getting exposure in the 1,080/1,090 zone after the pull-back following the previous highs of December 2009 and would advocate riding the trend with a trailing stop on a daily close below 1,170. The only way to stop this train is if the market and the people force politicians into acknowledging defaults and restrucuture while let banks that need to fail and start with a clean slate. That would be hugely deflationary and the shrinking of the money base would cause a collapse in gold. Since we have not seen a politician with one ounce of courage in about 50 years I would feel pretty good being long: heads of states will continue fighting evil speculators by short-squeezing them with trillions of ponzi money.

In Fixed Income the two channels we have identified for the 10Y US Treasury future and the bund are still intact. As long as those supports are not violated more upside is to be expected. We are patiently waiting for a good entry point to sell the long end of the fixed income curves. Hard to think the EUR curve won't stay at close to its steepest ever if not move steeper at this point.

Finally S&P futures tested the C=A extension yesterday at 1,168.50. I was originally thinking we would see 1,175. Looking at the price structure on the 30-minute chart shows we have a potential H&S in formation. We would look at selling the topside of the second shoulder around 1,162 with a stop on a daily close above 1,180, adding to the position on a break of 1,140 (below H&S neckline).

Good luck trading,


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PaperWillBurn's picture

You don't put a stop on a pile of physical gold and you don't survive this crisis playing with paper.

Hephasteus's picture

Secrets of insurance company. If they won't insure you then you need it. If the will then you don't. Think about that next time you buy stop losses.

primefool's picture

Insurance is one reason poor people get poorer.

What_Me_Worry's picture

Insurance is a good part of your finances, if used properly.  Unfortunately, the industry is set up to fully take advantage of the system.

If you have a family and do not have a huge savings (aka millions) then term life is an acceptable means of providing protection against a "black swan" to make up the short-comings in your portfolio.  By the time life insurance would become to expensive (older age), you should have adequate savings built up by then to not need it.

Some insurance definitely provides value.

I definitely wish the auto insurance industry was set up differently.  They have a license to steal and we are mandated to give it to them.

Sudden Debt's picture

I think gold can still fall pretty sharp because the deflation really isn't over yet.

1. Consumtion price inflation (as we speak)

2. Wages deflation (done already and will proceed)

= stagflation = Gold vaporized

Ivanovich's picture

One thing is for sure, this is getting pretty crowded in terms of a trade.  I get worried when taxi drivers and barbers talk about how they're buying gold.


thanks for the easy captcha.

Sudden Debt's picture

Look at it like this:

1. When the crisis hit, America and Europe sold their gold already after 6 months. Fact

2. The governments manipulate the markets. Fact

3. Financial Genius countries bought the stuff. Also the retail investor and like you said "taxidrivers, barbers..." is buying the stuff. Reminds me of the internet bubble when even 70 year olds bought internet stock because this was going to boom and make them millionairs! Whe know how that turned out...

4. Pressure from people to the American and EU government to show us their gold. We are all descent people so we are only giving them a head start of about 2 years already... Fact

Now ask yourself: If the manipulators come at the point where they have to show the cards. Do you really think that after 2 years of preparation, 2 YEARS! That they will roll over and die? Or option 2 that the goldmarkets implode 1 month before the inquiry and when they are able to buy it all back for cheap and will be able to say: You see! All there!


I already know what you're going to say: NO WAY, THEY HAVE TO MUCH  INTEGRETY AND WOULD NEVER DO THAT!

But me. I take door number 2.

hedgeless_horseman's picture

Taxi drivers say they are buying gold.

Barbers say you should buy gold.

Day traders wish they had bought gold.

The reality is that most Americans would not know how to buy an ounce of gold if they had $1,250 to save, which they do not have.  Most Americans have a hard time not spending the $50 minimum monthly "investment" automatically debited for their Janus Fund.

Pladizow's picture

Even if that all occurs it makes no difference to the educated.

I'll keep my gold and simply buy more.

MyFriendMises's picture

+1000 for your picture.  Best one by far.

living on the edge's picture

I see no let up in sight in the gold price. The old saying "you ain't seen nothing yet" cannot begin to describe gold appreciation over the coming months and years. I know very few people buying gold but expect that to change over the next few months. Good luck to us all!!!

Renfield's picture

I expect it to change...I expect the price to go way up, and then to zero as the paper market collapses. And when that happens, I expect there will be no physical around left to buy, for any fiat price. I don't expect that will take years, although I hope it does, but I don't think so.

I think a lot of us get confused between the 'price' on Kitco and the price in the real world. I find the real world price pretty hard to nail down already, between the bullion dealers, ebay, and private dealings. And that's while the availability is still high. So I kind of ignore the paper price since I don't trade the PM ETFs.

In all honesty, it's a bit terrifying.

living on the edge's picture

It is terrifying because we really can't predict exactly how this will play out. For example I am buying and have been buying gold/silver for years. I haven't stopped there in my preparations by the way. In my opinion the long term outlook is clear in the sense that some sort of collapse is in the cards. The degree is far harder to discern or imagine.

ExistentialSkeptic's picture

Price paid is nothing: ounces in physical possession is everything.

We ain't seen nothin' yet.

tmosley's picture

SO, I guess you would have stuck with the continental dollar when all those (horse) taxi drivers and barbers were talking about gold back in the 1770's?  They talk about it today, tomorrow, it is all they will accept.  This is a currency crisis, not a stock bubble.

Sudden Debt's picture

Tell me. How many times these last 2 years. Did you encounter a market situations where you said: This is a sure thing! Everybody is doing what I'm doing! I'm going to be rich!

And how many times did the opposite happen?


It happend to many already 4 times. Like every 6 months. And now. I'm betting on the opposite.

EscapeKey's picture

Gold production costs are $600-800. That's the absolute bottom, unless you truly believe they will shut down production, despite production having peaked 10 years ago.


SWRichmond's picture

Not trading here, holding.  You are right about the buildups leading into dot gov / CB responses.  Nothing I can do about that except be smart about it and not try to trade it.

Too much sovereign debt, unfunded liabilities and un-fulfillable promises.  Way too much.  How to resolve it?

  1. Default; this destroys sovereign currencies.  Got Gold?
  2. Print; this destroys sovereign currencies.  Got gold?
  3. Austerity.  This causes chaos, causing capital flight and economic collapse, leading to #1.  Got Gold?
  4. Reissued currency.  Got Gold?

Did I skip anything?  I will consider selling some of my gold when the debt crisis is actually on a path to genuine resolution and hasn't merely been kicked down the road a bit.  Tell us, o wise one, what's your plan?

jaybaybaker's picture

Very true. A message to all the lemmings, unfortunately Tyler Durden included this time:

In November, it was the end of the dollar, remember that? That was the time to go long the dollar. And then gold was a barbaric relic in February: time to go long gold.

The funny guys on CNBC now talk about La TARP or (the slightly more sophisticated ones talk about) Le TARP, but forget that the European bailout is (a) much smaller ($900bn) in size than the US intervention ($9tn) for a euroland economy roughly the same size as the U.S. economy and (b) much less costly for the currency and the government budgets.

But hey, here is the really big difference: in Europe, this is accompanied by austerity measure supervised by the IMF, while in the U.S. this was accompanied by "stimulus" packages and other give-away money. In the U.S., the intervention is inflationary, albeit leaning against massive amounts of (deflationary) debt destruction (call it write-offs, which sit on the Fed's balance sheet now. In Europe, the accompanying austerity measures are highly deflationary.

Comparing the two, the euro is in much better shape than the dollar. The dollar has twice or three times the reserve status than the euro, that's what it has going for it. And the fact that more debt and more derivatives are denominated in dollars, leaving the door open for relatively more money destruction.

So now, everybody and their grandmother are betting against the euro and on gold.

Time to go long the euro and short gold.

Funny how nothing ever changes, the lemmings are so convinced every single time.

SWRichmond's picture

O thank goodness, the IMF is involved.  I feel so much better!

It is truly amazing how many radical fiat bugs quickly pounce on any ZH article about gold.  Amazing.  It's almost like they're waiting for them to appear.

macroeconomist's picture

Now your analysis depends on the vulgar assumption that there are no regime changes at any point. That makes your criticism of Tyler and gold bugs invalid, as it has been stated several times that there will be a regime change in the financial markets, as the underlying fundamentals become binding. As is the case with all predictions, there is no way of telling when the regime change is actually going to materialize. Therefore, you might turn out to be correct in the short-run, if the current measures manage to calm the markets down, and defer the inevitable. However, talking about myself, I am not taking any chances against the possibility that the long-awaited, fundamentals-driven inevitable regime change is now..Personal choices may of course vary, but one thing is certain: This Ponzi-scheme and the fiat currency system is going to go through a massive collapse at some point, and gold will probably be the only thing standing in all that wreckage..As stood in the Great Depression, and early 1980s, when a super-Minsky scyle comes to an end, and a completely new financial system needs to be put in place.

Best of luck with your choices

macroeconomist's picture

Wasn't for you Richmond, was for the fiat-baker.. You happened to post a minute before me :)

jaybaybaker's picture

I agree with you on the long-run picture. But I am talking short-term here, and the end of the line for this system is not now. That is still a few years out. Expect a lot of volatility and lemming moves, and that's what we are seeing here.

Double down's picture

Gold should not be purchased against the disease but against the cure to the disease.

The Alarmist's picture

Yeah, vaporized just like it was in the 1970's.

I would love some of that deflation right now, but then I am not a borrower.  Since I am in the ultra-rare minority, you can bet my vote doesn't count and that the Criminal Elite are going to do their damndest to make sure inflation is the order of the day.  I say it will take hold at roughly 8 to 10%, which is enough to inflation the governments of the world out of their problems but not so much that the mobs will take to the streets.  Yep, its the 1970's all over again.

Or maybe it is the 1870's all over again. Big O and his administration have been circulating talking points talking up the comfort, convenience, and environmental friendliness of fast trains ("You don't have to take your shoes off") at the same time his TSA goons keep wanding Grandma and little Emma at the airport, all the while insisting that Faisal was a lone wolf distraught about losing his home because he wasn't able to pay his mortgage, which wasn't very surprising given the time he spent away training with Al Quaeda rather than working for a living. Yep, gold was also good in the 1870's.


primefool's picture

Yeah OK Politicians dont have any integrity - but the weird thing is you would think their insticts for self preseravtion would be high. ya know the pure Darwininian , lizard brain stuff. So theyy reduce society to a smouldering heap - Blade Runner type - with roving armed gangs etc. Where do you they think they are going to go? How about their kids? Maybe they are stupid enough to think they can hide out in gated communities - bt surely their kids might want to see the real world. At that point they are screwed. Escape to paraguay? is that what they think they will do? beats me.

lucky 81's picture

the bushes recently purchased 100000 acres in paraguay sitting on a natural gas resource next to the rev. moon's larger property which sits on a large aquifer.

seems they have thought of everything. no warcrimes extradition treaty and next to a secret us air base guarded by 500 special forces.

something bad is going to happen soon methinks.

Renfield's picture

The pollies aren't in charge of this. They're just doing what their bosses, the banksters tell them to. And they're pretty easy to fool, so they have no idea about any dark consequences.

In all honesty, it reminds me of just before the French Revolution. Louis XVI (the pollies) was basically in the hands of the nobility (the banksters), who proceeded to run the economy into the ground as each tried to amass more and more wealth and power for themselves, a whole crowd of competing interests. Then the whole country collapsed.

Louis XVI, much like our governments, was an idiot, but unfairly shouldered the blame as a frontman (fall guy) for something the nobility did. IMHO, our pollies will be blamed for something that the banksters in fact engineered.

And yes, I expect many of them are buying private islands and other 'gated communities' as this speeds up...

(PS: Can't see their kids having much curiosity about the 'real world', not if Lachlan Murdoch or Jamie Packer are any examples. More likely their kids will grow up morons and lose half the family fortune, and their grandkids the other half.)

primefool's picture

From a purely neo-Darwinian perspective I doubt

MarketTruth's picture


Top buttons choose timeline.

Left side buttons allows you to select a specific currency vs USD as valued in gold troy ounce


Mako's picture

The author is wrong.  He seems to indicate that you can just restructure and you just get on with it.  Doesn't work that way.   Life works in cycles or waves.   Humans have no ability to expose lies as half-lies and everything is dandy.   The lie is being exposed for what is always has been, now the Truth most are hiding from is showing up at the door.

1.) restructuring will cause CDS to instantly explode

2.) the author seems to think that the system just defaults and you just get back on the bike, sorry that ain't going to happen... last time it took 100 million and a destruction of basically half the civilized world and even then it was slow riding on the bike.

3.) gold will have wild swings just like the markets have been swinging... DOW from 6600 to 11200 gold from $730 back up to $1240.  

Eventually the credit system will collapse, production will appear to go to just about zero from today's levels... food, water, and basic shelter and clothing will be most of the production.   You will eventually get less and less for your gold because you will have the same amount of gold chasing less and less goods being produced.  Basically, survival will be on your mind, not how I can scam my fellow human so I can get a new Porsche.

"let banks that need to fail and start with a clean slate"

Yeah, thats called a collapse, this time unlike the last time the whole credit system will implode.   Not only will people not get right back on the bike but the bike will be blown to pieces.


Anton LaVey's picture

Agreed on points 1) and 2) and 3).

However, I don't think production will go back to the bare necessities (food, water, clothing, shelter) just because we have a much more complex economy than that.

Argos's picture

Correct.  I'll take that butched hog for payment for your kids anesthesia, but I don't think the hospital and/or the drug companies will.

B9K9's picture

Mako my boy, nobody seems to like your particular brand of doom & gloom. As for myself, I tend to think the key will be socialization; no, not the government kind, but rather the kindergarten version. Ironically, many who read/comment on various financial blogs are unwittingly preparing & developing some very important skills - knowledge.

When people begin to seek answers, they will naturally turn to those who can clearly & concisely explain exactly how/what/why happened. Knowledgeable ones who possess both the personality & sufficient organizational skills will in essence determine the extent & level of the next leadership class.

Better than golds & guns is the ability to get along, help others and be useful (work). It's easy to imagine - it's how the world operated throughout history until around 1870.



Hulk's picture

Better than golds & guns is the ability to get along, help others and be useful (work)

Why not combine them all???

primefool's picture


But I feel like Woody Allen (Alvy Singer) as a 9year old kid in Annie Hall, who discovered thermodynamic entropy:

Doctor in Brooklyn: Why are you depressed, Alvy?

[Young Alvy sits, his head down - his mother answers for him]

Alvy's Mom: Tell Dr. Flicker . . . It's something he read.


Doc: Something he read, huh?

Alvy: [his head still down] The universe is expanding.

Doctor in Brooklyn: The universe is expanding?

Alvy: Well, the universe is everything, and if it's expanding, someday it will break apart and that would be the end of everything!

Alvy's Mom: What is that your business?  [she turns back to the doctor] He stopped doing his homework!

Alvy: What's the point?

Raymond K Hassel's picture

for the last time - its not a hedge against inflation - its a hedge againt loss of confidence in governments.

Kina's picture

Whilst there is fear and confusion as to the end results gold will remain strong and grow. When things become more clear and fear begins to turn, that will be the time to start off loading.


There is much more fear and confusion to come.

GIANTKILR's picture

I say go long on brass!!!!

Thomas's picture

Gold at an all-time high while the dollar soars (relatively). Go figure.

primefool's picture

Fram a purely Neo - darwinian perspective I doubt they will have grandkids.

LeBalance's picture

Energy store: money is all about confidence and Gold is beginning to be smelt as an alternative by the masses (MSM stampede).  In an inflationary environment there is no question that PMs (no land ownership is allowed so screw that option) are the best mobile store.  However there is somewhat of a quandary about what is the best store in a deflationary market.  It is, of course, the store that has the highest confidence (long term, etc), and in this moment in history I would say that if der Stadt restructured the debt, the store with the most confident would be .... Gold.  Because how much CONfidence is a populace that is going through a deflationary restructuring and has to *sob* give up their cocaine (vast stimulants) going to have in the nasty diet appliers (der Stadt in that case).

So I think its Gold regardless, the crims are unmasked.

Manipulism's picture

It is Staat = country what you mean.

Stadt means city.

The Alarmist's picture

Although with most of the cities in NRW bankrupt, the concept of Der Stadt restructuring debt is not too far off the mark.

Pedro's picture

So, what happens to the market if Gold continues an even faster ascension?


This may seem like a dumb question, but, I am a financial novice.  Why are all these bailouts so carelessly being dealt out just for the market to stay up?  Isn't this "the tail wagging the dog"?  I know a lot of people will lose money, but, we are losing more money by this clandestine "insurance" or "tax" which is supporting the market.  A lot of Americans aren't even in the stock market.



Sudden Debt's picture

Everybody is in the stockmarket. They just don't realize it yet.