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Gold: It is Still a Bull Market
I am not sure what all the fuss is about. Yes, the SPDR Gold Trust (symbol: GLD) is down about 15% from its September high, but technically and fundamentally, gold is not broken. Period.
Most noteworthy is "commodity expert" Dennis Gartman's call that "we have the beginnings of a real bear market, and the death of a bull.” You can read more about Gartman's call on gold by going to this article on Bloomberg: "Death of Gold Bull Market Seen by Gartman", and Gartman was also making the rounds on CNBC as seen in this video.
Curiously, I really don't understand what Gartman is talking about. He sold is personal stake in the metal, but he is still invested in gold for his clients. I wouldn't be happy if I was that client. I guess he is only bearish for himself and not his clients.
We also have this article from MarketWatch: "Gold top was easy to see". Yes, it was so easy that I am now making the "call", and oh by the way, that "call" is about 2 months too late. Note to author of article: if it was so easy, then why weren't you short 2 months ago?
Technically, the gold bull market remains intact. This can be seen by the monthly chart of GLD, which is shown in figure 1. The pink colored price bars are negative divergence bars. 5 months ago, GLD tried to breakout of that trend channel and go parabolic, but that move wasn't to be as prices fell back into the trend channel. While failed breakouts are ominous, GLD is still within a rising trend channel and this is bullish. Looking at the negative divergence price bars, we note a cluster of these over the past year. This is a sign of slowing upside momentum not a sign of a market top. If prices close below the low (at 154.19) of the most recent negative divergence bar (0n a monthly closing basis), then it would be a market top. This would likely coincide with a close below the lower channel line. These events have not happened yet.
Figure 1. GLD/ monthly
A longer term view supports the notion that the gold bull market is not over. In future articles, I will review the bullish fundamentals and get more granular on the technicals as I view this as a buying opportunity!
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How can there be deflation in the true sense of the word if they're expanding the global fiat money supply as if there is no tomorrow? Yes, there is/might be a contraction of economic activity, but how can it result in a decline of prices if the purchase value of fiat money is falling more and more each passing day? There is no way in hell they can reduce the fiat money supply without causing the current debt-based monetary system for one to collapse.
Yes they have created many zeros and ones representing currency but that currency is mostly parked at the central banks hard drives in the form of deposits by the banks scared shitless to lend and to cover future losses. In addition lot of that currency went and is still going to bonds because the cash holders are scared shitless from the insolvent banks which could go bust at any time.
So most of the printed money did not go to the real world to fuel inflation. If it did we would have hyperinflation by now.
Furthermore, we have many bankruptcies and defaults (like Greece, Dexia and MFG) and that actually destroys money reducing the money supply.
bankruptcies + defaults + cash hording = DEFLATION
@EL INDIO Thank you for the explanation. What you're writing makes sense.
El Indio is one of the few readers who speaks about deflation and recognizes that the process of inflation or deflation will not continue to their logical conclusion because the system will collapse. Once the leverage and the amount of debt and derivatives are so large and interwoven that the system is destined to crash, the actual inflation/deflation argument becomes secondary. We will have both in different assets as we stall into the collapse, but it's coming baby and it will wipe out most of everyone's paper because counterparty risk is so great.
Until the collapse, we are likely to see gold move in the direction of the general sell off. If that sell off occurs in stages, gold will recover between the price drops, but still be attacked by TPTB. Those attacks have a range beyond which they could decouple paper from physical, so they only go so far, however the overall market sell offs are a natural event, taking gold prices out to sea with no risk of decoupling. Caveat: TPTB will show no restraint during the final attack on gold just before a systemic collapse because the jig will be up on the paper supression game anyway.
There seems to me to be some basic and serious flaws in the arguments of those, such as El Indio, who claim that the decline in credit somehow equates to "deflation".
First, credit is NOT money, and it is simplistic and erroneous to claim that it is. A credit "purchase" still needs to be paid at some point down the road, whereas a cash purchase has been finalized --- how can everyone not see that?
Secondly, to claim that the fall in credit within an economy is "deflation" is to necessarily make the contrary claim: that the RISE in credit equates to "inflation". Given this, we should have seen at least radically rising inflation (well into the double digits annually) over the past couple of decades, if not actual hyperinflation --- but that was certainly not the case.
Thirdly, to blithely state that "falling credit equals deflation" is to ignore the overall RISE in credit/debt that continues to occur, when one looks not at just consumer debt (which is falling, marginally) but overall GOVERNMENTAL debt, which is expanding exponentially. Or is it just consumer debt that supposedly impacts the money supply?
Dude, you did not read what I posted did you.
It looks like you copied and pasted your stuff from somewhere.
To simplify things for you what I'm saying is:
At the moment, money/currency is becoming scarce for the reason that I stated and because the FED and the ECB put the printing press on hold for a while. That leads to deflation.
I'm not talking about credit and shit like that.
I also said before that the central bankers will not let the system collapse but that does not mean it can’t happen. I don’t trust them, that is why I’m a PM investor.
For the record I’ve started my holiday season buying, these Gold prices are too tempting not take some.
How about you, did you buy the spike like lots of people and don’t have any money left ?
Yes, I did read what you posted, but I merely expanded on your argument to address a number of arguments of those in the deflationary camp --- if I thereby put words into your mouth, I apologize. But I did not "cut and paste" my post from anywhere else; it is merely that the tired and discredited arguments of the deflationists are so trite and repetitious that I can whip out these stock answers to them almost in my sleep by now.
But to more directly address your post above, I do not and can not equate any number of bankruptcies and defaults (nor credit contraction) with "deflation", which is a hopelessly muddled if not Keynesian-inspired line of argument that I find fallacious and, well, bankrupt itself.
Let's look at the bright side, he ain't Johnny Bravo! At least he understands the terminology and the concepts. I'll back you up on the cut-n-paste thing. But we could both be served by having some boilerplate verbiage to address the common issues that pop up continually. You two are on the right track so don't let the small stuff get in the way. I congratulate you both on the civil discourse!
Ok then let’s call it temporary disinflation, it’s more correct.
You did call it temporary deflation in your original post, so no harm done.
How about just calling it "bankruptcies and defaults", instead of conflating financial terms that have no direct relation to each other?
Not saying that you do this, or have ever done it, but I am always amused by those who glibly and automatically throw around the words "deflation" and "inflation" based on particular assets rising or falling in value, or specific metrics such as consumer credit expanding or contracting. Those two terms have been misused and abused over the past decade in particular that they have come to be almost meaningless except in strict academic circles (and not always even then).
I live in the real world and in the real world when commodities go down in price that’s deflation.
I don’t care about electronic assets deflation which seems to be your definition of deflation.
If the prices of commodities go down mainly as a result of paper manipulation (margin hikes, etc.), can one really call it deflation in the true sense of the word, or is there an ample portion of both paper manipulation and a decline in economic activity to justify calling it deflation? I agree with you on the fact that we might experience temporary deflation, which will ultimately lead to hyperinflation.
"Deflation", strictly and properly speaking, is a decline in the total quantity of money (I would NOT say "money + credit") within an economy, and while overall declining prices are often a symptom of deflation (as overall rising prices are often a symptom of inflation), the term itself is not defined by prices, as prices can rise for many reasons (increasing demand, or the increase in one critical raw material cost such as oil, for example) that have nothing to do with the money supply.
But even if one wants to define "deflation" by a decline in the general level of prices, that is most certainly NOT what we are witnessing or experiencing today --- I know MY cost of living has NOT fallen, ever, in any given year; has yours?
Good, this particular deflation/disinflation is caused by the scarcity of money that we are experiencing.
There is plainty of money but it is not available to those how are starved of it, that leads to asset sales to raise cash which leads to a decline in prices.