Stewart Thomson: Gold Fed Balance Sheet Breakout!

BernankeSubmitted by Stewart Thomson:

Quantitative easing and “rates to zero” policy is spreading to every major economy around the world.  Horrifically, despite these enormous “fire hoses of liquidity”, gold stocks continue their unending slide.   By this point in the gold “super bull” market, most gold stock investors believed they would be wearing a crown of solid gold.
The market never ceases being a fight, and in a super-crisis, the fight becomes a “clash of the titans”.  Gold stock investors have never faced a greater challenge than they face right now, but neither have the bears.

The biggest weapon held by gold stock bulls, is the central bank of the United States, and over the next two days, the bank’s open market committee engages in key policy discussions.  The meeting culminates with the release of a statement to the public, at 2:15PM, New York time, on Wednesday.  For all practical intents and purposes, the primary driver of the gold price is the balance sheet of the central bank of the United States.


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1.   India’s central bank just chopped interest rates, in the face of the worst economic growth in 10 years.  “The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional 180 billion rupees into the banking system.” – CNBC news, Jan 29, 2013.

2.    Quantitative easing and “rates to zero” policy is spreading to every major economy around the world.  Horrifically, despite these enormous “fire hoses of liquidity”, gold stocks continue their unending slide.

3.    By this point in the gold “super bull” market, most gold stock investors believed they would be wearing a crown of solid gold.  Please click here now.

4.    The market never ceases being a fight, and in a super-crisis, the fight becomes a “clash of the titans”.  Gold stock investors have never faced a greater challenge than they face right now, but neither have the bears.

5.     To view gold stocks from the eye of a titanic bear, please click here now.  In a boxing ring, you can’t run or hide from your opponent.  Victory is all that matters, but if you fail to respect the abilities of your opponent, you will lose.

6.     Every gold stock investor remembers the carnage of 2008.  I bought gold stock into the lows of that carnage.  I’d buy into the lows of an even worse gold stock wipeout, if it happened.  If you are afraid, buy put options on GDX and GDXJ.

7.   If you are a gambling bear, buy put options on NUGT, the triple-leveraged version of GDX.

8.   I’ve showed you the bears’ greatest weapon, which is that head and shoulders pattern on the HUI weekly chart.  I’ve told you how to handle fear, if you have it.  Now, I’ll show you the weapons of the bulls.

9.   Please click here now.  You are looking at the 14,7,7 series of the Stochastics indicator, on that same HUI weekly chart.

10.              I use the 14,3,3 series for the gold bullion weekly chart, but stocks are more volatile.  I want only the “cream of the signals crop”, and the 14,7,7 series passes that test, with flying gold stock colours!

11.              If you look at the 2005 and 2008 bottoms, you can see that the first buy signal generated by the Stochastics oscillator ushered in a big rally, but then there was a final “washout” decline.

12.              From there, a 2nd Stochastics buy signal occurred, and gold stocks staged gargantuan moves higher in each case.

13.              You can’t know exactly how the current Stochastics set-up will play out, but it’s clear that in this price area, some buy-side risk capital should be applied to gold stocks.

14.              The biggest weapon held by gold stock bulls, is the central bank of the United States, and over the next two days, the bank’s open market committee engages in key policy discussions.  The meeting culminates with the release of a statement to the public, at 2:15PM, New York time, on Wednesday.

15.              To understand why the central bank is the greatest ally of gold stock investors, please click here now.  For all practical intents and purposes, you are looking at the primary driver of the gold price.  It is the balance sheet of the central bank of the United States.

16.              When that balance sheet stops growing, the price of gold bullion stops growing.  Gold enters a trading range, and gold stocks crash.

17.              Please click here now.  That’s another look at the HUI chart.  You can see that stocks topped out, as the Fed balance sheet stopped rising.

18.              Note the recent “breakout” on the Fed balance sheet chart.  I highlighted that with a gold arrow.  For some reason, I like that colour, “gold”!

19.              The balance sheet is starting to grow again, which means it is highly likely that the gold price starts “growing” again, too!

20.              Please click here now.  That’s the daily chart for gold.  I predicted a hard sell-off would occur from $1700, likely forming the right shoulder of a bullish h&s bottom pattern.  That sell-off did occur, primarily because George Soros made statements in Davos that bonds could fall later this year.

21.              I don’t agree with his statements, but I think it gave those who shorted gold at $1700 a way to cover their positions at a profit.

22.              The current Stochastics positioning on the daily gold chart suggests that gold could move in either direction from here, but note how orderly this supposed “panic sell-off” has been, from the $1800 area.

23.              While Ben Bernanke could surprise gold investors, temporarily, by saying something negative about future QE, tin a practical sense, can the Fed really stop growing the balance sheet at this point in the crisis?  Please click here now.  That’s the daily chart of the March T-bond.  A rally seems imminent, which is good news for gold.

24.              I think the Fed plans to grow the balance sheet to well over $3 trillion in the intermediate term, which would create a new intermediate bull leg in the gold price!

 

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Thanks!

Cheers

St

 

Stewart Thomson

Graceland Updates

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Comments

  1.  
    Sounds like one of those “come to crazy Harry’s” adverts where the fella is selling things at discount prices.and how on earth is paper gold gold?

    “Prices can go either way” lol, really, can the price of gold go down as well as up. Damn, I knew I was doing this buying and selling thing wrong. :-)

    Ben is no friend of mine. No matter how much he prints. The mans an idiot. How on earth is he going to call all that QE money back in without causing harm. And how is he going to get the banks to buy Bonds at less than 2% yield?

    Japan is scary. Increasing the money base is one thing, doing it in tandem with a major importer such as the US is just a crash waiting to happen. Something has to give, I am stacking my house on Chinese resources going sky high. This is a war waiting to happen and this time the Chinese are ready. God help us all, if China decides to restrict exports then war will surely break out.

    • “Ben is no friend of mine. No matter how much he prints. The mans an idiot.”
       
      Bernanke may be many things (most people are) but he is not an idiot.  The thing is, he is pursuing an agenda and it VERY likely is NOT the agenda that he claims to be pursuing.  He is, as they say, up to something.  But what?  THAT is the $64T question.  I disagree with his policies vehemently.  But then, I disagree with all Keynesian economics, preferring instead the simple but elegant beauty of classic economics.  You know… the one that really WORKS and doesn’t depend on all the recent smoke and mirrors BS that we have been getting from the Fed and the Gov.  Anyway, we shall see what happens in the not too distant future.  2013 is likely to be a wild ride but 2014-15 are likely to be hell on wheels.

    • Like you say, he’s not an idiot, and he has an agenda.
      I reject the notion of Bernanke as the befuddled professor who doesnt realize he’s setting the US and the world (the world first, since the US has the reserve currency) up for uncontrollable inflation.
      I believe this printing will culminate with a pre-ordained extreme policy decision before hyperinflation takes hold, ie. quasi-bond debt capitulation, seperate foreign and domestic dollars with different valuations, Smoot-Hawley type protectionism, war, price controls, compulsory Treasury buying by pension funds, gold capital gains tax, ect, ect.
      I think its revealing that Bernanke is buying MBS for the Fed’s balance sheet.
      I believe he will continue to buy MBS from banks at full value, then once he is fully loaded and the banks are adequately divested, the Fed will declare they need a buyer for these MBS, and lo and behold, these same MBS selling banks, will return as buyers, but now purchasing these same MBS for pennies on the dollar.

  2. Is that Bernanke’s little girl in the GIF? She has her daddy’s arm, maybe she’ll join him on his helicopter one of these days.

  3. Bernanke became Fed Director because of this speech which he is following.
    federalreserve.gov/newsevents/speech/bernanke20110203a.htm
    The Fed Balance Sheet is at 3 trillion. Of this, 980 billion is MBS buybacks. These buybacks are hurting REITS. However, I think another 24 months to get 1-2 trillion more residential MBS’s is their game before they raise interest rates. In the meantime, to further crush personal wealth to foster a run into the arms of big government as the only provider you can rely on, they need to spike oil prices with a ME fabricated crisis to crash the stock market.  This will also crush PM prices. See 2008.
    They are clearing up some much needed laws first, like gun grab legislation, immigration reform, and pull back troops from AFGHSTN. 
    Also, think about this, Ben is on his way out, Kerry is State, and they need to fill some more positions before the Suez is closed.

    • Wrong speech. Of course, I was referring to the “Helicopter Speech”.
      federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
       

  4. It is speculated that Bernanke’s continued QE is not for better employment (the given reason), but to keep US Treasury borrowing rates low (the hidden, actual reason).
     
    If long term T Bill rates rise, the US will have a real problem on it’s hands to borrow, and current holders of T Bills will suffer significant capital losses on their bond prices. The bond market is many times bigger than the stock market, so losses to bond holders will be like a stock market crash, but on steroids.
     
    How the Fed extricates itself from this growing dilema is a mystery to me – it seems the only way out is continuing printing and depreciation of the dollar, so that meeting bond redemptions is in a far cheaper dollar. Meanwhile US savings in dollars will get hit hard. The picture looks ugly, even dangerous.

  5. This is yet another point I’ve been driving for years … that the central banks were created to control the current-interest-rate, because that mechanism is the only means to ‘manage’ the banknote scheme of infinite, automatic currency inflaton reciprocally generated by … interest on the global ‘float’!

    Despite the ‘leading role’ of America’s central bank, the banknote scheme is a monolithic system requiring co-ordinated orchestration that follows a SCRIPT, making the ‘lead actor’ as constrained as ALL THE SUPPORTING ACTORS.

    What the ‘playwright’ didn’t figure into his ‘production’, is that complex compounding of even a miniscule RESIDUAL-INTEREST-RATE, is ineffectually controllable by ANY lower current-interest-rate, because it’s an exponential progression that’s increasingly exceeding any possible pace of economic growth to withstand!

    I hate to say so, but ALL paper is inexorably doomed! Stocks, bonds, options, futures, et cetera, are impossible promises (even if made by your own Parents!) that will disintegrate once the realities of supply-demand crush them.

    Afterward, when their products and business prospects are valued in REAL MONEY that bears rational inter-relationship within the full spectrum of goods, THAT will be the time to ‘invest’ the fruits of your labor in their prommisory scrip. Only THEN, will they have genuine substantial worth.

  6. and in other news: US is experiencing a Tungsten shortage of epic proportions.

  7. After these financial terrorists, oops I mean “goverment and and corporate elites” use their financial nukes on us, watch out for Their new GOLD STANDARD. That is just another way to separate us from our wealth! It gives them control of the price of PMs all over again.

  8. For what it’s worth, the 37 top countries are all engaged in in(hyper)flationary printing.  Each is  trying to fight the currencies wars by devaluing their own cheesy FIAT faster than their neighbor, in order to boost exports and print their way to prosperity.  Even now, Taiwan, China, Japan and Thailand grabbed a new set of gears to ramp up devaluations.  These countries are nothing if not export driven, with the bulk of their GDP reliant on selling overseas. Without exports, their economies die. 
    In  my opinion, these actions are like  fighting a battle with firehoses while trying to swim in a deep pond  wearing  lead boots.  The last person to drown wins.

  9. @AGXIIK: Would it be possible that after all of these devaluations, one country could quicky change coarse and quickly stenthen their currency and pay off some foreign debt with revalued currency?

  10. Probably not. Devalued currency is the most likely way to pay down debt.

  11. IS THAT “SPANKY” ? LMAO!!! Bernache reincarnated!

  12. I’ll give a guess on your question RGR.
    If one currency devalues itself into hyperinflation, all debts, foreign and domestic, would suffer either a complete default, with the principal and interest unpaid or the debts would be paid with hard assets such as gold or other commodities.
    The difference in how the debts are resolved would be a test of the national character,will of the people and courage of the political leaders. The people’s will is reflected in how much hardship they can take until they hit the breaking point. 
     Weimar Germany tried the former by printing its way out of war reparations.  That ended badly and WWII was one of the result.  Political courage is lacking in our country as it is in most. The people’s will is pretty questionable given that over half of the people in this country live almost entirely on government transfer payments.  The problem we face today is that the same problems that beset Germany and the dozens of other countries who went through hyperinflation, is that we now have dozens of countries pursuing the same policies but on a global basis. What was once a single country reset to normalcy, will be world wide. 
     The FIAT empires are designed to enrich some and embeggar the common folks.  Inflation is the only path these people follow, knowing that inflation removes debt. But the  cost is terrible.  Inflation is insidious and its effects have 4,000 of historical precedence. How to fix its effects are well known.
     The historical record is full of countries that printed themselves into penury and after their painful and deadly resets, many countries came back from the dead by creating a gold and silver backed currency. They survived the currency/debt reset because what the system had to deal with was funny money. People will almost always persevere evenif the FIAT does not.
    The system  we had worked well in the US for nearly 150 until the Federal Reserve was founded(with mal intent and a plan to destroy America). Subsequently gold and silver were either stolen from the citizenry or repudiated by the government—see Johnson taking silver from our coins and Nixon taking us off the gold standard.   The stage was then set.
    \Since then our country has not made even a single step forward in  real  growth of wages  and wealth. While the charts of debt and income went upwards for 40 years, most of us have been stuck in the euphoria of inflation induced pseudo wealth or, for a few, transformed formerly honorable professions like banking, lawyering and political offices into a dog eat dog hog wallow of moral and financial turpitude.  The coarser elements of human nature forced their ways into the fabric of this country. those who’s lives were devoted to plunder took power from good people.
    So, the answer would be, and maybe some good news here, is that America will suffer a horrible reset. That’s inevitable.
     But the people of this country  and their unique nature, with  the resolve to roll up their sleeves, deal with the reset, and get back on to a sound hard asset backed currency (even if they have to dig it out of the ground with their bare hands) will reestablish a sound economy, like the one embodied in the best elements of the Constitution and Bill of Rights along with the beliefs and morality that existed before the banksters came to rule the land.  The present day currency cargo cult will come to an end.
       I have optimism in that. But until we go cold turkey on a century of debt and take the cure, these things will not happen.  The longer we wait, the worse will be the reset.
    PS   Just in    The US economy contracted by .1% in the 4th Q  We are back into recession, not that we left it.  Anything that you hear from the government and others that we are recovering is  false hope and muddled thinking.   But that is no surprise to regular readers here on SD.  Most of us are living that reality and are prepared as best we can for the reset.
    I think that when bond rates go back to their historic norm of 5%, or higher, the bond bubble will rupture. This will remove 25% of the bond values and start the reset.  That might take a while, maybe mid 2013 or into 2014.
    Excuse my long reply.  Your question got me to thinking about this whole paradigm we live in.

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