Inverted Head & Shoulders in silver: Target $30? 2010-10-17

I just read this article by Bill Downey of goldtrends.net with a few nice charts of the silver breakout.

http://news.silverseek.com/SilverSeek/1287239018.php

I decided to look at the weekly silver chart on stockcharts.com because there seemed to be a likely inverted Head and Shoulders pattern dating back to March 2008, with a breakout in August 2010. Here is my annotated chart:

Anyway, the target here would be around $30 if the Head and Shoulders were to be considered as valid; $30.60 if you take intraday prices, a little lower for weekly closes. The inverted Head & Shoulders is a huge formation, 30 months in the making.

This chart is similar to the first (silver manipulation timeline) chart on the goldtrends analysis on silverseek.com / goldseek.com page linked above. Interestingly, that chart showed daily ticks and, looking at the left hand side, you can see that $19.50 was a key level during for 30 months - it was actually support in March 2008 after the breakout. That support was tested successfully on one occasion and then broke down after gold and silver topped in the credit crunch when Bear Stearns was rescued. Thereafter, until a couple of months ago, $19.50 was resistance!

I was interested to see the fourth chart in that article. It also points to a target of $30, considering the 'upper momentum line' of that chart. Two analyses, same target, not a guarantee but an interesting agreement!

Breakout in HUI Gold Bugs Index at last? P&F chart. 2010-10-13

Although a breakout in the HUI Gold Bugs index of 'unhedged' gold miners has been touted for a few days, a quick look on stockcharts.com revealed today that the Point and Figure chart is now actually showing an 'Ascending Triple Top Breakout' as of 13th October 2010. Here is the webpage - the P&F chart is the bottom one in this gallery view of daily, weekly and P&F charts:

http://stockcharts.com/charts/gallery.html?$HUI

$941 MAGIC NUMBER for gold for Jon Nadler and Jeffrey Christian 2010-10-09

$941

The MAGIC NUMBER for gold

I listened to the interview with Jon Nadler, dubbed the "uber bear" on gold somewhat unfairly perhaps on the Korelin Economics Report last week. The interview can be found here:
http://www.kereport.com/weekendshow/weekendr-oct0210-seg4.html

It was quite interesting because he recommends 6-10% of one's portfolio in gold as insurance but refuses to be bullish. In fact, he repeated his prediction of the end of the gold bull market within 12 months and stated that the financial crisis has already ended. In other words, 2008-2009 was the financial crisis.

His more specific predictions were given on Kitco radio the week before as discussed in my previous post on my blog:
http://1000gold.blogspot.com/2010/09/jon-nadler-dragged-out-for-bearish.html

The radio commentary is here:
http://media.kitco.com/weeklyreport/JNadler-Sept-23-2010.mp3

He said gold may overshoot on the upside and top in the next 9 months. That is his 'sell by' date on the gold market.

He stated that he wouldn't give a price and timing at the same time, but he went on to say that gold may 'overshoot' to $1320 to $1380. He just couldn't resist it.

Furthermore, he asserted that it's leveraged speculation with hedge funds that is driving gold at the moment. Maybe he is right; I don't know. Others say it's physical demand, but they are goldbugs like James Turk, it has to be admitted.

Jon Nadler then discussed the 1980 $850 top in gold with the presenter and told us that inflation and general conditions were much worse in 1980 than now and therefore the spike in the gold price was more 'justified' in 1980 than it is now.

He warned that investors could soon see a top (within 9 months) and then suggested that a 8% annual drop for 10 years could then occur. Well, I got my Windows calculator out and calculated 0.92 to the power of 10, which is 0.4344, so gold could drop to 43.44% of its top value. Taking his top figure of $1380, 0.4344x1380= $599.45.

I decided to make a comparison with Jeffrey Christian's commentary on the future price of gold, since they both seem to be true believers in the power of central bankers and 'the system' to right itself without further crises. Jeffrey Christian of CPM Group has given a decade average forecast for gold at $941 per ounce.

What would be the average price of gold predicted by John Nadler using his model? Here are the yearly prices of gold during his 10 year decline of 8% per year, starting at $1380, to find the average. Adding them and dividing by the number of prices, i.e. 11, gives:

1380+1269.6+1168.03+1074.58+988.62+909.53+836.76+769.83+708.24+651.58+599.46

--------------------------------------------------------------------------------

 11

=

... wait for it ...

$941.47

$941. Isn't that AMAZING! This is just the same figure given for the post-bull market average by Jeffrey Christian recently by a different method.

Here is his expert page on FSN:
http://www.financialsense.com/contributors/jeffrey-christian

From my notes from one of his internet interviews, Jeff Christian as I understood him said that the average gold price would likely be $941 in this coming 2010-2020 decade. He compared that to the average price from roughly 1980-1997, which was $390, with fluctuations. He also said that gold might spike higher in the iterim (as it did in 1980) before settling on this average.

In other words, it might spike higher than $941, much higher. If $390 in 1980-1997 is equivalent to $941 in this next decade, then the 1980 $850 spike would be equivalent to 941*850/390= $2050 spike this decade.

So Jeff Christian appears to have admitted implicitly that gold could reach $2050 in a price spike sometime during 2010-2020 without the world coming to an end (after all, we survived 1980).

I find it quite amazing that these two guys make forecasts that give the same average price for gold over the next decade. Look out for that $941 magic number!

Jon Nadler dragged out for bearish propaganda on gold - 2010-09-27

If you want to throw up, listen to the latest interview with gold 'permabear' Jon Nadler.

http://media.kitco.com/weeklyreport/JNadler-Sept-23-2010.mp3

I do recall that he was looking for $740 gold in 2009-2010, wasn't he?

Anyway, he says gold is coming into mania / bubble territory. Get this. He says gold may overshoot in and top in the next 9 months. That is his 'sell by' date on the gold market.

He then says he won't give a price and timing at the same time but he then goes on to say that gold may 'overshoot' to 1320 to 1380. He just can't resist it.

Furthermore he says that it's leveraged speculation with hedge funds that is driving gold at the moment. Maybe he is right; I don't know. Others say it's physical demand but they are goldbugs like James Turk, it has to be admitted.

Jon Nadler then discusses the 1980 $850 top in gold with the presenter and says that inflation and general conditions were much worse in 1980 than now and therefore the spike in the gold price was more justified in 1980 than it is now.

He warned that investors could soon see a top (within 9 months) and then suggests that a 8% annual drop for 10 years could then occur. Well, I got my Windows calculator out and calculated 0.92 to the power of 10, which is 0.4344, so gold could drop to 43.44% of its top value. Taking his top figure of $1380, 0.4344x1380= $599.45.

So be careful folks! Nadler is warning that gold could grind down all the way to $599 when this bull market is over, starting in the middle of next year.

He does say that dollar cost averaging is a good idea and that people should have 6-10% of their liquid assets in gold but one wonders, what is the point if his forecasts are correct. Why not just hold US dollars under the matress?

I love it that he has denied that gold is even in a bull market and then goes on to say that it is now in a mania or bubble! That is so intellectually inconsistent. Nothing can be in a bubble without being in a bull market first, surely! Think of stocks in the 1920s, gold, silver and oil in the 1970s, stocks in 1982-1999, technology in the 1990s, real estate from the 1990s to 2007 and so on and so forth (as Dr. Marc Faber loves to say).

However, Kitco's resident expert on gold says that gold is the one asset that can be in a mania without even being in a bull market!

Come off it, Jon.

Of course, it is possible that gold is becoming very overbought as the COT reports show record open interest and close to record commercial net short positions. However, in 2009, record COT levels were reached in the rise past $1000 and the market went to $1224 before really correcting. If we do get a major spike up in 2010-2011 there could easily be a major correction. This could happen especially if we get a reversal of government policy if the Democrats are thrashed in the US elections this year and a stop to the bailouts, i.e. as Bob Hoye says, if we get an outbreak in sound money. Alternatively, a renewal of the banking crisis and some deflation with heavy deleveraging could also have a similar effect, with a rise in the USD and a market-driven outbreak of sound money. Interestingly, the dollar might be at a low after its recent fall to 79-80 on the US Dollar Index and some expect a turnaround any moment now.

I see some risk of a spike and a mini-mania this time around, followed by a substantial correction. I would not dare to guess what the spike price would be. All I know is that $1299 this weekend was about 26% above the $1030 spike in March 2008, which was 2.5 years ago. Less than 30% up in 2.5 years doesn't sound like a bubble to me, not yet.

I am just listening to Bob Campbell on http://www.howestreet.com/  and he says that interest rates are likely to remain very low and gold and bonds have been attractive at these times,. As Bob Hoye said on Howestreet, Treasuries in the senior currency and also gold are the two liquid assets in a post-bubble credit contraction. Nadler never mentions any of these factors. I think he is short on history and economics.

Jon Nadler droans on about Indian jewellery demand as he often does, saying the falloff is a bearish factor. What it surely really means is that investment demand is pricing out jewellery demand. This has happened before, several times. So what?

However, I do like to listen to him to get an idea of the bearish case. Hearing his interviews helps to get some balance. If I can't pick holes in all his arguments, I start to worry about the gold bull market. And I am a bit worried at the moment, but not very much, yet.

Update to Jim Sinclair type gold estimate vs US debt - 2010-09-15

This follows on from my two posts in 2008 (that long ago?!) estimating the fair price of gold needed to balance external US debt liabilities. At that time the gold price needed was about $8300 per ounce.

$8387.96 Gold & US Balance sheet #2! 2008-07-18

Estimate gold market @ $8355+! 2008-07-18

Now it has changed. The US debt has increased a lot since then!

These $8300 figures were taken from estimates of US debt held by foreign entities and dividing that by the US gold reserves.

This time I have used the following two sources of data:

The  text file on the St. Louis Fed website, giving foreign holdings of US debt. It's called:

'Federal Debt Held by Foreign & International Investors'
which now totals $3,884,000,000,000 (3.884 trillion, up a long way from the figure I used for 2007/08 which was $2.190 trillion

and the evergreen Wikipedia:
 
http://en.wikipedia.org/wiki/Official_gold_reserves
which gives 8133.5 tonnes for the USA (unchanged since 2008)
 
The gold price to cover this debt is:
 
3,884,000,000,000/8,133.5/32150=$14853.22 per ounce of gold.
 
Incidentally, 32150 is the number of Troy ounces in 1 tonne.

The actual gold price for 15 September 2010 is $1267.70 after a high near $1275 yesterday, so it's currently 8.53% of fair external debt budget balancing value, i.e. 91.47% undervalued.

Gold is more undervalued on this metric than it was in July 2008, when it was over 10% (11.3%) of fair value, i.e. 88.7% undervalued, despite its rise from $948.80 to $1267.70 in the last two years.

That's 'only' a 33.6% rise in $ gold price over 26 months. Not exactly a bubble is it?

The end of the euro as a sound currency? 2010-05-10 15:43 BST

Happy Monday today? Well it is for anyone who needs a loan in Europe!
http://www.reuters.com/article/idUSN1019810320100510

"US STOCKS-Wall St set to soar on euro-zone rescue plan."

"NEW YORK, May 10 (Reuters) - U.S. stocks were poised to jump about 4 percent at the open on Monday after a $1 trillion global emergency rescue package was launched, quelling contagion fears and sending European stocks surging."

Looking at http://www.kitco.com/ , they are spot on. The Dow is up 434 points, that's 4%!

"DJIA 10,814.84 +434.41" 10:08 NY time, quote delayed 30 minutes.

Wow.

The article says:

"The rescue package pledged 500 billion euros ($670 billion) in loans and loan guarantees to euro-zone countries, plus about 250 billion euros from the International Monetary Fund. The package is on the same scale as the $700 billion bailout launched by the United States to stave off the credit crisis."
 I thought that Greece needed about 30 billion euros originally and that ballooned to 100 billion in recent weeks. Now the package (including other countries) is 500 billion!

It goes on:

"...the European Central Bank said it would buy government debt to steady investor nerves. A number of European central banks said they had already started."
That sounds like Quantitative Easing to me, printing money. QE to infinity as Jim Sinclair has recently predicted as being inevitable.

Doesn;' this mean the end of the euro as a sound currency. It's no longer a hedge against the dollar, just another banana republic style set of pieces of pretty coloured paper. The Germans will be delighted that's for sure. Good for their exports with a weak euro but another big inflation to come to go with the one in the 1920s. The German thrift has bailed out mediterranean recklessness as Bob Hoye has said.

Gold of course has gone down a bit, but not much. It will fade as the safety trade for a little while but has the potential to come in instead as the big inflation trade because none of these currencies can even pretend in the slightest to be sound money now!

An Astronomy lesson from Zimbabwe and the USA. 2010-01-15

Friday 15th January 2010 at 21:36 GMT
I must be in need of something better to do. When I was little, I used to do sums in my head for amusement and I decided to try some mental arithmetic last week to see if I could still do it!

I rememeber considering the US government's debt a few years ago, when it was 6 trillion dollars. I realised that this was in fact an astronomical sum, literally. You see, 6 trillion miles or 6 million million miles as the famous astronomer Patrick Moore put it, is equal to one light year, the distance the fastest thing in the universe, light, travels in a year. So the USA was already in a truly astronomical amount of debt. Forget the distance of Neptune, which is about 3 thousand million (now called 3 billion) miles; that is a mere snip. I mean that is nowhere near the extent of this year's bonuses for the bailed out investment banks, is it? Solar System scales are not sufficent to describe these sums of money; interstellar scales are needed.

The nearest star is Proxima Centauri, a red dwarf that orbits alpha Centauri, the latter of which is visible clearly in the southern sky. They are 4.2 light years away. That is abut 25 trillion miles. Sirius, the brightest star in the sky (partly because it is one of the nearest) is 8.6 light years away; that's about 50 trillion miles or 80 trillion kilometres. Now that is about equal to the unfunded liabilities of the USA in US dollars.

A mile or a kilometre is a nice unit, because it takes a little effort to walk it; 15 or 10 minutes respectively. And it takes a little effort to earn a pound, a euro or a dollar for an ordinary working person in the western world and a lot more effort for the average person in China or India. So it's a good thing to consider as a measure. Now think how much effort it would take to walk all the way to Sirius and you get an idea of whether the US debts are ever going to be paid off!

Right, let's get to Zimbabwe. Things get even more interesting because even the seemingly unimaginable distances of space are barely enough to describe the debasement of their currency.

What started me off on this bout of maths, apart from the sheer mind-numbing tedium of living in cultureless central England was this graph, shown below, charting the inflation of the Zimbabwe dollar since 1/1/2001, an interval of a mere 9 years, by plotting how many Zimbabwe dollars traded for 1 US dollar. It starts at 100 and then rises steadily, then wildly to somewhere between 10 to the power of 23 and 10 to the power of 31, depending on whether you believe official or unofficial data, internal goverment or external agency data.

In the worst case, the US dollar was worth 1,000,000,000,000,000,000,000,000,000,000 Zimbabwe dollars, i.e. 10 to the power of 30, or 1 E+30.

I wondered what this might represent. Well, in fact, after doing some mental arithmetic, I arrived at the shocking conclusion that this number is about equal to the distance across the entire observable universe, in millimetres.
I am sure therefore, that by the end, 1 Zimbabwe dollar (or perhaps even 1,000 Zimbabwe dollars) would not have bought you a single molecule or even a single atom of anything, given that there are about 1 E+23 atoms in a gram!
Chart courtesy of the fabulous http://www.wikipedia.org/.
See also http://en.wikipedia.org/wiki/Zimbabwean_dollar#Hyperinflation !