Stock markets continue to go sideways – lots of volatility up and down – nothing new with that.
Bond markets are hitting approaching new highs with the 10 year bond going to 1.80%.  This is a show of safety conern.
Oil is down around $95 showing a concern that the world markets may be approaching a recession.
The Euro is down to $1.30, rising to $1.31 today.
Gold is the big losing investment over the past week or so.

The Gold market…….

All of the facts on last week’s drop in the gold price will not be in until this Friday.  However, I can say that I definitely looks like gold is establishing a bottom from which it will rise.

I want to talk about what makes today’s gold price move.

The main lever to make gold move up and down is NOT people buying and selling gold.  It is the futures market in gold.  The futures market is a speculative market, and therefore can be manipulated.  The CFTC is the US government regulatory organization that is supposed to monitor this market (and the silver market, and all futures markets as far as that goes), and has been ordered through the Dodd-Frank bill to restrict the amount of futures contracts that can be established – based on the underlying commodity itself, and its futures contract needs for liquidity.

The CFTC has met and decided it will not make this determination – as there is just too much pressure on them to wait awhile before coming out with the details of their new regulations.  There is fairly good proof that the gold and silver markets are manipulated by a few big banks – probably on behalf of other interests (think the government).  This evidence was presented to the CFTC who doesn’t deny the facts.  However, I can assure you that if the government tells a governmental agency to stall in its regulatory writing efforts – it will stall.  This appears to be what has been happening.  However, this too will come to pass.

So, back to the futures market.  Let’s say for example that 10 times as much gold is traded by the futures market as is actually purchased or sold for the physical bullion.  That would mean that the price movement from the futures market would be 10 times greater than the gold bullion market – and the gold price would go where the futures market wants it to go.  This is exactly what is happening – and the ratio is much greater than 10 to one.

There is a Commitment of Traders report which shows who is buying and who is selling futures contracts in gold (and silver).  This report shows that the short position (betting the price will go down) is held by the big gold bullion banks.  It also shows that the long position – which balances the short position – is held by independent organizations like hedge funds, commercial banks, etc.  This relationships has been in place for years, and years, and years.  It is nothing new.

So, why would the big bullion banks want gold to go down?  After all, they are betting BIG BUCKS that gold is going down.  When gold goes up, their short futures contracts lose more and more money.  If they HAD to sell their futures contracts – that would be called a “short squeeze.”  This happens from time to time.

However, if you can control (manipulate) the market, and you hold all these short futures contracts – you will make the price go down through hard selling of more future contracts – scare the “long” futures contract holders to sell – and buy their contracts are cheaper prices – thereby making money, or at least reducing their losses.  This is the motivation for the big gold bullion banks to manipulate the price of gold down.

There is another reason.  Suppose the government (US, European, Japanese, etc) want the price of gold to go down – because they are inflating their currencies, and the price of gold is an embarrassment to them – as it shows the devaluation of the underlying currency.  The government generally doesn’t want to publicize its actions in any market – so it would use an “agent” to do its bidding.  It would use one or more of the gold bullion banks – and has used them over the decades to do its bidding in the gold market.  So, those banks have no only a good reason to be manipulating the gold price in a downward direction, it would have high cover from its government.

This is what I think is going on in the gold market (and silver market too).  But does that mean that gold is a “bad” investment?  No – a simple answer.

Today’s Gold Market…….

It appear that the long futures holders are all sold out, and more of them can’t be scared to  sell their futures contracts by having lower prices.  When that happens, the bottom is in, and the price starts to go up.  That is what happened yesterday and today.  Yesterday, gold got sold off when it went above $1600, but not today.  The trend for gold is up – when there is no interference from the big bullion banks.

My Wish List for the Big Bullion Banks…….

If I knew that sometime soon (March 2012?) the CFTC would implement restrictions on futures trading and the amount of futures contracts a single owner could hold, then I would start dumping my short position if I was one of those big bullion banks.  Not only dump my short positions, I would buy long positions – so I could make money on the upside, and stop losing money as it went up.

If this ever came to pass (and this is just a dream) the price of gold would shoot up faster and further than anyone has predicted so far.

However, I believe this is just a matter of time.  Maybe longer than just next year, but it will come to pass.

FINCON = 2

What is going on with gold?……..

The short answer is “I don’t know.”  The reason I don’t know is that all the data is not in yet, and won’t be in on what happened this last week until this weekend, or early next week.  I can promise that once I do know what is happening, I will put out a special report.

However, I definitely believe that it is a “buy with both hands moment” with the price anywhere under $1600/ounce.

Take a look at the gold price action on the following chart.

The Relative Strength Indicator (RSI) at the top of the graph hasn’t been this low since 2008.  It is a great indication that the bottom for the gold price is here, or very, very nearly here.

What causes gold to go down?  Naturally, it is someone selling.  But, who would sell?  The answer is documented clearly in the data coming out in the next couple of days, and I believe it will show that it is the Big 4 gold banks (like JP Morgan) who are the sellers.  They are the ones who hold the “short” gold futures contracts, and as the gold price goes up, they are being squeezed on price as the duration of their contracts runs out.

So, naturally, they would want to sell those shorts, but not at high prices, but low prices – just like now.  In fact, they would like to get all the “long” future contract holders to sell their contracts to them – so a long and a short cancel each other.

One way to scare the market is to have technical breakthroughs on the downside – like breaking the 50 day moving average (the blue line) and breaking the 200 day moving average (the red line) to the downside.  That would scare some “long” gold futures contract holders – and cause them to sell.  A break below the 200 day moving average happened last when the price of gold was around $900.  It’s been some time, and I admire the ability of these big banks to manipulate the market.

There are political reasons (FED reasons) to get the gold price  down, and I’ll talk about that in the future.

DJ30 – 11,559   up 19
US Treasury 10 Year Bond – 2.18%    down 0.09%
USDEUR  -  1.4465
Gold – $1842     up $50
Oil – $88.86    up  $1.59

Stocks sideways, bonds up (interest rates down), gold way up, Dollar level to down, and sneaky oil is going back up.

FED Member Evans Speaks…..

FED member Evans spoke out publicly today and said that he thinks that more quantitative easing is needed to help the economy.  He said he would follow the lead of FED chairman Bernanke, but it is his job to speak out with ideas on how to help the economy.  He went on to say that previous quantitative easing did not result in inflation or inflated prices.

I am astounded that a FED member can say that monetizing debt – which is FED-speak for printing money – does not cause inflation or inflate prices.  QE2 definitely caused commodity prices to go up, and to say otherwise is either misleading, or not well educated – and I don’t believe either of those with respect ro Mr. Evans.

This is more than my personal opinion.  The traders on the floor of the Chicago Board of Trade stood opened mouthed when Evans made his statement.

More positively, I can state that there is a voice at the FED advocating more quantitative easing, and this is good for gold prices.

As shown in the minutes of the August FED meeting, there was a big disagreement with the action taken.  Many members wanted to take bolder action.  This backlog of support for something greater – like a QE3 – is positive for gold too.

Confidence level drops…….

The confidence level came in at a very low, low level this morning with not having it this low since 2009 – right after the market shocks.

While this measure is one that I generally ignore because it is so subjective and fickle, I believe it does reflect the general public’s concern for the US economy and it does portend a drop in consumer purchases – and this will directly lead us into recession.

What’s Happening with Gold…….

Gold has tested its low in the last downdraft – and hit about $1700 twice – forming a nice support level.  This is the low for this time in the gold rise.

Now gold is going back up, and must break through the $1900 to $1910 level that it hit at the high.  I can bet that gold will test that level in the next week or so, and the gold bullion banks will be doing everything in their power to make sure gold doesn’t go through that level.  It will be a titanic battle.

If gold goes through $1900, it will go straight up to $2000.  If it can’t make it through, it will go down again, and probably go sideways for a month or so.  Time will tell.

DJ30 – 10,855   up 37
US Treasury 10 Year Bond – 2.09%    up 0.02%
USDEUR  -  1.4357
Gold – $1895     up $48
Oil – $84.10    up $1.84

Stocks, bonds, Dollar, oil all sideways.  Gold, on the other hand, HIT AN ALL TIME HIGH again.

Understanding the Gold Market today……..

I have been trying to understand the dramatic, even parabolic, rise in the gold price recently.  And, I have come up with a hypothesis – yet to be proved – but a good one that explains an awful lot of the action.

I don’t know if you’ve seen that Chavez of Venezuela has nationalized his gold mining industry at home, and has asked for all the gold bullion being held outside of Venezuela to be shipped back to him.  This is one of those political actions that has repercussions (reactions).  I think he wants to get his hand on his country’s gold before his upcoming elections – just in case it gets ugly in Venezuela and other nations want to put sanctions on him – think about Syria right now as an example.

The Venezuelan gold is held in London in various banks.  For example, the Bank of England is holding 99 tons of gold, and it has said it would ship it back to Venezuela.  But, there is over another 100 tons of gold being held by various banks – like JP Morgan and others – and Chavez wants them to send him his gold too.

Here is where the intrigue lies.  If these other banks used the Venezuelan gold to back the writing of futures contracts or leased the gold out, then when those banks sent his gold home, they MUST replace the gold to continue backing those previous actions.  This means they would have to go on the open market and buy tons and tons of gold – over 100 tons.  Now, that’s a lot of gold.  Guess what would happen to the price of gold with that big a BUY order?  It would skyrocket, of course.

And, more interestingly, if those banks have any problems obtaining physical gold to replace what has been shipped, the NERVOUS central banks around the world might just get real nervous themselves and ask for their gold back too that has been stored for safekeeping.  That would be a “run” on the gold banks.  And, it would cause pandemonium – to the upside – in the gold market.  I think this is why JP Morgan has predicted that gold will hit $2500 this year.

M2 Money Supply…..

The US M2 money supply measure is going up.  The normal rate of increase has been $10B per week.  However, for the past 6 weeks, that rate of increase is $60B per week.  This has never happened before.

I consider this a very significant event in the US monetary system.  It helps explain why the big banks are now charging companies to deposit money in their savings accounts.

My belief is that the Europeans are panicking right now, and getting their money out of European banks.  Their safe destination?  US banks, of course.  It’s very interesting how the world is very strange right now, and that is a danger sign – all by itself.

DJ30 – 11,482   up 214
US Treasury 10 Year Bond – 2.29%    up 0.05%
USDEUR  -  1.4444
Gold – $1763     down $23
Oil – $87.68    up $2.30

Stocks jumped up again today – but the US economy isn’t very good, and stock prices could fall again later this week.  Gasoline prices are starting to fall, but oil is now rising – let’s hope it stops rising soon.

What’s happening with gold…….

Last week we had the big run up in the gold price that hit an all time high of $1816.  Then the gold price spent a few days going down, and ended just above $1740.

The run up was definitely caused by a “short squeeze” of a bunch of smaller commercial banks who had shorted gold in the low 1700’s and got caught holding those shorts when S&P downgraded the US Debt.  Their losses mounted and they had to “buy” back those shorts – causing the gold price to go even higher.  And more people were caught in the squeeze.  When it ended, all those shorts were gone.  More importantly, the price of gold had taken off and was rising “parabolically” which is a sign of a bubble.

Gold is a bubble, but it isn’t about to burst just yet.  However, the parabolic run up had to be eliminated – so gold came back down, and is now trading in the mid-1700’s.

I gave a hint that if gold ever closed below $1740, it would go down further, and would become a BUY for anyone wanted to load up on gold – and at a price around $1700.  So far, gold has not closed below $1740 – so we aren’t there yet – but it still could happen sometime this week.

Gold needs to either continue down a little, or tomove sideways for at least a week to work out the parabolic rise in price – then we will be back on track for further rises in the price – go go go…..

Please note that silver acted entirely differently from gold – and proved again that the two markets are separate.  Also, an interesting side note is that the gold price exceeded the platinum price during its parabolic rise.  I got a strange feeling when I saw gold above platinum – but didn’t fully understand what was going on at the time.  As it turns out, that gold/platinum inversion was a sign of gold going up too fast.

DJ30 – 10,810   down 633
US Treasury 10 Year Bond – 2.34%    down 0.22%
USDEUR  -  1.4198
Gold – $1720     up $60
Oil – $81.10    down $5.78

Wow, what a day.  The DOW fell 633 points, and hasn’t hit an equilibrium point for trading yet – should mean lower tomorrow.  Bonds rose majestically and is at a recent low for interest rates.  Oil fell over $5, and this spells great news for gas prices.

There was no panic in the market today – even though these moves were all massive.  It was an orderly market.

Bluebird…….

The S&P downgrade to US Treasury Bonds can be considered a “bluebird” – something come out of “no where” that impacts our economic reality.

S&P has started the downgrade of associated US government credit organizations – such as Fannie Mae and Freddie Mac – to AA+.  Some of the states should be next and this will dribble out to our annoyance.

Gold, gold, gold, gold…….

Well, gold rose quickly starting late Sunday when the international markets opened – and it jumped up to $1711 before I went to bed.

This is as it should be expected, and this shouldn’t be a surprise to any economyguy reader.  So, you are prepared for this volatile market we are seeing.  There a lot of people losing sleep over their stocks falling, but gold owners are cheering their good investment.  Gold has never risen by $60 in a single day in the past 10 years – and this volatility is wonderful if you are in gold.  But, what goes up, can go down just as quickly.  I predicted high volatility for gold this year, and it is coming true in spades.

And, to give you what other people are thinking, here are two predictions that came out today:

1. Goldman Sachs has said that gold could be $2000 by year end.
2. JP Morgan has said that gold could be $2500 by year end.
   

Let’s hope they are right.  My prediction of $1800 by year end is bow looking a little low.  Oh well, I guess I will have to take my lumps for predicting only a 25% rise in gold this year.  I love a 25% increase in the value of my investments – how about you?

But, we are also investing in gold to maintain the value of our assets in the face of an uncertain world.  The S&P downgrade can be interpreted as a prediction by S&P that the US Government will print money to pay its debt, and this will cause the Dollar to fall in value, and that means gold will increase.  This thinking is certainly behind much of today’s rise in the gold price.

DJ30 – 12,593   down 88
US Treasury 10 Year Bond – 3.00%    up 0.04%
USDEUR  -  1.4377
Gold – $1615     up $13
Oil – $99.09    down $0.89

Markets reacted to the lack of progress by the US Congress on the Debt Cap deal.  Stocks fell.  Surprisingly, bonds did not react too negatively – they did increase in interest rate, but not by much.  The Dollar stayed steady too.  Gold soared to a wonderful new inter-day high, but then fell back a little to set a new closing high.

Gold…….

Gold stops trading on Friday afternoon and reopens in the far east on Sunday afternoon (our time).  When gold opened over this past weekend, it jumped up to $1624/ounce – and ALL TIME HIGH during the day.

There is only one reason why gold jumped up, and you know it.  There was only one news story blazing over the weekend, and it was the Congress trying to come up with a Debt Cap increase deal.  There was nothing else going on in the world – except the nut in Norway.

The purpose of pointing this out to you is to confirm what drives gold up.  When gold opened over the weekend, it did not go up gradually, it went straight up.  There was pent up demand of worry and risk that the US might not be able to solve its Debt Cap problem – and also that the Debt Rating Agencies were threatening to lower the US debt rating.  The weekend provided an excellent example of a market at work – a rare example to be studied and put away in your memory for future consideration.

DJ30 – 12,639   up 55
US Treasury 10 Year Bond – 3.16%    down 0.01% – a very low interest rate right now.
USDEUR  -  1.4313
Gold – $1495     up $10
Oil – $97.18    down $1.74

The standouts in the above measures are US Treasury interest rates at a very low level, and oil which has been pounded in the general commodity price meltdown currently going on.  Oil (mistakenly in my opinion) was said to be going down because of the poor US economy and the unemployment rate.  Gasoline continues to defy gravity and is now about $4.00/gallon on average across the US.l

Unemployment…..

Unemployment came in at 9.0%, up 0.2%.  Also, the economy created 244,000 new jobs last month.  First of all, I want to make clear that the unemployment percentage in itself is not very important – it is only a symptom of the illness that our economy is suffering.  The unemployment percentage is an easy measure to understand and gives you an easily accessible measure of what is going on in the creation of jobs in our economy.  The creation of jobs is what is VERY important.  Another measure of a lesser value is the number of unemployment insurance claims reported each weak.  Another fact to keep in mind is that both the unemployment rate and the number of new jobs created is established by a survey – in other words, they call people up and see what they say – just a poll.  So, the measure is somewhat suspect also.

The headline figure for unemployment of 9% is a disaster all by itself, but it is even more important to understand that this number only counts people who are receiving unemployment benefits.  When they no longer receive those benefits, they are no longer counted, as the government (in its infinite wisdom) thinks they are no longer looking for work.  I disagree.  There are tons of people who would love to get a job, but who are no longer counted in the unemployment figure.  If you count all those people, you find that one in five people in the USA is not working – that’s 20% of the working population.

The elephant in the room is a fairly well researched, and under reported, study showing that when people are receiving unemployment benefits, they are not highly motivated to find a job.  In other words, the “good” that government is doing for the unemployment by extending their benefits into multiple years is actually hurting those individuals over the long run – and it is hurting the US economy at the same time.  Now what I am saying may sound very harsh, but tough love is sometimes the right course of action.

Now let’s look at the facts.  The economy has lost 8,000,000 jobs since the economic meltdown in 2008.  The same economy has created less than 2,000,000 new jobs to replace those that were lose.  This is not a very strong economy, and the numbers help explain the pain that is being felt by families across America.  In addition, there are new job applicants coming into the jobs market for the first time from new adults (college and high school graduates) and immigrants – and this new pool of workers looking for jobs accounts for an additional 125,000 people per month – or another of looking at it, these new workers account for MORE than the number of new jobs created so far.

A common sense look at the employment market was given to us by McDonald’s restaurant.  They had a national hiring campaign where they wanted to hire 50,000 new workers.  There were 1,000,000 applicants for those 50,000 jobs.  That should give you a very good feeling for the desperation of workers in the US today.

Greece to Leave the EU??????

There is a rumor going around that Greece is considering leaving the EU in order to get out from under their debt problems – and the associated management by the EU and IMF.  This is just a rumor right now, but it has such great ramifications that I wanted to talk about it today.

First of all, this is a reasonable thing for Greece to consider.  Leaving the EU would entail leaving the Euro and going back to the Greek Dracma.  The Greeks could then go into a devaluation of the Dracma through inflation and pay off their debt with freshly printed money.  Lenders to Greece would be hurt – but caveat emptor.

Stay close to this story as it would have a dramatic downward pressure on the Euro – as the unknowns would create risk in the markets.  The Euro has already fallen from 1.48 to 1.43 in the past few days.  This is more than a stronger Dollar – so I suspect there are hedges going on just in case this story has legs.

US Housing Market…..

It’s now official.  The US Housing market is officially in a double dip.  The housing market fell like a stone right until the US Government came out with their Tax Credit Plan which expired last year.  During that period, housing prices started to creep upwards and stopped the first dip in prices.  Since the tax credit plan has expired, housing prices has continued to fall, and now have fallen BELOW the median price established at the low before the tax credit plan.

Welcome to the double dip housing market.  Does this mean we are heading for a double dip US economy (recession?)  Only time will tell.

What’s happening with Gold????

I think some the economyguy readers must be wondering what is happening with the gold price.  It hit an all time inter day high of $1580 about one week ago, and has since fallen back to a low of $1480, closing at $1495 on Friday.  Let me start by saying I am confident that gold will continue its climb in the future as the markets work out the excesses in them today.  Those markets with excesses include silver and the Dollar – both of which have had long sustained changes in price which must correct as all markets correct.

Silver is watched together with gold by world markets.  Many people think that silver moves with the gold price.  In reality, the silver market is different and separate from the gold market, but silver generally does move in the same direction as gold.  Silver has moved up about 150% over the past year – which is an enormous gain from $20/ounce to $50/ounce – and it had to correct.  The trigger to cause the correction was an increase in the amount of margin that was required to buy a futures contract in silver.  The added money caused many silver long contracts to be sold which started the meltdown in the price of silver.  The price came down as far as $34/ounce – a fairly hefty decline.

The Dollar has been on a downward rampage and threatened to break through the all time low it has ever established.  That long term trend needed to be corrected and has now started the correction.  It is not clear to me what caused the correction (other than its huge decline) but the decline in silver and other commodities certainly added to it.  The Euro (one of may currencies that the Dollar is measured against) has fallen significantly.

Gold may fall further, but the things I will personally be watching for the sure gold turnaround is the direction of the Dollar and a change in the silver direction to positive.  I believe that gold is now a good buy for anyone who is thinking of putting some money into gold.

I wanted to tell you that I will be going on a prolonged road trip back East, starting Monday, picking up Christine’s dream car.  We will be driving it back home across America – seeing the beauty of our wonderful country and some treasured friends. I know some of you worry when you haven’t received your dose of Economyguy, so know that I will be offline for awhile – but I will be back online when we get home.  If something big happens while we are driving, I will get out an emergency message to you all.

Gold……

I thought I should tell you what I am thinking about gold.  As most of you know, I am invested in gold and have very positive beliefs about the future price of gold.

Technically speaking (that means trying to read meaning into past price patterns and projecting them forward in time),  the price of gold hit a high at the end of 2010 of $1420.  At that time, I predicted that the price would fall in January/February, but recover during that time.  (Two months is an eternity when you want you asset to increase in price.)  Well, the timing of that prediction was not perfect.  Gold fell through Jan and Feb, and then started to recover.  It took the entire month of March to get back to $1420.

Since breaking through $1420, gold has hit an inter-day high of $1445.

More importantly, gold has come back down and tested the $1420 level 5 times.  In four out of five of those tests, gold closed above $1420.  In one case, gold fell to $1395 and then went back up.  The more times that the $1420 level is tested, the stronger it becomes technically speaking, the new “floor” for the price of gold.

While it is entirely possible for gold to go below $1420 as world events take their toll, I believe that gold will start its next leg up on this year’s rise in price.  I believe that a significant break below $1420 is a buying opportunity for those of you thinking about buying some or more gold.

One additional observation I will make about the gold price action is that gold price volatility is increasing.  In other words, the daily price swings are becoming larger.  I consider this a part of the market as people buy and sell their gold at this level.  The gold market appears to be shaking out people who think gold has topped, and replacing them with new investors.  This is all healthy.

As an aside, silver has outperformed gold so far this year, and I would expect it to continue to outperform gold.  I do not follow silver as closely as gold, so I am not recommending it, but for those of you with a higher risk appetite, you should research silver and make your own decisions.

The fundamentals of gold have not changed.  There is risk in the world and people in the Middle East are buying gold.  The Far east considers gold the same as money, and they are buying gold.  Central Banks are buying gold all over the world.  Inflation has entered the world, and I believe it is caused by the FED printing money as part of QE2.  This adds to the upward pressure on gold.  Financial stability is questionable in many people’s minds, and those who advocate protecting yourself from US, European, Japanese and Chinese monetary actions, recommend gold as the place to protect yourself.  This too is pushing gold upward.

The supply and demand curves for gold are positive for the future price of gold.  Gold coin producers are easily keeping up with the production of gold, and are selling out as fast as they can mint new coins and bullion.  It takes at least 2 years to bring a new gold mine on line to add to the supply side of the equation.  While many mines are being explored and started to be mined, their production has not hit the markets yet.  My opinion is that when this new supply hits the market, the demand will be just that much higher.

Many people out there believe that “everyone” is invested in gold now, so it must have peaked.  I disagree.  Very few people own gold.  Who do you know that owns gold?  I think there are very long lines of people who are “selling” their junk gold – as advertized on TV.  Those people don’t own gold.

Gold is a bubble!!!!!!!!!  But, we are very far from the point when that bubble will burst.  As you know, I will be watching gold like a hawk to establish when I think that bubble will burst – as I want to get out just before it goes bang.  If you look at the price rise of gold (see below), you will see that the gold price rise is a fairly orderly march upward over the past few years.  It has NOT gone into a parabolic or hyperbolic rise – which is must do before the bubble bursts.

When  you look at this graph see that gold turned more positively upward in 2008 – but that is when the world nearly stopped (economically speaking), and the urgency to buy gold increased across the globe.  Both before and after the meltown, the increase in price is linear.  When it stops being linear and starts shooting up, that is the time for you to pay more attention for the coming bubble burst.