Friday, December 9, 2011

Gold Technical Update

Yesterday we were forced to witness a pathetic charade in the halls of a congress that claims to defend freedom.  The citizens falsely and blindly trust that congress will ameliorate markets by honestly seeking answers.  This is not the case.

We will attempt to simplify this situation in an effort to help you understand what has really happened and hopefully help you plan accordingly.

Pretend that your attorney deposits a settlement check from your case into his firm's escrow account on a Wednesday.  The funds may not be distributed for two weeks based on court order but the case will be settled upon receipt of funds.  The escrow account provides both parties with the security and trust needed to enter into a final settlement agreement.  The following Monday, your attorney's firm files for protection from creditors under Chapter 11 of the bankruptcy code.  You had no way of knowing that the prestigious firm of 200 lawyers had entered into a number of risky business transactions and was now insolvent.  This should not impact you though as the law absolutely states that escrow accounts are to be strictly segregated.

Two weeks have passed since you signed the final settlement agreement and funds may now be distributed.  Your attorney informs you that he is unable to locate the settlement funds.  The bankruptcy trustee has notified him that they are trying their best to determine what happened to your funds but at this point there is nothing that can be done.  It appears that the escrow funds were raided in a last ditch effort to back off creditors and hide the squalid nature of the firm's financial decisions.

This is precisely what took place at MF Global.  US securities laws state very clearly that customer funds and company funds may not under any circumstances be commingled.  Now, honest and unknowing clients seek answers as to the whereabouts of nearly $1,500,000,000 in unencumbered cash deposits.  But, there are no answers.  There are only lies and cover-ups offered by bought and paid for spineless politicians.  Jon Corzine is a criminal.  He is a filthy street thug disguised in an overpriced suit that was paid for by trusting account holders at MF Global.  Jon Corzine received a waiver from regulators allowing him to operate without obtaining a current securities license.  

The system is broken.  How long will it take you to understand what is happening?  How long will it take you to stop calling this editor a conspiracy theorist and start looking at the real conspiracy which is stealing your money, your freedom and your future?  It is time to wake up.

When conditions are such that the financial system allows parties to default on contracts at their leisure you must protect yourself.  Remember, when the bankers owe you they default.  When you owe them they get a bailout, paid for by you.  You must insure that you are not in contracts that could leave you stranded in the event of systemic failure.

A reasonable amount of cash should be kept on hand.  Precious metals should be considered as they are the only true asset with no counter-party risk.  Please, do not purchase the most common gold fund pushed by the fascists as you will one day see that the gold they have sold you is not there.

Speaking of gold we must update you as to the technical behavior of the world's only unencumbered asset.  We reached a high in September and have been consolidating for roughly 10 weeks.  As the chart below will show, current support is found in what was resistance dating back to May 31, 2006.

This support should hold, if not $1,530 would be the lowest possible level that we can see.  This is all occurring within the context of a normal consolidation.  The movement in gold has been very structured and stable.  There is not yet any price action that would suggest a bubble or speculative top formation.  Consolidation action can occur in a downward fashion or over time.  Time is a factor in markets that very few understand.  In this case, 10 weeks of pennant formation should be seen as a very healthy consolidation likely in preparation for a move over the psychological $2,000 level.

Wednesday, December 7, 2011

Watching The Board

Most people ask the question, "So what is going to happen next?"  They have little understanding of how things really work.  There is not a linear solution that one person knows and prescribes to a problem.  The person asking this question is hoping to push the responsibility of thought onto someone else.

People, groups and nations are driven by self interest.  The key to predicting what comes next is to focus on the whole board.  In chess, consideration must be given to every piece not just the one currently in play.

China controls 35% of the world's naturally occurring rare earth elements.  More importantly, they control 97% of current production.  The west is desperately trying to develop production but this takes time.  Current market conditions have sucked the bid from equity related to non-core asset classes.  The world is broke and severely under capitalized.  When central banks slow the pace of money creation, or even redirect it, asset markets quickly develop drought conditions.

While this is taking place, we notice that the nation holding the key to our rare earth needs also controls the world's most critical shipping lane for manufactured goods.  We must clarify that as the most critical oil shipping passage, the Strait of Hormuz, is also being challenged at present.

As we survey the entire chess board we notice two key situations.  First, equity related to non-Chinese rare earth developers is being priced near or below liquidation value.  Second, the US is still behaving as if China must obey its every demand.

The disparity between these two factors is shocking.  In this case, adding to rare earth positions in companies who aim to be in production prior to 2015 seems logical.  The financial risk on this trade has been reduced by  central banker decisions and how those have effected asset markets.