Yves on Gold Panic Redux

Yves has updated his prior post on Gold Panic. You can read his analysis over at Zerohedge. This chart from Yves captures his essential point: he pegged gold in a wave 3 two months ago, and now sees that the current downtick is a wave 4 correction with a 5 to go to new highs. This is a bit more useful than EWI constant corrective count. A couple of thoughts:

1. One trenchant comment to my Bolster the Buck post is that the current Dollar strength might be merely a short term stunt to support Obama on his current Asian Tour. If so, the Dollar fades when O comes home. Quite a shock to the global financial system if so, and raises the risk of a potential Dollar Meltdown. Yves' wave 4 might correspond to the period of Dollar strength, and his wave 5 might be a sharp spike when the Dollar drops after the tour ends. A bit cynical I suppose but part and parcel of a pattern of manipulation in markets (Cash4Clunkers? Dollars4Dishwashers? Etc.)
2. CW (conventional wisdom) views Gold as a hedge against inflation, and hence views gold's rise as a prediction of pending inflation. Yet we remain in a deflationary environment, as this rather dense but extremely informative analysis makes clear. Something else seems to be going on. 

So what is up with gold (pun intended)? We see central banks buying gold all of a sudden, whereas they had been sellers for decades. We see China encouraging its citizens to own gold, and the Indians buying a big slug from the IMF. Professor Fekete has written about hoarding of gold and the substitution of paper for fulfillment of gold. Then yesterday Barrick (the largest gold supplier) made a surprising announcement that "we" (meaning it) were running out of gold!  Peak gold! Of course since we have huge stocks of gold compared with mining, how could this be?  Hmm, if Barrick had been running hedges and was finding it hard to fulfill with real gold, only paper, the jig may have been up and now they have to unwind. "Peak Gold" is putting lipstick on their pig. 

Maybe Fekete is right about hoarding. But why the hoarding?

For those of you who are fans of Martin Armstrong, his view is that gold is a hedge not against inflation; gold is a hedge against bad government. Put simply, it is a vote against TARP, Porkulus, C4C, QE and all the many games being played right now to try to roll the disaster forward as long as possible. Now, I don''t know what to make of Armstrong. He reminds me of the wacko character in the movie Pi. And he is serving time and writing out of prison. But his historical analysis and observations are interesting. 

When you trend out the massive global stimulus and monetary easing, the difficulty of the Fed exiting without disruption, and the determination of Obama to layer huge increases in US deficits to pay for what he calls "social justice" (we usually know it as redistribution of wealth), you conclude that some Dollar Denouement is ahead. Under a type of monetary rule of alternation, if last time (1931) we abandoned gold for fiat  money, this time we might abandon fiat money for gold. Hence, time to hoard.

But that may not be the end of the story. Barrick's hedges strike me a bit like the same dynamic that made oil go into a parabolic spike in 2008. You can read more in this post: Oil Dances the Contango Around the Basis. Changes in the rules enabled hedge funds to take long positions as if they were principals (eg refineries) in the oil trade, and it drove the market up beyond any sensible supply/demand curve. Up and up as long as our estimable Fed kept pumping liquidity via the Greenspan Indian Summer, continued by Bernanke. When it broke, oil fell hard. 

Maybe the gold panic will be down? Gold is relatively a smallish market, meaning it could be hugely influenced by a player like Barrick. In this case, if Barrick stops fueling the speculative drive into gold, the market could fall fairly hard. Last year the rise of oil was justified as due to Peak Oil, but now we find the world is awash in oil.  Might it be that Barrick's "Peak Gold" is just this year's Peak Oil, and Fekete's hoarding was but a try to corner a market?

Comments

[cloudslicer]

This is off topic. But what I think is more important than understanding market direction is having a good set of trading and money management rules to live by. These are ones that I use:

http://www.rhodes-capital.com/resources/tradingRules.pdf

They have kept me out of trouble in the past. In fact whenever I've lost money or sold too soon and not made money that I should have it was less to do with a bad wave count and or other T/A and more to do with not following these rules.

[da bear]

hmm, i am counting this as a bigger Wave B. but if gold corrects to $1,000 without going lower the count from this article looks correct.

I would be interested to see a chart comparing gold the current gold run to the one in the seventies. what does the current chart of gold look like compared to the run-up after the 1973-1974 correction?

if the Yves chart is right then a pretty big spike up in gold could come very soon...

the next correction will tell us what is in store...

da bear

[yelnick]

Cloud, thanks for sharing. I like this part of his final rule: "The final 10% of the time of a bull run will usually encompass 50% or more of the price movement."  In our case we have the opposite - almost all the price movement happened in the first 18 weeks, and very little (10%) has happened in the past 12.  Maybe there is a reverse rule for corrective rallies?

[vipul garg]

ned bushong,
the best part about long term forecasts is that if you get them right, you can back to them.
else market is dynamic and changes !

however you can hold me to this one in years to come.

[Mamma Boom Boom]

vipul, I'm not going to hold anyone to anything, your a free man. Try not ot put me in the same category as that one fellow, you know who. I simply provided you with a warning.

[vipul garg]

ned,
i am a short term trader. i feel good if i get few percent moves of spx.i am sure you know that forecasting and trading are quite different games.
i hope i can distinguish between mortals and mortals pretending to be high and mighty.

[Mamma Boom Boom]

vipul, I've noticed that before. You are a dificult one to talk to. Are you Muslim?

[vipul garg]

ned,
even i were a Muslim i would still be the same.
listening is a skill that though acknowledged is little practised.

i have little to offer on fundamental analysis of the markets.
i dont want to comment to offend anyone except a few times when yelnick has posted elliott charts to include opinions of daneric,yves etc. only to voice that they are not right even remotely and should not form a part of main post of a widely read blog on elliott.

sometimes its not being difficult, its just that ice has taken a little longer to melt for want of common topics.

[gambler]

I am expecting the stock market will bottom around Nov 27th before beginning another advance.

[Michael]

Vipul,

You make some great all-around points.

If one actually LISTENS to the markets and is able to identify and confirm the TREND, TRADING is not as difficult as people make it out to be.

However, I would agree wholeheartedly that the people that spend so much time FORECASTING the popular market indices with all of their pretty little charts and their absurd interpretations of Elliott Wave on a ridiculous short-term "minutiae" basis aren't even close to being held accountable by the market - - - quite simply because they DO NOT TRADE for a living.

The market is the biggest single disciplinarian and teacher. If you actually have "skin" in the game on a day to day and week to week basis, you understand what I mean. If you are merely a "forecaster" or short-term wave "counter" there is no one really to hold you accountable. You merely just change your most recent "squiggle" chart, or seek out yet another "alternate" wave count that FITS to what the market is doing, after-the-fact.

There is indeed a BIG difference between being a so-called "forecaster" and one who is a TRADER that trades for a living.

Cheers to all of the TRADERS out there.
Have a great Weekend!
:)

[DG]

If you are merely a "forecaster" or short-term wave "counter" there is no one really to hold you accountable. You merely just change your most recent "squiggle" chart, or seek out yet another "alternate" wave count that FITS to what the market is doing, after-the-fact.

There is indeed a BIG difference between being a so-called "forecaster" and one who is a TRADER that trades for a living.

You got any names for the people who are just "counters" and not "traders"? I mean, of the people who post on this blog, not the people who post on however many dozens of Elliott Wave-oriented blogs there are online.

[Manish]

"vipul, I've noticed that before. You are a dificult one to talk to. Are you Muslim? "
Hey Ned,those are unwarranted comments.

[TJ]

Ned has some serious problems.
Someone should ban him for that comment.
It is highly disrespectful, inappropriate, and serves no purpose other than to personally attack someone. Ned does not add any VALUE to this blog. Yelnick should ban he (and his IP address) from posting

[Steve]

I was also surprised by the comment. But, Vipul responded intelligently as always, and Ned does not usually make personal attack no worse than most of us.

Unless his remark was illegal, he should not be banned. People have different opinions about who should be banned.

[twitter.com/LeChffre]

Illegal, maybe not. Racist, definitely. But, according to Precter, these type of feelings are to be expected in severe recessions.

Maybe Ned and his comments could be used as a (contrary) sentiment indicator?

[Edwardo]

Martin Armstrong's true character, whatever it may be, is beside the point. His analysis of gold is, no pun intended, spot on. Since the U.S. went all in on fiat under Richard "We are all Keynesian's Now" Nixon in 1971, gold has functioned as a hedge against the ultimate outcome of fiat, which, in the case of the U.S. dollar, is oblivion. The path to utter debauchery has occurred in fits and starts, but the dominant trajectory is clear. U.S. monetary authorities, because they feel it is in their best interest, (as do their handmaidens in the political class) and most importantly because they can, will, in my view-barring something absolutely extraordinary coming almost from out of the blue- print up to and beyond the point that they destroy the bond market. This has always been, or so the deflationists thought, their ace in the hole with respect to their argument against hyper-inflation ever occurring in the U.S. "It would wreck the bond market", they offer, as if that Rubicon would never be crossed. I wouldn't be so sure. Will it come to that? Perhaps not, but with each passing day what seems unthinkable, at least to some, becomes less and less presposterous in prospect.

Antal Fekete, who you also mentioned, has been absolutely brilliant in his analysis regarding gold's function and behavior as juxtaposed with the U.S. fiat regime. One would do well to hang on his every utterance not just for the sake of profit, but for one's survival.

[Hank Wernicki]

Got a 60m fractal parent bottom for GLD yesterday .. it's going to soar again !

10/1/09 = 11/12/09

Stop 108.25

Cheers

[The Super Fractal Genius]

Got a grandson fractal that matches the great-great-grandfather fractal of 1968-71. Will it play out? Probably. I would short gold here. Fractals are the only tried and true method of large market analysis.

I am sharing my secrets here because I care about you guys and want you to be as rich as I am. Get rich with fractals!

[The Super Economics Genius]

Hi fellow supergenius!

Yo, I hate to doubt a fellow supergenius, but you do realize that the relevant metric for "rich" is the opportunity cost of pursuing a trading strategy with fractals versus not pursuing a trading strategy with fractals versus whatever other opportunities a trader has to earn income, right?

If a guy makes $50K/year trading with fractals and the only other "regular" job he could get would pay him $49,999/year and trading without fractals would also net him $49,999/year, he's "rich" by trading fractals compared to his other opportunities, even though he's not "rich" in the sense of being in the Forbes 400.

Just want to clear that up, so you don't make the same mistake over and over again, using the wrong metrics and stuff to try to make a point that isn't valid. I know that being a supergenius and all, that would be embarrassing for you. I mean, "opportunity cost", as a concept, has only been around since the middle of the 19th century, so I can see how you could have missed that. Plus, since you've spent all your time becoming a super genius in the realm of fractals, I know we can't expect you to understand something in the realm of economics, no matter how simple that something is.

[indy]

Ned I too found your comment based on religion distasteful to say the least -if not outright prejudiced and racist

[e_djur]

My computer says, the top on gold, it was 12Nov this year. Between 1126 and 1132 I have found 3 important levels. This calculation I have done for GOLD SPOT (XAUUSD).

[Super Duper Genius and no Dupe]

I understand opportunity cost. I also understand that $50,000 is a pretty small figure. Anyway, small as it is, nobody here makes $50,000 annually year after year by trading. I just cannot believe that. On the contrary, I believe that most people here have lost money to the markets thinking they've found some cultish holy grail like Elliott or Prechter or Neely or "Fractals" or McGann or Astrology or Carolan or other crackpots. The people who make money in the markets are privy to inside information or at least very, very fresh information or make lots of tiny arbitrage driven profits.

Probability dictates that a few people will make money but that's due to random forces no one has yet been able to model accurately.

[yelnick]

Ned, and all of you - the 'are you Muslim' type of personal attack is not appropriate for this blog. I think an apology is in order. I will police this blog if such attacks continue from any of you.

[The Super Economics Genius]

I understand opportunity cost.

Then you should write your posts as if you do, instead of the tripe you posted.

I also understand that $50,000 is a pretty small figure.

You can't write "I understand opportunity cost" and then "I also understand that $50,000 is a pretty small figure" and be taken seriously. It's "pretty small" for whom? Certainly not for the guy whose other opportunities max out at $49,999.

Anyway, small as it is, nobody here makes $50,000 annually year after year by trading. I just cannot believe that.

Again, it was a number used to make a point. What if it's $25K and the person in question is making an opportunity cost decision between making $25K and spending his leisure time reading books, which he only values at $24,999. Maybe it's some guy who's trying to make a few thousand extra bucks to go on vacation. Point being, who really cares what you believe, think, assume, presume or whatever other term you want to insert in there?

The people who make money in the markets are privy to inside information or at least very, very fresh information or make lots of tiny arbitrage driven profits.

Yes, very, very few traders who start out trading can make a living from it, just like very few people who play basketball as a kid will make the NBA. However, there are, what, 20 or so regular posters on this blog? Certainly the number of people outside of what you think are the "only people who make money" is larger than 20, no?

It's not that you don't have a point, it's that you've massively overstated it out of some misguided belief that you are clever. You're not. Actually, your point, such as it is, is quite banal.

[vipul garg]

maybe buffett is a follower of wave thoery and knows that a bottom is in place !! and that besides a temporary blip below 800 to max 740, sp500and most other world indices have started showing that the long term trend is up.

[Mamma Boom Boom]

For all of you who think "are you a muslim" was an attack: what would you have said if I'd said "are you catholic"? Maybe the racism/prejudice is not with me, but between your own ears. You don't even know what was on my mind. If anyone would have bothered asking, I was going to tell you about a fellow that used to post on my site. He lived in Switzerland, was an Iranian sympathizer and was muslim. He and I could never get on the same wavelength, but we communicated every day.

I will give you the benefit of the doubt and say that I should have explained myself better. But, I never once that the comment had anything to do with racism.

Please reconsider my comment. I feel bad that your feelings were hurt.

[yelnick]

Ned, thanks for the explanation. Seems to me attacking someone as a fool or a knave is fine - it is an attribute that applies to them individually. Attacking them as part of a class or group is presumptuous and can be offensive, unless the person has wrapped themselves in the flag of that group and opened themselves up. As a general rule, attack their arguments and ideas, not their class or race or religion.

[TJ]

Ned, why has it taken you so long to come back and clarify your comment regarding "Vipul"?

Instead, you simply allowed your comment to hang out there and "twist in the wind" for awhile. Many people felt that it was inappropriate, yet you never felt motivated to come back and clarify what you said until now? Why is that?

Is it because you might be banned if Yelnick doesn't hear some sort of half-baked explanation or apology from you?

Sure seems so.

Sorry buddy, but you've lost a lot of credibility here. Allowing your one line sentence to Vipul asking him if he was Muslim to simply hang out there "dangling in the wind" (without any explanation) doesn't make any sense. Your initial behavior just doesn't cut it, and I think that many of us can see that. And now you finally come back to offer an explanation?

Give me a break.

[yelnick]

Vipul, Buffett and his partner Munger have laid out a really sound investment approach which has nothing to do with technical analysis - it is the value investing form of fundamental analysis. It seems that disciplined value investing works, as does market timing, and some other similar disciplined approaches. What seems to flop is buy-and-hold, or momentum, or broad-based TA or fundamentals.

The other Billionaire often touted as an investment guru is Soros, who follows something remarkably like Wave Theory which he calls Reflexivity. He is a believer in watching psychology as a driver of investments, typically contrarian.

[vipul garg]

in india, vodafone is running nice advts with punchline 'it takes one second to improve things by saying sorry'

most of the time, thats all it takes.

[vipul garg]

yelnick,

i meant buffett stuff in a light vein.
till few years back, i was never interested in buffett with a major reason being that he way above my league.(not that being 'above my league ' thing has changed now )
he has been philanthropic enough with his first 31 billion to the gates foundation to really add to it by virtue of this pruchase.

a disclipined trader/ investor trains not to catch the top or bottom
but the major portion of the trend of his time frame.
thats what he is trying to do.

[DG]

a disclipined trader/ investor trains not to catch the top or bottom
but the major portion of the trend of his time frame.
thats what he is trying to do.

Yep, and he said he'd like to see his company own this railroad for 100 years, so I don't see any contradiction between saying we could still break the March lows and that 100 years from now, the market will be high enough to justify this deal, precisely because they are such different time frames.

In fact, wasn't Buffett doing some deal-making last November, when the market was around 900 to 1000 and we subsequently fell to 666 in March? With the exception of the P3 crowd, I think any bear would take a 30-35% drop as a great trading opportunity.

[pw]

bear - see tony c's analysis of 70's gold (not the k-tel album of the same name) vs. today:
http://caldaroew.spaces.live.com/blog/cns!D2CB8C5EBA2ADE86!60062.entry

[twitter.com/DrBubb]

There are several posts in the last few days about Buffett "calling a bottom" by investing in Burlington Northern, Well, Buffett is not a trader, he's an investor with fundamental views.

I think his investment is less of a "calling of a bottom", than it is the Calling of a Top, on the Suburban Living arrangment.

Here's the argument : Buffett Versus the Soccer Moms :
FinancialSense article : http://tinyurl.com/SockMoms

Apologies to those who may have seen this before

[min]

I think we all should take some time off.

[manav]

The movie 2012 is a telling comment in more ways than one.

First way --- it was probably conceived and financed when the bear market was beginning / was in full swoon

Second way --- it is not doing well because either we are in a major bear market rally or a new bull market

Prechter's theories do allow some interesting deductions !!

[Yves]

good points to read

http://www.zerohedge.com/article/coxe-power-zero
Yves

[Michael]

People forget that Buffett did not purchase BNI on the cheap. He paid 18 TIMES EARNINGS for it! What many of you fail to realize is that his cost of capital is cheaper than most others; Thus the acquisition was made possible due to Buffett's access to cheap capital.

[DG]

Thus the acquisition was made possible due to Buffett's access to cheap capital.

Posted by: Michael | Sunday, November 15, 2009 at 07:52 AM

You posted this the other day and I asked what specifically you meant because he can't just take capital out of his insurance subsidiaries without putting their solvency ratios at risk, which regulators won't allow. In fact, Fitch and S&P are looking at Berkshire's ratings now to determine if a cut is in order, which will raise the cost of capital.

http://www.google.com/hostednews/ap/article/ALeqM5jpKRiKEslaCxbNntky_RZS1nckTwD9BPJFJ84

[N.E. Melendez]

Been saying this for over 6 months. Gold corrected and that ABC was 2. Gold is now going up to 2000. We are in wave 3 of 3. Wave 1 was a gain of 750-800. 1.62*W1 gives you a range of 2000-2200. Personally i believe the dollar will go up with Gold, Hedge and counter hedge. Will be watching for this dance. I know stocks will not be making money. Can you see 30% unemployment?

[N.E. Melendez]

BTW, The USD index did the same liitle bounce as C @ 75. So where do you think the dollar is headed? jijijijijiji. Same as yen back at 61 also.

[vipul garg]

its been my trading experience that bear markets offer great trading times.on the contrary bull markets are hard to trade .
it takes real strength and convivtion to sit through a trade even though all your indicators , analysis may just be pointing in the same direction.

i think you dont make money by buying things real cheap.
one makes money by buying at right time when it is at around value level and not expensive and then holding it.
a thing bought cheap is rarely held for long time.

[N.E. Melendez]

Every person has a trading strategy. I use the Dollar vs. Gold. Gold right now could be in a W5 instead of a W3 like everyone thinks. Looking at the dollar it did the same thing the yen did way back when it was at 63. There are two scenarios here, one gold is acting as a counter for the dollar so now they go up in step. Else Dollar is going back to 114 and this is actually W5 for gold so gold is going down to 550. I believe the last scenario is the real one. But buy gold anyway so i can sell mine higher :).

Take a look here:
http://goldversuspaper.blogspot.com/2009/08/japanese-yen-fractal-path-for-us-dollar.html

[Michael]

Market continues to surge higher.

Wonder if any of Prechter's "followers" have any risk capital left after yet another powerful push to new highs in Gold and the US Equity Markets. His August 5th call to go 50% short with the S&P at 1000 has been "underwater" ever since he made it.