Wednesday, May 12, 2010

Gold Behaving As Currency update II

Joe told us awhile back that it's just a matter of time before Gold behaves as currency and not just a commodity, here we are boys and girls.
Anyone paying attention to the stock markets and the precious metals markets will tell you that the correlation that we've grown accustomed to has flip-flopped. Previously, precious metals and the stock markets traded in unison; a 2% up day for the stock markets meant 2% up in gold and silver. A drop in the stock markets meant a drop in the metals markets. However, this is no longer true, as precious metals have broken free!Correlations between a commodity and an index fund may not seem to be that important. What's the big deal if the two rise and fall together, right? Actually, the correlation between silver, gold and the stock market is hugely important. If the stock market and precious metals were to rise and fall together, it implies that the market sees them as equals; that is, when the economics improve for one, they improve equally for the other. This type of correlation between precious metals and the stock markets has existed for a very long time. When stocks were up, precious metals were up. When stocks were down, precious metals were down. The market enjoyed each investment equally. They were a Jekyll and Hyde of sorts. The lost correlation between the stock markets and precious metals is nothing more than a bullish signal for metals. Since the stock markets and precious metals appear to be uncorrelated, and precious metals have been rising as stocks fall, it signals that the market now views them differently. In addition, precious metals have lost their correlation to the US dollar, and precious metals are now rising even when the dollar rises. No longer are precious metals tied to any one currency. Instead they are their own currencies! After breaking their correlation with the major markets, silver and gold are now free to trade to the positive, regardless of what happens in the stock markets. This is immense for precious metals investors, since their wealth is no longer tied to the status of the economy. In fact, precious metals, as we saw with the 1000 point free fall in the Dow Jones Industrial Average on May 6th, are actually gaining value when stocks fall. Therefore, with the correlation broken, precious metals investors no longer have to fear deflation, as investors want precious metals in any climate. Again, they are the new currency of choice. The non-correlated price trends also throw the idea that precious metals are bubbling right out the window. History shows us that when one industry is in a bubble, so are so many others, albeit in slightly smaller, more manageable bubbles. The only way pessimists could declare there to be a bubble in gold and silver is if the rest of the markets were rising in tandem, but they aren't, even with trillions of dollars spent in economic “stimulus.” Gold and silver aren't rising in price because investors are pricing them way out of their league; instead investors are noticing what so many of us already have—gold and silver are currencies.

update I Can't help but believe I get a pullback to reload some profit I took today..but then again....this is a breakout move so don't dump all your core and overtrade as Red warned of and my friend the "oil trader" is guilty of....but ya can't go up forever ......can ya????

(Reuters) - Gold climbed to a second successive record high on Wednesday as investors bet that a proposed $1 trillion European rescue will either fail to prevent a worsening euro zone crisis or will stoke inflation.

Clocking its biggest two-day gain since November, gold prices rose 1 percent to near $1,250 an ounce on Wednesday despite a limited recovery in risk appetite that lifted U.S. stock markets and boosted platinum and palladium by more than 2 percent, suggesting that other factors were extending gold's week-long rally initially triggered by a flight to safety.

Demand for gold was evident across the spectrum, with retail sales of coins and bullion surging, exchange-traded gold funds drawing a net flow of over $2.3 billion and open interest in U.S. futures nearing a record amid the European crisis and after last Thursday's tumult in U.S. stock markets.

For most traders, the focus remained squarely on Europe's efforts to stop the Greek debt crisis from spreading to other countries, although some also said that options-related buying and technical momentum had contributed to the gains.

"There is still a lack of confidence in the European community whether or not this is going to halt the euro's decline because this is nothing more than an experiment, and people are not sure if anything will work," Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading.

Spot gold hit $1,248.15 an ounce, a gain of nearly 20 percent since early February. It was at $1,245.25 an ounce at 2:22 p.m. (1822 GMT) from $1,232.05 late in New York on Tuesday. Prices have risen 3.5 percent in two days.

U.S. gold futures settled up $22.80, or 1.9 percent, at $1,243.10 an ounce.

Update II.. This is an astounding read.....absolutely not to be taken as fact but to be read as a more than just a "tin foil" read.


  1. LOL - look through the older posts/comments back to before we had to post as signed in (at least a week ago).

  2. WC .......Joe went underground a couple of weeks ago and does not post .....he called this play over a year ago with more detailed knowledge than I had at that time.

  3. Kli, David Rosenberg ment'd gold as currency this am also...

    Market Musings & Data Deciphering
    Breakfast with Dave
    May 12, 2010

    In today's issue of Breakfast with Dave

    • While you were sleeping: little action in global markets overnight; gold is making new highs; Canadian dollar going for par again; weak GDP numbers out of Germany and France

    • Bazooka bust: take a read of the article on page 2 of yesterday’s FT — Blast of Relief as Bazooka Finds its Target

    • Gold glitters: gold is no longer trading just as part of the resource sector but is now taking on the characteristics of a currency

    • Good news, bad news. The good news, U.S. small business sentiment is at its best level since September 2008; the bad news, at the current level it is still below the trough of the previous three recessions

    • It is still deflation: throwing good money after bad, as the world’s governments are busy doing, does not create inflation

    • More labour angst in the U.S. than meets the eye

    • U.S. home prices at risk

  4. PAL and AUY pressing higher aggressively ... good to be on board. What are likley pullback levels?

  5. Wolf......GDX has gap to fill at 50.16. Use GDX as proxy for miners. AUY has gap to fill at 10.69. I like these areas as good support.

  6. CNAM snapped to life today too. Whiskey, Tango, Foxtrot.

  7. CNAM - Another shoulda woulda coulda when it got pounded down a few days ago. ;-) I have some but not from the lower 4s...

    Impressive to say the least.

  8. Miners all overbought...but in a breakout they can go further. reduced core today...still got plenty if they run...added some of TXBs HL and GRS....will add on pull back to HL

  9. Need a weekly close above 5.75 for CNAM to confirm a trend change. China is trying to control the rising costs of essentials not growth, employment, and social stability like Greece. Two different approaches to the current fiat Ponzi problem. Owning half the world's current wealth through debt slaves is not enough for Dr. Evil so the game continues until Nature puts a halt to it, and the contest for Master of the Mud Ball starts a new.

    S&P is in a uptrend with a move above 1225 on the weekly to confirm the skipping stones across the technical pond is still in full swing until it isn't.

    Hard to call the exact rolling top, could be between 1250-1300, just depends on how much money they print before severe stagflation kicks in.

  10. Almost dumped three of the nice performers, SLW EGO and SWC. Holding on for no particular reason, hoping someone will give me one. ;-)

  11. reduced my core today still holding some......we will see.....hope to get another chance to add

  12. I sold some of my AUY . Still have PAL will add to it. I like HL and SWC on a pull back . Kli what do think about SWC at this price.

  13. woodcarver....SWC should be able to fill the gap at 15.88...but if you want to take a bigger position you might want to wait for 14.46 for your buy. Will it get there...well ..I guess we will just have to see. I will trade swc at 15.88 from a shorter term position. ahorter term if the market retests 1220 then SWC is taking out the 20 area

  14. Your Update II is not too tinfoil. There has been a coordinated effort by at least RIC of the BRIC and some Arab nations to increase their central bank physical gold reserves as has been pointed out earlier to compete with the West, a large amount of the reserves are controlled by Dr. Evil. PIIGS may have more gold per capita but the peons get to eat and own fiat.

    The nuclear option would turn on existing fiat into toilet paper and debts would be re-valued based on a quasi-gold standard. Can you say perpetually screwed indentured debt slaves, while Dr. Evil and his minions sit ontop of the physical reserves? The downside is it puts a big @$$ target on your back for someone like Ghenghis Khan, Spaniards, Nazis, or Saddam to come along and take it from you.

    He who has the gold makes the rules, only as so long as there is plenty of Alpo and Ammo.

  15. Red...Ammo we've got, but do we have the balz to use it? A couple of decades ago I would have said yes...but with all of the pansie crooks running the US now...I'd bet my life...NO!

  16. Red is referring to ammo to protect you and your family as social order deteriorates (it is already beginning) as the effects of the shattered dreams and promises are recognized. Red knows full well that only nature can destroy the cabal...any revolt will be brutally destroyed and before it even gets started.

  17. BTW where are the Greek rioters?? hmmmmm

  18. Wondering that myself...Maybe they stopped filming them? Maybe we the little people should not see the truth...I mean look what happened to our markets the other day...complete mayhem...And yes I know what Red means...HE HEEEE, just stiring up a little trouble...:) Funny thing though the very armed services people they use against us...if they too are with-out for to long...they will turn coat at some point and join us...I'll bet on it. Hmmmm I smell a revolution coming soon to a neighborhood near me...:):(

  19. No chance...they are well paid and will serve command chain. They take orders. Now the real threat are the thousands of eventually discharged soldiers NOT on pensions... many will have deadly skill from the military... unemployed explosive experts are a true recipe for disaster.

  20. Even the US and the UK are expendable to fend for themselves once things get really bad, and the remaining physical wealth and advance tech gets transferred to the cabals bunkers in Switzerland and other safe locations around the globe.

    Ever wonder why the Vatican uses Swiss mercenaries over Italian home guard. As long as the Cabal can feed and arm their protectors during bad times they will remain in control.

  21. One more note to ponder for the momentum traders before I get some sleep. China's intermediate policy is being more publicly relayed, after speculators and day traders were forced to puke up their positions. Growth and security of the state will continue just not in real estate. It's a continued transformation in China from Maoist Communism to Bismark Socialism (“to reconcile the working classes to the authority of the state.”) In the West we are functioning under the form of Fascist Feudalism not representative democracy as the media pretends.

    China’s Bear Market Attracts Locals Seeking Safety