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Fed Balance Sheet Breakout

Stewart Thomson
Jan 29, 2013

  1. India's central bank just chopped interest rates, in the face of the worst economic growth in 10 years. “The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional 180 billion rupees into the banking system.” – CNBC news, Jan 29, 2013.

  2. Quantitative easing and “rates to zero” policy is spreading to every major economy around the world. Horrifically, despite these enormous “fire hoses of liquidity”, gold stocks continue their unending slide.

  3. By this point in the gold “super bull” market, most gold stock investors believed they would be wearing a crown of solid gold. Please click here now .

  4. The market never ceases being a fight, and in a super-crisis, the fight becomes a “clash of the titans”. Gold stock investors have never faced a greater challenge than they face right now, but neither have the bears.

  5. To view gold stocks from the eye of a titanic bear, please click here now . In a boxing ring, you can’t run or hide from your opponent. Victory is all that matters, but if you fail to respect the abilities of your opponent, you will lose.

  6. Every gold stock investor remembers the carnage of 2008. I bought gold stock into the lows of that carnage. I’d buy into the lows of an even worse gold stock wipeout, if it happened. If you are afraid, buy put options on GDX and GDXJ.

  7. If you are a gambling bear, buy put options on NUGT, the triple-leveraged version of GDX.

  8. I’ve showed you the bears’ greatest weapon, which is that head and shoulders pattern on the HUI weekly chart. I’ve told you how to handle fear, if you have it. Now, I’ll show you the weapons of the bulls.

  9. Please click here now . You are looking at the 14,7,7 series of the Stochastics indicator, on that same HUI weekly chart.

  10. I use the 14,3,3 series for the gold bullion weekly chart, but stocks are more volatile. I want only the “cream of the signals crop”, and the 14,7,7 series passes that test, with flying gold stock colours!

  11. If you look at the 2005 and 2008 bottoms, you can see that the first buy signal generated by the Stochastics oscillator ushered in a big rally, but then there was a final “washout” decline.

  12. From there, a 2nd Stochastics buy signal occurred, and gold stocks staged gargantuan moves higher in each case.

  13. You can’t know exactly how the current Stochastics set-up will play out, but it’s clear that in this price area, some buy-side risk capital should be applied to gold stocks.

  14. The biggest weapon held by gold stock bulls, is the central bank of the United States, and over the next two days, the bank’s open market committee engages in key policy discussions. The meeting culminates with the release of a statement to the public, at 2:15PM, New York time, on Wednesday.

  15. To understand why the central bank is the greatest ally of gold stock investors, please click here now . For all practical intents and purposes, you are looking at the primary driver of the gold price. It is the balance sheet of the central bank of the United States.

  16. When that balance sheet stops growing, the price of gold bullion stops growing. Gold enters a trading range, and gold stocks crash.

  17. Please click here now . That’s another look at the HUI chart. You can see that stocks topped out, as the Fed balance sheet stopped rising.

  18. Note the recent “breakout” on the Fed balance sheet chart. I highlighted that with a gold arrow. For some reason, I like that colour, “gold”!

  19. The balance sheet is starting to grow again, which means it is highly likely that the gold price starts “growing” again, too!

  20. Please click here now . That’s the daily chart for gold. I predicted a hard sell-off would occur from $1700, likely forming the right shoulder of a bullish h&s bottom pattern. That sell-off did occur, primarily because George Soros made statements in Davos that bonds could fall later this year.

  21. I don’t agree with his statements, but I think it gave those who shorted gold at $1700 a way to cover their positions at a profit.

  22. The current Stochastics positioning on the daily gold chart suggests that gold could move in either direction from here, but note how orderly this supposed “panic sell-off” has been, from the $1800 area.

  23. While Ben Bernanke could surprise gold investors, temporarily, by saying something negative about future QE, in a practical sense, can the Fed really stop growing the balance sheet at this point in the crisis? Please click here now . That’s the daily chart of the March T-bond. A rally seems imminent, which is good news for gold.

  24. I think the Fed plans to grow the balance sheet to well over $3 trillion in the intermediate term, which would create a new intermediate bull leg in the gold price!
Jan 29, 2013
Stewart Thomson
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