QE & Gold Revaluation
Feb 19, 2013
- Staring all day long at the supposed “super top” head and shoulders pattern in place on the HUI index is a good way to create fear, but I doubt it will create any lasting wealth. It certainly won’t build any gold mines.
- Markets are ruled by fundamentals, not charts. The largest institutional liquidity flows occur when key fundamental reports are released.
- Fundamentally, gold stock investors need to focus on the history of quantitative easing.
- As the year 1933 began, the great depression was reaching its point of maximum intensity. To view that intensity, please click here now .
- Although official unemployment was approaching 25% then, the central bank of the United States was growing increasingly reluctant (much like the situation today) to accelerate quantitative easing, despite pressure from the US government.
- In a 1933 nutshell, the bank wanted to print less money, and the US government wanted more.
- By November of 1933, a frustrated central bank brought quantitative easing to a complete halt. How did the US government respond to that?
- The answer is that just two months later, on January 30, 1934, it passed the Gold Reserve Act. The US government revalued gold about 70% higher, and then continued purchasing it aggressively at that price, using printed money.
- The QE baton was thereby passed from the government T-bond “runner”, to gold bullion!
- In the mainstream media, a similar halt to quantitative easing is being widely discussed now. You should probably view quantitative easing, targeted at corporate & government debt instruments, as the ultimate central bank conventional weapon.
- In contrast, gold revaluation and money printing are the nuclear weapons arsenal held by government treasury departments.
- In a showdown between central banks and governments, governments win. They won in the 1930s depression, and they will win in this super-crisis.
- The days of Ben Bernanke demanding that President Obama “get the government’s financial house in order” before he ramps up QE more, are coming to a quick ending. The only question is, will it be a painful ending for Chairman Bernanke?
- His counterpart in Japan, Governor Masaaki Shirakawa, learned the power of government, the hard way. He resigns on March 19. Shinzo Abe essentially slapped the Governor’s face publicly, and is now demanding “performance” from the Bank of Japan.
- The bank is now claiming it’s not sure what new measures it could take, to expand the balance sheet. I assure you that Shinzo Abe is fully aware of the power he has, to order the Bank of Japan to begin significant purchases of gold with printed money.
- Gold is going higher, much higher. It’s going higher because government treasury departments are moving away from quantitative easing involving bonds, and towards QE involving gold. The gold bears will be destroyed, and everything they made you afraid of will seem ridiculous, in hindsight. There will be no currency war, but there will be co-ordinated devaluation of all G20 currencies against gold, just like there was in the 1930s.
- Gold won’t be confiscated in this crisis, for two reasons. First, the average person doesn’t own any gold, so there’s nothing to confiscate. Second, the crisis hasn’t produced the kind of breadlines that occurred in the 1930s, because OTC derivatives were marked to model in October of 2008. If they were marked to market, the system would soon close down, and massive breadlines would form very quickly.
- I consider the idea that the gold bull market is over to be “beyond ridiculous”. I would argue that for all practical government intents and purposes, it’s barely started.
- Ben Bernanke will soon have a hard decision to make. He can either accelerate QE, or he can pout in a corner, while President Obama dons a gold revaluation mask. Ben just watched Shinzo Abe dispose of Masaaki Shirakawa, like a child disposes of a broken tinker toy. Ben also knows what President Roosevelt did in the great depression, when the central bank played “tough guy” with government. He knows his history very well.
- Ben Bernanke is pushing his luck with President Barack “the O Man” Obama, and tomorrow’s ultra-important Fed minutes report is going to tell you whether he has pushed just a little too hard, or if he’s ready to follow the orders of the President of the United States.
- I would argue that Chairman Bernanke is pushing President Obama deliberately, because he wants the Treasury to take QE to the next level, but he can’t say so publicly.
- Please click here now . You are looking at the daily chart of the T-bond. Note the beautiful bullish wedge that continues to form. My unique 14,7,7 Stochastics oscillator is rising nicely. The action of the bond suggests that Chairman Bernanke will not confront President Obama tomorrow. If bonds move higher, gold is very likely to follow.
- Silver fans can click here now . Investors should key off the gold chart for buy & sell signals, but there is no question that the 14,7,7 Stochastics oscillator suggests silver is poised to begin a nice move higher.
- Please click here now . That’s the daily gold chart. After about 3 weeks of descending, my Stochastics oscillator has reached oversold status. Oscillator enthusiasts can buy some gold and related items in the vicinity of HSR (horizontal support & resistance) at the round number of $1600. The immediate target zone is $1625, but I’m looking for gold to rally $75 higher before the Stochastics becomes overbought. There are probably two more cycles of the oscillator required, going from oversold to overbought and back again, before gold charges at $1800, and successfully breaks into what I call… the green zone!
Feb 19, 2013
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