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Gold Whale vs Bond Harpoon

Stewart Thomson
Mar 20, 2012
  1. In the theoretical world, gold stocks are a fantastic bargain. In the theoretical world, gold and silver bullion are on sale at “once in a lifetime” prices.

  2. In the real world, gold investors (you) have bought the gold stock sales repeatedly. Instead of entering a world of sugarplum stock prices in the sky, you’ve been thrown into a gold stock gulag. After years in the gulag, instead of releasing you, the guards have dropped you through a trap door into a dungeon.

  3. To top it all off, things could get much worse before getting better. I warned the gold community not to wish too hard for a collapsing bond market, because you just might get it.

  4. Unfortunately, I don’t think most investors have taken the falling bond market very seriously, particularly in regards to the ramifications for the gold price.

  5. To view the Barclays 20+ year treasury bond fund monthly chart (TLT-nyse), please click here now. The good news is that strong HSR (horizontal support and resistance) sits near the current price.

  6. Click here now to view the three MACD series that I run for the same TLT monthly chart. The picture painted by “Sir MACD” is very nasty.

  7. When inflation is rising rapidly, the Fed will raise interest rates dramatically to combat that inflation.

  8. It takes time for the rising interest rates to cause the rate of inflation to fall. In the meantime, the price of gold can rise dramatically higher. That’s not what’s going on here. At the present time, institutions believe that rates are rising because of economic strength that has been surprisingly strong.

  9. I’m a little worried that gold investors may have put a bit too much effort into trying to deny the picture that institutions have of the major markets. When rates rise while inflation is officially considered to be tame, as it is now, institutions can sell gold very aggressively.

  10. Unfortunately, most institutional money managers don’t care what the shadow rate of inflation might be. They care only about the growth and inflation numbers that are released by the government.

  11. All options have always been on the table since the gold price entered the $1500-$1900 trading range. Gold is definitely oversold now, and a strong wedge pattern is solidly in place. Gold could rise hundreds of dollars higher from here, but it could also fall hundreds of dollars lower if the bond doesn’t reverse course.

  12. The only financial question that really matters is whether you are strong enough to endure whatever price surprises this crisis has in store for you. There are many more surprises ahead, and most of them will be very unpleasant.

  13. The winners in this crisis will be those who can endure their way to the end, and the losers will be those who try to predict their way to the end.

  14. In the short term, there is some much-needed good news. If institutional money managers believe rising rates reflect a strengthening economy, they will buy the Dow. If they have concerns about the economy, they will sell the Dow and buy bonds, which is good for the gold price.

  15. Click here now. You are looking at the daily chart for the TLT bond fund. Note the oversold position of the RSI, Williams, and CCI technical indicators. A rally in the bond market should cause a rally in the gold market.

  16. The big question is not whether the bond can rally, but to what degree do institutional money managers believe the economy may have turned the corner, and for how long do they believe the economy can continue to surprise the analysts?

  17. If institutions believe that bond rallies are to be shorted rather than dips bought, I would suggest that Martin Armstrong’s $1100 gold price scenario should not be ridiculed with too much gusto.

  18. For now, the gold price chart looks like a bullish work of art. Click here now. The enormous wedge pattern sits there basking in glory. The current pullback appears to be perfectly normal and healthy. The 14,7,7 series for the Stochastics indicator is in a position where substantial rallies can begin, but it can take several weeks for such rallies to materialize.

  19. Let’s all hope that the gold community’s “super-wedge” doesn’t turn into a beached whale that is on the receiving end of a volley of bond market harpoons, launched from a flotilla of institutional whaling ships.

  20. There is more good news in the short term. Click here now. This chart covers about a month of trading for the Dow, via June futures. Note the trend line break. That’s a positive event for gold as well, because it will put pressure on institutions to move back into the bond, even if it is just temporarily.

  21. There is quite a lot of talk going around about whether the weekly chart of the HUI (senior and intermediate gold stocks) index shows a “breakdown”. The GDX-nyse ETF mimics the action of the HUI.

  22. Click here now to view a picture that some analysts believe speaks 1000 words, ominously, for gold stocks. The 500 price point on the HUI corresponds roughly with the $50 round number price point for GDX.

  23. Is there a breakdown? A technician could argue that a fall to any lower prices would usher in a fall towards $33, based on the view that the entire $50-$67 price range is a “top”.

  24. I would argue that you need to carry a short position that is up to 30% of your long position, or utilize put options, to manage such powerful fears. I’m a buyer of GDX, all the way to a price point of zero. I don’t really care whether GDX falls to $33 or rises to $133. Do what it takes to maintain the utmost professionalism on the price grid, especially when this crisis takes you deep inside of your personal surprise zone!

Mar 20, 2012
Stewart Thomson
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