DOW:GOLD RATIO STILL TOO HIGH

I’ve stated before that I expect this secular bull to continue until the Dow:gold ratio drops to at least 1:1. Considering how much further the ratio stretched on the upside (42:1) than any other time in history it’s entirely possible that we could briefly see gold become more expensive than the Dow.

As it pertains to the current C-wave I want to point out that we still haven’t even seen the ratio hit new lows yet. Every C-wave so far has managed to drive the ratio to new lows before topping.

The current C-wave still hasn’t accomplished that goal. I’m confident it will eventually. Possibly even driving the ratio down to 6. If we assume modest new highs on the Dow of 12,000 we could be looking at $2000 gold before this rally tops (probably next spring).

It looks like we are going to form the swing low I mentioned in my last post this morning so the odds are now high that gold has put in the daily cycle low and the short term correction has run its course.

If one doesn’t have a position it’s probably a good idea to get one and if one was waiting for a pullback to add to positions it looks like that’s all we are going to get.

Depending on how the dollar reacts and how long it takes to reach the 74 pivot will determine how far and how aggressive the next leg up will be.

I will elaborate in tonight’s update for subscribers.

219 thoughts on “DOW:GOLD RATIO STILL TOO HIGH

  1. Chrys

    Gary – on the Dec futures gold has a gap in the 1330 area. Do you think an attempt will be made to close it? This would create an inverse HS.

  2. Onlooker

    I see a gap that’s about half a point. Something tells me that it won’t make a bit of difference from here. Just my take on it.

    Sure wish gold hadn’t surged so much overnight though. Would have been nice to add leveraged positions at a lower price. Oh well!

  3. Gary

    I would never hesitate on the first day of a cycle bottom because I was worried about a gap fill. If it fills -so what- It’s the first day of a new cycle. Are you really willing to give gold a chance to run on you because you are worried about a minor, and probably intraday, drawdown to fill a gap?

  4. Thomas

    Gary,
    why do you look at the dow:gold ratio instead of the gold:spx ratio? the dow and spx have diverged over time and the spx is a better representative of stocks than the dow.

  5. Shalom Bernanke

    Jesse,

    I’ll wait for an intraday pullback (on the 5 min chart), and if doesn’t materialize by 11-11:30, I’ll just add then.

    In the end it won’t matter much as long as we’re Old Turkey.

  6. Jerred

    I am adding to my quarter positions that were placed last Thursday. Will look for (PAAS, GDXJ,) to test the opening balance area.

  7. DG

    My rule of thumb is if I want to add something and don;t like the price, add 1/2 of what you were wanting to do. Then if the keep going, fine, and if they pullback, fine. Don’t get mentally stuck on a number like “I want to buy 1,000 shares.” Just buy 500 and see what happens.

  8. aaronpalang

    For those scared of being left behind, it is important to know that tomorrow is options expiration, and chances are low that gold closes above 1350 by tomorrows close.

  9. pimaCanyon

    Gary, why do you believe that the dollar’s cycle is a failed one? It has not yet taken out the recent low it made on 10/15. As long as it holds above that low, then there’s a possibility for more upside, no? And that would put downward pressure on stocks and gold, right?

    So IF the dollar’s low on 10/15 holds and the dollar goes up from here, stocks could finally correct and we could also see lower prices in PM’s, right?

    Just wondering why you’re jumping back in here now instead of waiting to see what the dollar is going to do.

  10. Jesse

    Shalom,

    Good call on the 11 – 11:30 pullback. I’d think by now I would have learned to listen to the wisdom of “Big Ben”, but patience isn’t my strong suit.

  11. Gold Era

    Gary,

    Do you think gold has fallen far enough for correction although we got swing low today? I think the next wave is wave 5, it started last firday,and will lead us beyond $1400, Do you agree?

  12. DG

    Prima: Gary has not answered your question so I will take a shot and others should correct me if i am wrong…I think the reason he is “”jumping the gun” is because gold has made a swing low (assuming it closes up today) and it is in the timing band for a bottom. I myself am not convinced, so I added just a little. But I agree with TZ that a move over 1350 would be compelling.

  13. Chrys

    “There ARE NO GAPS in gold”

    I was looking at the December futures contract which while it’s not 24/7 it covers more hours of the clock than GLD.

  14. coolkevs

    Today’s headline: “Dollar is Toxic Paper Waste” http://www.cnbc.com/id/39828427 – um, that sounds pretty contrary to me, especially from CNBC!! Interestingly, Kevin Depew on Minyanville with his Demark technicals is also looking at Gary’s 76.14 level – but to confirm a weekly buy setup for the dollar. According to the theory, if we get below that level this week or next, we will have a 1-4 week period of countertrend dollar movement starting the week after election/Fed week which will carry us into the 2nd week of December. I would also mention that Gold and Silver are currently both on weekly sells which carry through to the end of December. The general markets are also on these weekly sells. Longer term, Depew is still looking at 72.5 to be taken out to the downside to start longer-term dollar strength – which corresponds to Gary’s 3-year cycle bottom. I guess my main point is that when headlines are pointing out that the Dollar is the worst thing to be in may be time to start looking the other way. Ultimately, DXY downside to 72?? Agreed! But much further than that, I don’t agree. And 72 is only 6% away…

  15. pimaCanyon

    Thanks, DG. Yes, I see the swing low on gold.

    The dollar still concerns me though. It’s true it has made a swing high since the swing low of 10/15, but nothing moves straight up or straight down, so if the dollar is now in a developing uptrend, it could make its way higher in a series of swing highs, right? And IF it does that, then gold could make its way down to its cycle low in a series of swing lows, right??

    Note, I am disregarding the huge move down that the DX charts show that happened Friday. Looks like a bad tick or something because if you look at the Euro, Yen, Auzzie, etc., you don’t see anything like that in those charts.

  16. Tudor

    I decided to finally stop waiting for a big dip and bought a monster box of Silver Eagles this morning from Tulving. Of course, that means it WILL dip at least $2.00, but I’m going Wild Turkey with my physical. Buy, buy, buy! I love the clink of PM in the morning. Gobble gobble.

  17. Onlooker

    TZ

    I’m looking at the Dec futures (/GC) on thinkorswim and there is a little bitty gap on the open of trading Sunday evening. Again, it’s only a half point or so, but it’s there. And I think it’s inconsequential.

    That said, the dip since the open today isn’t surprising, of course. But it also wasn’t a sure thing, as I’m sure Gary would agree.

    With gold/silver making swing lows and being past their cycle timing band for a low, the odds favor an advance from here (as Gary points out and has acted on). Not a lead pipe cinch, but good enough for me. I added GDXJ, SLW on leverage this morn, and those positions are even and in the green.

    And the dollar has continued to struggle and failed to advance back above the 78 area, which is the area of a right shoulder on a 30 min chart, FWIW. We’ll see, but I think it’s going lower and sentiment will get even more ugly before reaching a durable bottom of intermediate degree.

    The contrarian in me doesn’t like seeing the negative articles either, but they’ll be screeching even louder before we’re done here.

  18. Nick

    Gary:

    When the DOW:Gold ratio hit 1:1 in the past, globalization was in its infancy maybe even absent. Given the increased contagion in today’s world, will the 1:1 ratio be either positively or negatively impacted, if at all? Or like in the past, is the DOW the best barometer to measure long term Gold?

  19. alex

    Look at the charts for August this summer…

    In AUGUST 2010 from the 9th till the end of the month, the dollar went UP…Gold also went UP all August.

    It must be possible here too, that a swing low in Gold arrived today and yet the Dollar hasnt gone below76.14.

  20. Gary

    Pimacanyon,
    I’m jumping in not because of what the dollar did but because of what gold did. It formed a swing low 31 days into the daily cycle. Odds are high that marked the bottom.

    I may add a boit more leverage when the dollar cycle fails.

  21. Gary

    GoldEra,
    I don’t waste time with EW nonsense. But to answer your question gold is in the most powerful C-wave of the entire bull market. That C-wave is being driven by the dollar collapsing into a 3 year cycle low. That process will continue probably into the spring and take the dollar to new lows.

    Until we hit that bottom I want to be long PM and I’m not terribly worried about minor drawdowns.

  22. Gary

    Nick,
    The Dow:gold ratio is a product of human nature not globalization. Human nature will take us there again just like it did in 1980 and in 33.

  23. Gary

    Let me say again. The governement and the Fed could care less about the price of gold. The only people who worry about gold are conspiracy theorists and young fellas in love who have to buy an engagement ring.

    The current fiat monetary system has completely eliminated gold from the currency markets. The Fed is free to print to their hearts desire and they could care less what the price of gold is.

    Get that one through your heads people. It will make it much easier to treat the bull market like any other run of the mill secular bull market.

  24. Shalom Bernanke

    I find it odd that APMEX was offering 40% silver bags (Kennedys) at the spot price today.

    Seems like they would have some sort of markup. Of course they still make the bid/ask spread.

  25. Onlooker

    Two words:

    analysis paralysis

    As for trying to predict exactly how the short term will play out by reasoning out some scenario of the Fed’s “strategy” or psychology – or the market’s – especially with regard to their alleged concern for gold prices; good luck with that.

    It does make for a fun intellectual exercise of sorts, at times. But it’s mostly fruitless, IMO.

    Also, with regard to the Fed, they want to fan inflation expectations at this point. I think seeing gold rise is therefore something they would like, as conventional wisdom says that it would indicate coming inflation. So why not? But who the hell knows what the REALLY think.

  26. Jayhawk91

    onlooker
    “I added GDXJ, SLW on leverage this morn, and those positions are even and in the green.”

    Bragger!!!!!!! No one cares and there’s no way to prove it!!!!!

    πŸ™‚

    I added too, but now the young chicken in me thinks it’s going to go down now. I bought EGO, ANV, NGD, RBY, SVM, SLW, SSRI. I will just keep on adding as we go this week. I’ll be a Turkey before Thanksgiving at this rate!

  27. GGuy

    I am still expecting the close of a 6days cycel on EUR. That should be in 30-40 hours of forex market and should be the bottom of the daily cycle on EUR, the top on USDindex.

    From there i plan to go long with all ammos both on preciouses and forex.

    But this last cycle is looking strange. Very strange. Well, actually it looks like when cycle want to do something, and there is some other force pushing other way. In this case i can assume is the QE2 rumor almost become a certain.

  28. Gary

    When I say “failed” it means the current cycle has failed to hold above the prior cycle bottom. By definition those cycles are bearish and occur in down trends.

  29. driver1

    Peter, it’s a 4-day island reversal pattern which is separated by a vertical gap between the candle stick bar 6 trading days ago and today’s bar. Also, today closed the vertical gap between that 6th day back and the 5th day back. (There now exists a gap between Friday’s bar and today’s which will normally close sometime in the future.)

  30. Razvan

    the fed doesnt care about the price of gold as long as it doesnt get out of control and create imbalances in the treasury market. What they want to see is an orderly decline in the dollar/rise in gold so as long as we dont see gold going up 5% every day then i think they could care less.

  31. thedocument

    FWIW, I believe the equity daily cycle bottom last Tuesday and we are now on Day 4 of a new cycle. Since the cycle decline did not have time to work off bullish sentiment, stocks are now at risk of rolling over into a left-translated daily cycle.

    This interpretation fits quite well with my expectation for the April high to stick. The primary sticking point remains the dollar which I still expect to plunge into a major low next year.

    Basically, I think the market is telling us that some event is going to come along to amend the inverse relationship between stocks and the dollar such that they begin declining together. I do not think a declining stock market will necessarily drag down mining shares, as those should continue to follow gold higher.

  32. Gary

    I tend to label a cycle as stretched when it doesn’t make an obvious correction rather than try to rationallize that it could have occurred here or there.

    In my mind it must be obvious and create fear to be a true daily cycle low. Last Tuesday was none of those. So rather than try and make a cycle fit or guess what’s going to happen next I will just defer to the dollar cycle which is obvious.

    I’m also not going to assume the inverse relationship will break until it does. Fundamentally this shouldn’t happen until inflation gets bad enough to wreck the global economy.

    I’m not convinced we’ve reached that level yet.

  33. thedocument

    Fear is more characteristic of an intermediate low than a daily one. We have seen plenty of brief declines over the years that were able to reset the daily cycle count without generating fear.

    I also have developed several tools for identifying cycle declines, which are especially useful when we get brief declines like last week. One of those tools, in fact, helped me win that first Mexican dinner when we bet over the phasing of the gold cycle.

    Another of these techniques tell me that the April high should not be exceeded, so until price action proves me wrong, I am sticking with my system. I do NOT, however, have any money on a short equity play until I receive confirmation, which is to say until we see a failed daily cycle.

  34. driver1

    Regarding the market, at the SPX high today we exceeded the weekly 200 period MA by less than 2 points before selling off. Significant? We’ll see.

  35. Gary

    Doc,
    I would be willing to double down on the second bet (market at new highs) so I can get me a free burrito. Breaking even does neither one of us any good πŸ˜‰

  36. thedocument

    LOL! May as well take the double. If I win, I’ll have Mexican food secured for the whole family. If I lose I’d be buying you something I probably would have offered, anyway πŸ˜‰

  37. carthmen

    Interesting, i have been watching /GC in relation to the market, and with what its been doing even on a intra day basis seems to support this.

  38. pimaCanyon

    Document,

    The April high has already been exceeded in several markets, no? NDX or COMP or both. DOW is close. Several foreign markets. SPX is the laggard. Because those other indexes and markets have left the April high behind, it seems likely that SPX will do the same.

  39. Jesse

    Peter,

    I find it interesting to read things that Alan Greenspan has said to give an indication of why the FED might care about the price of gold. The first link has some recent comments…

    “Alan Greenspan spoke at the Council on Foreign Relations earlier today, and what was his advice? That central bankers should be doing what these columns, among others, have been rattling on about, namely that they should be paying attention to gold. “Fiat money has no place to go but gold,”

    http://www.nysun.com/editorials/greenspans-warning-on-gold/87080/

    And even more fascinating are some of his earlier comments from 1966..

    http://www.constitution.org/mon/greenspan_gold.htm

    The FED cares about the price of gold, why else would Shalom Bernanke take time out of his busy schedule to come on blogs like this daily to tell us everything is ok. πŸ™‚

  40. Shalom Bernanke

    Now Jesse, you’re starting to think and the people I work for cannot have that. I appreciate your zeal, but you must keep your head down and not ask critical questions. Watch football or “reality” shows and drink plenty of beer.

    Everything is OK and getting better all the time, just like always! And before you ask, no you cannot look at our books. Take my word for it…why would I lie?

  41. John

    The ratio of copper and gold has been trading in a horizontal range for about a year and a half…. and the HUI with the industrial metals index [$cbx] for about 2 years = level.

    So, as yet, gold is not doing anything different to base metals it would seem.

    So far it appears that its movement represents loss of fiat worth [inflation], and not the traditional gold friend: fear of inflation.

    I wonder when it will break away….. Soon, I think, as the expected QE2 should send alarms off more than $copper:$gold is showing currently.

  42. Gary

    This is the dilemma traders face. At bottoms there is usually intraday volatility that convinces one that we haven’t seen the bottom. If you are emotional you end up selling for a loss because your position wasn’t green immediately.

    Then if it is a bottom the trade reverses and leaves you sitting with a loss and stuck trying to re-enter into overbought conditions and shell shocked because you took a loss that you weren’t expecting.

    Now you see why Old Turkey massively outperforms trading. An Old Turkey investor doesn’t worry about minor drawdowns. He knows the secular trend is up so he just enters and then let’s the bull take over and viola eventually he has a big win.

  43. Onlooker

    Yep, filled that gap. Don’t know if it was really significant but it did provide another buy opp. Now the question is whether the $ can break through 78 and what PMs would do if so.

  44. Gary

    Once the Dow:gold ratio breaks to new lows we will see an acceleration in the PM sector.

    Actually a break to new lows will be because of an acceleration.

  45. Shalom Bernanke

    The 50 crossed the 200 ma on the daily SPX charts. Not good for bears, and I suspect Gary will be correct that it’s too early to short stocks.

    Fundamentals stink, but stocks don’t care about anything except how fast I can print!

  46. Onlooker

    Classic chart reading shows this 1330 area to have been support on the way down, then it got sliced through last Thurs, then resistance that eventually was gapped up through on Sun, now retesting.

    And it coincides with the dollar’s testing of that 78 area I’ve mentioned.

    Should see it bounce here and on to higher prices if we’re really coming out of the daily cycle low. But that’s just a “should”, of course. I’m fully loaded and waiting.

  47. John

    I’m thinking of becoming a turkey …

    Almost every time I partially sell into strength [top of a junior stock’s channel] it goes higher, and I’m left with half as much as I had.

    This has worked well up till a couple of months ago.

    Now I’m not sure it’s a good idea to tamper … and expect a lot of interest in the junior sector.

    BTW Gary, don’t you think the GDXJ will underperform in relation to, say, a basket of Canadian juniors – in that it’s dollar denominated?

  48. Gary

    Bears are forgeting that we have the Bernanke put. Ben has made it clear he’s going to print. How can one justify shorting when you know that is coming?

    The answer of course is you can’t. It’s the reason we haven’t seen hide nor hair of a large selling on strength day yet.

    Until the dollar collapse gets to the point where it’s beginning to cause panic I can’t see much of a counter trend move because of Bernanke’s threat.

    So yes the stock market is due for a move down into a cycle low. However the dollar isn’t due for an intermediate bottom for several more weeks. I think between the two and Ben’s QE threat I think one has to go with the dollar cycle.

  49. RA

    Gary,

    When you say that the gaps for metals are being filled, are you referring to the silver and gold etfs?
    I do not see any gaps on $gold or $silver in stockcharts.

  50. Gary

    John,
    I don’t have the answer to that question.

    The only time I’ve ever been able to pick the outperformers successfully is in hindsight.

  51. DG

    Geez, Gary, you need to work on your timing. I was in the hole on a newly bought position for almost 45 minutes! Seriously, looks pretty good so far with the miners up in spite of a stronger dollar. Nice to have my shorts and PM’s both in the black on the same day. We’ll see if we ever tag that $1300 level. With everyone looking/hoping for it I kind of doubt it—it’s never that easy. The bigger surprise would be for gold to take off again, which would have more of a “Wow, I can’t believe it” feel than a renewed dip.

  52. Razvan

    this market frustrates the heck out of me. Last night i thought the gold market died at $1339 because it was stuck there for 20 hours. I just dont see how we are going to get to 1500 by the end of the year if we keep twiddling our thumbs at these levels.

  53. Gary

    In 2 1/2 months gold rose 240 points frm 1155 to 1390. We still have over two months till the end of the year. The final daily cycle is where the largest gains occur as that’s when chasing really starts to intensify. Why would you think that gold couldn’t rally $165 points in that time frame?

  54. alex

    GOOD, then the MKTS are still working correctly….wearing out the weak hands during consolidation , so we can scoop up the dips at sale prices πŸ™‚ when you least expect it…BOOM, we’ll be up quite a bit.

  55. Razvan

    we expect a consolidation in dec, right? thats when people usually take profits for the year so i was hoping to see the target hit by end of nov so we can take profits for the year.

  56. alex

    Razvan has a valid point, since they say the lower capital gains taxes expire…it could get quite volatile as many probably sell in Dec and rebuy in January JUST to lock in taxes on gains low this year.

  57. Gary

    Rav,
    If the dollar collapses and ultimately tests 71 where do you think gold will be?

    In a little over one month the dollar went from 83 to 76. Do you think there’s no possibility that it can’t do that again in a month and test 71?

    The key to getting rich in bull markets is patience. It’s time for you to step away from your computer and do something else for a couple of weeks. Your portfolio will probably thank you πŸ™‚

  58. v

    Hi Gary,

    Silver has filled the gap and made new high. I only used half my margin yest. and couldn’t pull the trigger when silver was filling the gap today. You think now is good time to use full margin or more dips are possible.

    Vipin

  59. fubsy_cooter

    @ DG

    Agree completely. It makes sense that the bull won’t accommodate those who are waiting for a meanignful dip to buy. Obviously it would be logical for Gold to consolidate for awhile, but logical moves often don’t pan out in the short term.

    I’ve been suspecting that the best way for the bull to advance and create the most head scratching is to forge higher. If so, I look forward to hearing the Gartmans and Buffets of the world poopoo the move. They keep the public out and perpetuate the wall of worry.

    Mitch

  60. Gary

    V,
    You never use full margin unless you want to lose money.

    Any little wiggle will cause you to get a margin call. I said in the nightly report that investors need to keep their head about them and not do something stupid.

    You are on the verge of letting your emotions cause you to make a bad decision.

    20% on margin should be plenty and you still have plenty of wiggle room so you won’t have to worry about margin calls.

  61. v

    Hi Gary,

    Sorry I meant I only used 10% margin and actually planned to use 20% margin in total. So is it a good time to use the remaining 10% @ silver 23.9 and then just sit tight.

    V

  62. Gary

    If you are asking can I see into the future and tell you whether or not you will have to weather a drawdown, sorry I’m not that good.

    Personally I just went with the odds. Gold formed a swing low on the 30th day of the cycle. I assumed that will mark the bottom of the cycle and entered my full positions. If I was right then today is day two and there should be lots of upside yet.

  63. Gary

    One could construct it as either bullish or bearish.

    Either smart money is buying a lot of calls in anticipation of a further rally OR smart money is selling a lot of calls in anticipation of a decline.

  64. bamster

    i’ve noticed a real tug of war on GLD since yesterday. who will win out??? I heard today is options expiraion on gold. anyone hear he same?

  65. Gary

    The average cycle length is 20-28 days. The last cycle ran 30.

    If you are trying to guess at a top. Cycles are worthless for that.

  66. Romeo Bravo

    It seems to me the market is just marking time until the election and the FED statement Nov 3. No real big breaks one way or the other. Range bound markets take money from longs and shorts as it bounces back and forth. Being in gold feels pretty good though!

  67. pimaCanyon

    IF the stock market holds up till next week’s FOMC meeting, I suspect a selloff on the news. If the Fed comes thru with QE II and it’s big, then the selloff will likely be short-lived. However, if QE II is less than 1 trillion, or if there’s no QE II, then the dollar will rally and stocks will likely drop like a rock and commodities along with them.

    The wildcard of course will be gold and PM’s. Stock market falling rapidly, dollar rising rapidly COULD result in gold going UP even though other commodities will be falling. But I wonder about miners and silver whether they might be caught in the stock market’s downdraft? And if the dollar takes off like a rocket, could even gold take a dive right along with all other commodities??

  68. Gary

    It’s a nice theory but it requires the dollar to form if not the shortest intermediate cycle ever then one of the shortest.

    I can’t bet on something with odds like that.

    My thought is that the dollar cycle has already topped and anything from the Fed will accelerate the move down into the yearly cycle low.

  69. Poly

    The FED knows disappointing the market at this juncture is suicide.
    With the political landscape about to be altered towards extreme austerity and some reservations on the FED board, the governor must capitalize now on this (perceived) opportunity.

    With fiscal stimulus all but over and taxes possibly increasing, the FED knows a) it must act decisively and aggressively(right or wrong) b) there is no appetite for QE3.

    In my opinion, the risk here is that QE2 is a massive “shock and awe” event that send the dollar into a tailspin. (No bias here, I swear)

  70. pimaCanyon

    Thanks Gary and Poly.

    Poly, that makes sense to me. However, if the Fed comes thru with a shock and awe move, it would have to be even bigger than 2 trillion! Two trillion alone in mind boggling.

  71. Rosabarba

    IMHO, the essential non-reaction of the PMs to dollar strength here has a dog-that-didn’t-bark quality to it, i.e., a bullish tell.

    Silver up, juniors up, gold and majors basically flat.

  72. Gary

    I don’t think we need to worry about an intermediate degree correction in stocks or PM until we start seeing large SoS days.

  73. Poly

    $2T would blow the dollar off the planet. Media is only talking about a phased $100B-$150B per month over 6 month event.

    The $1.5T first time around was massive, “for it’s day”. The FED got “cocky” on that one, it went relatively smoothly.
    Krugman called for $10T. Sure he is a Keynesian nut and a outlier.

    If you’re Bernake, don’t you eclipse QE1? I don’t know, I doubt $2T is out of the question and it would be more than enough to do the trick. Throw in some inflation targeting “language” and you’ve got a rally with some legs.

  74. Gary

    Amazingly something always seems to “show up” to move the market in a normal cycle pattern.

    At the moment the dollar is working it’s way down into a yearly cycle low.

    Cycle wise it’s still too early for that to be complete. So I’m guessing Bernanke will do or say something that will complete the cycle and send the dollar crashing down into the major cycle low.

  75. aaronpalang

    Gary,
    Its not nonsense. They have proof for most of what they claim…
    Besides, did you hear the CFTC say today that they have proof of silver manipulation?
    Its not as far fetched as many believe, it might not be as hardcore as GATA says, but saying there is no manipulation is being blind to all the data.

  76. Gary

    You make it sound like they couldn’t take the time to make one phone call and have someone flood the market with sell orders and supress the price of gold in March 09.

    All these stupid conspiracy theories are so ridiculous I just have to laugh every time someone suggests one.

    The simple fact is if gold could be manipulated then it wouldn’t be trading at $1340.

    And if some mysterious cartel really wanted to supress the price of gold we would have seen short positions explode in Novemebr of 08 instead of seeing one of the smallest short positions in three years.

    Every bull market has its share of conspiracy advocates to explain why the bull acts like a bull.

    The reality is that bulls creep higher and then they fall off a cliff. And then they creep higher still and then they fall off a cliff. There’s nothing manipulated about that. It’s just how bull markets behave. And it’s been that way for the last 500-600 years.

  77. Gary

    Folks here’s what manipulation amounts to. During options expiration big money will perhaps try to move the market to a level where the majority of optons expire worthless. It last for a day. We see the same thing around option expiration in stocks.

    It’s very short term. But it doesn’t change the trend of the market.

    No one has been able to change the trend of gold or silver and any attempt to drive the market below the natural price will just bring in more demand.

    It’s why price controls didn’t work in the 70’s.

    There is a fundamental reason why gold and silver are rising. too much demand and not enough supply. If you artificailly restrict supply (supress price) then demand is going to increase as smart money seeing value immediately scoop up supply.

    What happened to the physical supply of gold during the crash of 08? That’s right is disappeared. You couldn’t buy gold at any price because there was none. Why because price was temporarily artifically depressed by the marekt crash.

    That didn’t halt demand though and smart money came in and bought up every last available oz. of gold on the market. The result was that gold rocketed higher and recovered all it’s losses in 4 months. It’s been almost two years and the stock marekt still hasn’t recovered.

    This shows you what happens when price is artificailly depressed. It’s not long before price overwhelms any manipulation and rises back to the natural market level.

  78. Gary

    TZ,
    You miss the point. If the dollar was backed by gold or if gold was used as money then yes there would be a reason to control price. But money nowdays is fiat.

    Governments can print as much as they like. And I dare say oil has been a much better barometer of how fast the printing presses have been running (until just recently). Where are the conspiracy theories about oil supression?

  79. aaronpalang

    Gary, its more than options expiration, have you never wondered why gold cant rally more than 2% in any one day yet it tanks 4-5% on several occasions? when was the last time gold rallied 4% in one day? yet we have 40-50 dollar down days…

  80. Gary

    Does anyone think that Jim Rogers would buy gold if he thought it could be successfully manipulated. How about George Soros, Jim Paulson. These are some of the brightest investors in the world with plenty of money to research whether the government is tampering with their investments.

    Do you really think any of these guys would be buying gold if they knew it was being manipulated.

  81. Gary

    Aaron,
    You are just describing standard bull market action.

    And I hope it continues for a long time to come. When the conspiracy theories stop flying then we will be getting close to a final top.

  82. Gary

    OK let’s take your argument at face value for a second and say the government is trying to supress the price of gold.

    Why?

    I can understand why the Fed is printing a lot of money. They either think that it will eventually create jobs or it will at least inflate asset prices which will trick the population into thinking that the economy is better than it really is.

    What would be the point of supressing gold. Is the general public even aware of what the price of gold is? No.

    Does the general public associate rising gold with money printing? No

    Is the general public in a panic to get rid of fiat dollars for gold? No

    Does supressing the price of gold somehow fool savvy investors into thinking that the Fed isn’t destroying the value of the dollar? Of course not.

    So I’ll say again these conspiracy theories just don’t hold water because there is no logical reason for the governement to care one little bit about the price of a shiny meatal that has virtually no industrial uses.

  83. Gary

    How in the world can you determine that the rise in gold has been slowed? Do you have a crystal ball that allows you to look into an alternate futture and see what should have happened?

    This is basically the same argument the government is using for why the stimulus didn’t create jobs. They claim that it would have been much worse if the stimulus hadn’t been used.

    I think we all know that is BS. No amount of stimulus is going to create jobs.

    As far as I can see gold is just in a completely normal bull market.

    in 9 years it has rallied a little over 400%. The first nine years of the stock market secular bull from 82 to 93 rose 300%.

    As a matter of fact it appears gold is rising a quite a bit faster than a normal bull market.

  84. pimaCanyon

    TZ, I believe one of the worst mistakes a trader or investor can make is thinking too much. Over analyzing. Thinking and analysis will always give reasons to not enter into positions.

    The problem with thinking and analyzing is that the most brilliant analysis on the planet cannot give us a glimpse into the future. Thinking can’t do that, analysis can’t do that. So we have to take our best shot and get on board or the train leaves without us.

    How long have you been waiting to open your long position in gold? Seems like the prudent thing to do would be to start scaling in. Do as DG suggested, buy part of your position today, more tomorrow, maybe hold some cash for next week to see what happens after FOMC, then add to your position after the dust has settled.

    If futures contracts commit too much of your capital for that kind of phased approach, then use the ETF’s.

  85. Gary

    You obviously need to believe that there is some evil force at wolrk in the gold market. hopefully it doesn’t hamper you from making money, although it appears that it already is because you are obviously concerned about taking positions that you feel can be taken down by the “cartel”.

    My suggestion is if you can do it jettison the conspiracy theories and get on witht he business of making money and treat the bull like any other bull. So far it’s acting perfectly logical. The cycles are running for the most part in normal timing bands.

    When the dollar collapses gold rises. lately gold has even decoupled form the dollar and has risen along with a rsing dollar.

    So instead of trying to second guess some guy sitting in a room with orders to supress just trade gold for what it is. If the trend is up and the cycle is young go long. If the cycle is getting late take profits.

    When the dollar hits it’s three year cycle low exit and get out of the way of an impending D-wave (which I’m sure will be blamed on the “cartel”).

    It’s as simple as that. Now let’s get busy making money form this bull shall we?

  86. greg

    Gary,
    In Soro’s own book he explains how he manipulated commodities and curencies to take a position in them. He would sell the hell out of them to drive the price down and start a selling frenzy, then he would start accumulating at reduced prices. He admits to that kind of minipulation.

  87. aaronpalang

    Gary,
    There is NO other market out there besides gold that has a set number (2%) for gains allowed in any one day… its just not true. When oil was in a bull market, this was not even close to being true.

  88. Gary

    Aaron,

    Take a look at Sept. 18/19 08 or the ointraday move on Oct. 24 08. Or Feb 5th 02.Or May 19th 03. Or July 22 03 etc. etc.

  89. DG

    I just don’t see what difference this all makes. Let’s say gold and everything else is being manipulated. So what? If you buy it well and sell it much higher do they take your profit away? It’s like focusing on weather conditions when you play competitive sports. Yes, it’s windy, yes it would be easier if it weren’t, yes the other team has people who play better in wet weather, yes, yes, yes. Now what? Risk management, sentiment, cycles, etc. all still work if used correctly. Seems like a useless exercise to wonder what gold would do if it were not manipulated. Who cares? I just want to know whether its going up or not. I have never seen anyone embrace manipulation/conspiracy theories who was not making an excuse for his own poor trading. I hope gold gets “manipulated” up to $1600 on this next run. If it woulda/shoulda gone to $1800 without some “they” keeping it down, so what?

  90. aaronpalang

    Gary intraday, I understand, yet a close isnt allowed, its always dragged down to 2%.

    Rosabarba, the limit on commodities is a rule, its halted. There isnt a limit on gold, and yet its stopped at 2% ONLY on the upside. This is highly suspect. Talk about killing momentum. I agree with TZ, manipulation dioesnt have to be total, yet its effects are DEF there.

  91. Shalom Bernanke

    Exactly. Assume it’s manipulated but still going up b/c it can’t be stopped, then consider it a bonus windfall if they ever get busted and take the lid off.

    The difference is up vs even higher. Either way, be long gold.

  92. aaronpalang

    SB, I am, why only 2% up, yet 4% down? If you can see that, why not accept that its harshly kept down/manipulated?
    Im old turkey and am long gold like most of you, but to say there is no manipulation?

  93. Gary

    Aaron,
    This is how gold bulls work. Cycle bottoms aren’t the same for gold as they are in stocks. Gold dosen’t come roaring out of a cycle bottom like it does for stocks. It creeps higher in fits and starts because everyone is nervous. (sound familiar?)

    Once the rally gets going and becomes overbought traders are quick to sell because they are afraid their profits are going to evaporate. Persistent selling into new highs by nervous traders. That keeps gold from making big moves up.

    The declines on the other hand are exactly the opposite. Once gold has rallied for 15 to 20 days or more the market starts to smell a profit taking correction coming. Everyone has an itchy trigger finger. When it does appear everyone hits the sell button at the same time. Viola big down day.

    There is nothing manipulated about any of this. It’s just basic human nature. This is the way bull markets, especially gold bull markets operate.

  94. Keys

    On another note
    Since I am reading alot on QE2, the best estimate that I like is 100 billion a month for an indefinite term….Fits in well with not shocking the market, and allows the balance sheet of the fed to increase slowly and without the public catching on too quickly…Also provides to the prudence that the ummm G-20 talked about with new fed money(also provides the fed 12 trillion if they want). Just a thought.
    Having fun reading the comments…

  95. LowTax

    Keys, I agree. I think they’ve pushed the perception envelope far enough with QE1 and QE-Lite. The Fed has specifically said that the measured employed to date have been unorthodox and that they entail unknown risks. This means they are worried to some extent about their ability to contain the monster. The next logical move (QE2) would be to piecemeal it so as to better gauge the effects. QE1 was the shock-and-awe to fill the massive deflationary hole. QE2 is fine-tuning, if possible. And it has the benefit of allowing them to control the risk a little better. If it starts to move oil too much without the requisite inprovement in employement, they’ll cut it, or so I assume. And I like your thought about making it “indefinite” that will boost the market’s morale, as well as gold’s.

  96. QuantTrader

    All I’ve been hearing are people waiting for a correction to buy more. From experience, the market is going to move in a way to screw the most people, so it’s not going to give traders the correction they want IMHO. It’s comforting to see how well gold/silver/platinum/palladium held up with USD up and SP flat. Long large Old Turkey with Gary here.

  97. Bede

    Eric Sprott On Bonfire of the Currencies

    Now is the time to own gold stocks. Most gold companies will report their Q3 earnings at the end of October. Due to a higher year-over-year average spot gold price (which has increased 27.8% to $1,228/oz in Q3 2010 vs. $961/oz in Q3 2009), virtually every precious metal company is forecast to exhibit substantial net income growth. These fantastic net income results will be augmented by higher by-product prices (average silver, copper, and zinc prices were up 28.7%, 24.2%, and 14.8% year-over-year), which should set the stage for banner year-over-year earnings increases.

    One of the best axioms for investing is painfully obvious, but so often forgotten by seasoned investors: it’s all about earnings. Earnings are what drive stock prices over the long term. Investors seek out earnings growth wherever they can find it, and we can’t think of a single equity sector that exhibits better year-over-year earnings growth potential than the gold producers. Despite the buzz you’ve heard about gold and silver over the last two months, the stocks haven’t caught up. We expect that to change over the next two quarters as investors realize how much stronger gold producers’ earnings will be at $1,350 gold. As countries decide to burn their currencies in the devaluation race, gold has responded, and now it’s the producers turn to perform. We’ll gladly take the earnings.

    http://tinyurl.com/2cevqgx

  98. Gary

    Oh I don’t think TZ went anywhere other than to dinner. I don’t think he’s so thin skinned that a little debate will ruffle his feathers.

  99. notGreedIsGood

    Gary

    in your report, you mentioned that it’s dangerous to press the long side on stocks, (but likewise dangerous to short too)… if the general stock market does correct, wouldn’t that take down miners too regardless of what gold and silver does?

  100. Gary

    If gold is rising then it will only take down the miners at the very end of the correction when the selling pressure becomes intense.

    As soon as the pressure is released though the miners will spring right back and get busy following or leading gold.

  101. Rosabarba

    Interesting *possible* alternative take on the $USD cycle tonight on Doc’s site, and one that isn’t quite a near-term friendly to the PMs (since it’s on the pay site, I will refrain from elaborating).

    If nothing else, it’s a timely reminder to allow for possibilities other than the preferred, esp. is one is trading leverage.

    Overnight action in the buck (now working a bull flag on the 5min) and the reaction from the other futures thus far (though silver remains above its gap-up open) bear watching.

  102. Robert

    By Sarah N. Lynch
    Of DOW JONES NEWSWIRES

    Chilton: There Have Been ‘Fraudulent Efforts’ To Control Silver Prices

    WASHINGTON (Dow Jones)–A federal futures regulator said Tuesday he believes there have been numerous attempts to fraudulently influence silver market prices, and he urged the agency to prosecute those who may have violated commodities laws.

    Bart Chilton, a commissioner at the Commodity Futures Trading Commission, made his comments Tuesday at the start of a public meeting where the agency will be proposing new rules to strengthen its anti-fraud and anti-manipulation powers.

    The agency’s enforcement division for over two years now has been probing the silver market amid a flurry of complaints by investors who have raised fears about potential price manipulation. The CFTC hasn’t provided any updates on the investigation, and Chilton said he thinks “the public deserves some answers to their concerns that silver markets are being, and have been, manipulated.”

    “I believe there have been repeated attempts to influence prices in the silver markets,” he said. “There have been fraudulent efforts to persuade and deviously control that price.”

    He urged prosecution of those who may have violated the law, but said he can’t prejudge what the agency will do with its investigation.

  103. thedocument

    Gary,

    I’ve got another alternate interpretation for you. I think there is a decent chance the dollar low set 7 days ago was an intermediate low, not just a daily low. Before you dismiss this view by saying that a 30-week cycle is too long, keep in mind that several months ago I disagreed with your call of the March reaction low as an intermediate low. I believe that low occurred in April, four weeks later. In that case, the recent low occurs on Week 26… stretched, but not excessively so.

    Public opinion on the dollar certainly got bearish enough to indicate an intermediate low. Likewise, the sentiment difference between dumb money and smart money for equities is quite large, supporting the notion that a larger dollar bounce could form because equities are due for a substantial pull-back.

    In this case, gold and silver would go through a month-long consolidation, probably something along the lines of a mid-point consolidation. I don’t want to get into too much details here or my subscribers might get perturbed πŸ˜‰

    No Mexican dinner on this one (yet), but it’s something we cycle traders should keep an open mind about.

  104. Todd

    Gary, Your not kidding up sleeping in. Gold is bouncing like a yoyo. Now back down to 1334. Ugh, I was quite confident this was going to break out.

  105. Gary

    There is no question that we got an intermediate cycle low in August. That one is pretty much irrefutable.

    However there is certainly the possibility for a short cycle that bottomed on week 10. It would be highly unusual but not entirely out of the question. We would need to quickly correct the weekly swing high that is forming this week though or that possibility will go down the drain quickly.

    I still give it low odds though because it’s still a bit early for a yearly cycle low too. The last one occurred in Dec. 09. One more daily cycle down would take us right into the normal timing band for not only an intermediate but also a yearly cycle low.

    I assume you have access to the public opinion poll for the dollar. You will notice that sentimnent never really got terribly bearish at the recent bottom, not even manageing to move to 30%. The mild rally so far has already pushed sentiment back up to 40%. That doesn’t sound like the kind of panic levels that should be generated at a yearly cycle low.

    All in all the odds still favor at least one more leg down.

  106. Gary

    I think we’ve learned by now that moves in the middle of the night have virtually no correlation to what will happen at the close the next day.

  107. Rosabarba

    Overnight action is certainly no great predictor of the next session, but the dollar rally that ran through the session today continues tonight, and this time gold and equities are responding with the more typical inverse correlation.

    The swing low gold just set is not terribly far away. I’m not arguing against the PM bull, but it wouldn’t seem to take much to make the ST picture quite a bit more complicated from here.

  108. Gary

    The overnight action yesterday was much worse yet gold still managed to clolse higher and silver put in a nice rally.

    I don’t think I would read anything into tonight’s action unless it can make it all the way to the close.

  109. alex

    I actually love how worried everyone is that the bottom of GOLD is going to drop out… Doesnt that mean we’re right?? I mean if tomorrow gold went up $20 and thursday another $20 , the biggest bears would feel they’re missing it.

    I just want to add this…look at charts. The dollar went UP from AUG 9,2010 through the entire month. Gold ….WENT UP ALL MONTH TOO.

    The dollar may bounce here, but remember how the gold bull feels when you re on her back straight up…or…when you missed the buy and it runs right past you. I feel confident the gold low is in…after all… ITs a BULL! even corredctions correct themselves in c-waves πŸ™‚

  110. Rosabarba

    The bull will correct timing mistakes, but since we’re at the part of the program where even the conservative Mr. Savage is trading with leverage, moves which might thwart expectations in the short term seem worth considering as they become more probable.

    The 20dema held and rejected the first $USD bounce. If tonight’s action holds up (granted, a big if), that average becomes support.

    The same average has survived two consecutive tests as *resistance* for GDX/HUI this week. For old turkeys, it’s a point of passing interest. For the levered trader, less so.

    Now maybe all of the overnight action reverses before the next open and the miners gap above that MA tomorrow. Doing so would make for an impressive island low on GDX if the gap never filled. No way to know until we get there. For now, it only seems prudent to consider alternate probabilities.

  111. Bruce

    No POMO day today. ChiIndia got smacked for 1.5% ; US$ up. Sure, PM’s & miners did well on POMO day in face of rising $. Today will be a major tell w/o POMO, particularly if US$ continues to rise.

    Fasten your seatbelts, turbulence ahead. SPX trendline almost assuredly will be broken, but we shall know a lot more by EOD.

  112. Gary

    I don’t think we are going to get any serious sell off without seeing a large Sos day prior. A serious correction would mean an intermediate cycle low in the dollar.

    Until we see the SoS signal I doubt the dollar cycle has bottomed.

    Without that all these technical excuse for why the market will do this or that is probably a waste of time and will accomplish nothing except cause one to make a mistake they shouldn’t make.

    Over the last five years this has been one of the single most reliable signs that an intermediate correction is coming.

    So until we get that signal I wouldn’t waste time with charts.

  113. driver1

    SoS block trade money flow was about 55M yesterday. Did you say that you would look for at least 100M to be significant? Do you look at block trades or total flow?

  114. Shalom Bernanke

    Don’t be afeared, everything is OK. There is no mortgage problem, unemployment will decline, and there ain’t no problem I can’t print my way out of.

    Go back to Dancing with the Stars, we have it all under control.

    P.S. I don’t even care if gold pulls back $50-60 bucks from here, compared to the $3000+ upside potential. πŸ™‚

  115. Shalom Bernanke

    From Zero Hedge:

    “Fedspeak: The deliberately confusing and carefully rehearsed cryptic language is meant to “give people a sense that there’s no way they could understand economics and finance” and thus allow the Federal Reserve and government to manage the economy with less interference from the general public.”

    You got dat right!

  116. Gary

    Nike,
    I went over the implicatioons of breaking below $1315 in last night’s report. It will either mean the daily cycle hasn’t finished bottoming or an intermediate degree correction has begun.

    At this point it’s almost impossible to tell which since we haven’t really had enough of a rally to determine whether the daily cycle bottomed or not.

    However I would sugges everyone immediately take off leverage if gold drops back below $1315 and you might want to think about taking some profits on other positions.

  117. Shalom Bernanke

    I’m already pretty well longed up in the etfs. No way I’m selling as I have a big, fat cushion thanks to the G-Train.

    Only question is when to buy and how much.

  118. Onlooker

    I don’t know SB. If we go below 1315 on gold there’s a concern/possibility that we’ve seen an intermediate top and so should see a deeper/longer correction here. If so then buying at $HUI 484 would no doubt be too soon.

    Resisting the temptation to sell some now to lock in profits that could disappear. But I’m going to stay with the program and maintain the discipline that could bring higher profits. That’s the risk/reward equation right now.

    This kind of deep correction coming off the first move of a daily cycle are classic shake out situations. Getting left behind on a move up is still quite possible. (though it can feel like we’re on a mini slope of hope)

    Nerve racking right now. But having strong hand status (i.e. a good profit pad), and decision point for pulling down long exposure, makes it easier to deal with.

  119. Shalom Bernanke

    Thanks for the e-mail update, G.

    Onlooker,

    I used to hate drawdowns and kick myself for not taking profits, only to find my accounts much higher at a later date. Sometimes a few weeks later, sometimes just days.

    Old Turkey for Shalom B!

  120. Frank

    Shalom B, I had a discussion with one of your employees from Constitution Avenue yesterday. I learned that you are an extremely brilliant man and in a few years time you will be vindicated for your brilliant actions during the unfortunate and temporary crisis. You will be worshiped as the greatest central banker ever in centuries to come.

    I am relieved and going to sell all my mining shares promptly……

  121. Shalom Bernanke

    Frank, it’s just an illusion, don’t go selling you mining shares on account of one guy’s opinion. Besides, my Fed lies all the time, so he might not have his story straight.
    πŸ™‚

    Looks like TZ took his comments home too soon. Somebody is definitely manipalatin’ gold lower today.

  122. Keys

    Old Turkey here…no change…I think I will join nap boy.

    Learned my lesson…not trading out again, even on margin…too much to deal with.

    If Shalom is sticking to old turkey, how could I?:)

    Speaking on QE2…The market seems to expect at least 500 billion…The fed seems to be guessing at what the market wants…I am expecting some more QE, the Fed has to at this point. I will expect wording to the following. I don’t think the shock and awe will take place, but I do believe the Fed will give a mention to 500-750 billion over say six months, with an understanding that QE will continue with say 100 billion a month there after as needed.

    This may move the dollar up as the market says not enough, shutting up Germany for a time with a “see I told you so”, but will eventually drag the dollar down as within a year’s time we would be over a trillion in QE.
    Just a guess of course; I didn’t bring my crystal ball today.

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