Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter


Gold Heading Below $900 on Seasonal and Fed Driven Reduction in U.S. Dollar Liquidity

Commodities / Gold & Silver 2009 Jun 08, 2009 - 03:05 PM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleAs the investment community celebrates the first bankruptcy of General Motors, a look around the world reveals the vast financial acumen of governments. We do not have to stop with the financial irresponsibility of the Obama Regime, evident by the two trillion dollar plus deficit. We could just as well turn to the expense account scandal that may bring down the UK government. Or, we could look to the financial wizardry of California, or the high finance skills so evident in Jefferson County, Alabama. Or, we could watch in wonder as oil production collapses in Mexico and Venezuela where  politicians have squandered oil revenues.

With such revealing evidence to turn to for confidence, we sometimes wonder how anyone can accept at face value the debts of these governments. Those debts being what we call fiat money. Gold bugs are not born.  They are created by unbroken history of financial failures on the part of governments.

And then we turn to the U.S. Federal Reserve. Never has a government experiment been such a near complete failure. As that organization closes in on its 100th anniversary we hope that their performance will improve. With a near perfect 100 year record of getting it wrong, they would seem to have made all the mistakes possible. The next 100 years can only be better. And with that we turn to this week’s first chart.

In that chart is plotted the annualized rate of debt monetization by the Federal Reserve. We used a  nine-week rate of change to give it some smoothing in order to avoid the noise in much shorter term data. Longer term measures lack sufficient detail. The rate of debt monetization by the Federal Reserve, per this measure, rose to more than 2,400%, on an annualized basis. That is a “printing press” on steroids, or some kind of white powder.

In order to achieve that monetization, the Federal Reserve flooded the U.S. financial system with reserves, or liquidity. The arrival point for that liquidity into the system is the primary bond dealers. They sell bonds to the Federal Reserve, receiving liquid funds in exchange. On those liquid funds the dealers earn nothing.

Dealers, suddenly awash with liquidity earning nothing, move to find ways to remedy that situation. That liquidity ultimately flows into the financial markets as they do so. That incredible burst of liquidity served as “rocket” fuel for markets of all kinds, from stocks to Gold and Silver. Except for the bond markets in near collapse under the Obama Deficit, markets across the entire spectrum have moved upward as that liquidity was put the work.

In recent weeks, as shown in the graph, the rate of monetization has dropped dramatically. While still too high, the rate of monetization has been declining. That action, for financial markets, is the equivalent of taking one’s foot off the gas pedal. As that is done, the car slows. As the above  happens in the market for liquidity, financial markets subsequently slowdown. Additionally, as less dollar liquidity is available, dollars are less freely available. That development gives the dollar some short term strength, as the supply of dollars is growing more slowly. Remember, what happens at the margin, or the second derivative, is the driver for financial markets.

Last week the first impact of this declining dollar liquidity was felt in the Gold market. $Gold peaked early in the week, and slid dramatically on Friday. Summer normally is a period of declining dollar liquidity, for whatever reason. That normal seasonality is now coming together with slowing debt monetization on the part of the Federal Reserve. Together and combined, less liquidity is now available for all markets.

In the above chart we can observe the positive impact of that massive creation of dollar liquidity. $Gold rose from about $860 to more than $980. In doing so, $Gold moved in a mini-parabolic curve, as indicated by the blue curve in the graph. It has now moved down and through that curve. Such a move usually indicates that it will move down further. The seasonal and Federal Reserve driven reduction in dollar liquidity is now having an impact on $Gold that may send it below $900.

This development should be seen as an opportunity for $Gold investors. The lack of dollar liquidity this Summer may be providing $Gold investors the last major opportunity to buy $Gold under $1,000. Our intermediate indicator should give several timely and important buy signals during this period. As the liquidity situation turns back up in September, $Gold will move higher. As it does so it will exit the pattern in which has been trapped since March of last year. In doing so, $1,000 will become the floor and no longer the ceiling.

By implication, this development is making other currencies short-term over valued. That action depresses the price of Gold when expressed in those currencies. Those over valued currencies should be used to buy Gold. For example, investors living in Canada, the EU, and  England should be buying Gold.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to

Ned W Schmidt Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules