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
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Bugs Short-term Pain But Long-term Gains

Commodities / Gold and Silver 2010 Feb 01, 2010 - 02:08 AM GMT

By: Howard_Katz

Commodities

Best Financial Markets Analysis ArticleIn the short term, gold bugs are in pain.  The last 3 weeks have seen a pull back to the Dec. 22 low of $1,075 and have created a lot of short term anxiety.  We have two possibilities.  Either gold will continue down to the $1,000 support level, or it has already made its turn, will leave a gap above $1,000 and then break out above $1,229, April contract (the Dec. 3 high).


When the short term is a puzzle, I take refuge by studying the long term, and so I thought that this week might be a good time to review the long term situation.  Above is the 15 year, monthly basis chart of the CRB index, which gives us a good handle on the (second upswing of the) commodity pendulum.  The horizontal line in the middle of the chart is at 337, and this was the top of the (first upswing of the) commodity pendulum in 1980.  Note that this level, which was then resistance, was penetrated in 2005, and this was followed by the blow-off of 2008.

As is normal in technical formations, a resistance level, when penetrated, turns into support.  Therefore, in Dec. 2008, when the CRB once again came down to 337, this level provided massive support, and the commodity markets turned on a dime.  Also note the double bottom of 1999-2001, which is serving as the bottom pattern for commodities and is similar to the 4½ year saucer pattern in gold (1998-2002).

The key to the CRB chart is the sudden collapse in the 2nd half of 2008 (from just over 600 to a little under 337).  This period stands out on the chart, and the normal chart interpretation would be that some important (bearish) news item had occurred at that time and caused the decline.

But of course we know that this was the period when massive fears of “depression” swept our society.  The media began to scream “financial crisis,” and commodity speculators ran for the hills.  Even gold was hit, although it declined less than other commodities and was the first to bounce back strongly.  An analysis of the panic of ’08 shows the following:

The panic was started by the New York Times, which was ringing the alarm bell as early as mid-September.  What was the Times’ source for this news item?  The sources were Secretary of the Treasury Henry Paulson and President George Bush (Jr.).  We now know that Paulson used his public office to persuade Congress to steal (a stated amount of) $750 billion from the working people of America and give it to (creditors of) Goldman Sachs (Paulson’s former firm).  That is, Goldman Sachs donated money to the Republicans (and probably also to the Democrats) in return for which they were given influential positions from which they can persuade politicians to steal money from the public and give it to them.  Also, the Times had been carrying on in the most disgraceful fashion for the previous 7 years saying that President Bush was stupid.  (Although I cannot land a jet airplane on the deck of an aircraft carrier, and I don’t think that anyone on the Times can do so either.)  If President Bush was stupid, then why cite him as an authority with which to throw the country into panic?

In this regard, it must be pointed out that recessions and depressions do not exist.  They have the same reality as witches and dragons.  And debating whether the country is in a recession is similar to debating whether unpopular women in Salem, Massachusetts in 1693 were witches.  This is why it is so important for you to understand that the economics taught in our nation’s colleges and universities is (to quote Shakespeare):

“a tale told by an idiot, full of sound and fury, signifying nothing.”

These events, wrongly called depressions and recessions, can be traced back to the days of Abraham Lincoln.  Lincoln could not persuade Congress to lay the taxes for the Civil War.  So he paid for the war by printing money (the greenbacks).  The U.S. money supply approximately doubled from 1861-65, and the price level did likewise.  The gold standard was temporarily suspended.  Now it is important to understand that, when prices rise, wages also rise but much more slowly.  Thus the real value of wages declines.  Therefore, all employers are making bigger profits, and all workers find that their wages have less buying power.  In such a period, employers are looking to expand, and unemployment is driven down very low.  However, after the Civil War Congress and the new administration withdrew the newly created money from circulation. 

By 1879, prices were back down to their level of 1860.  This period of declining prices had the opposite effect.  Prices fell, but wages fell more slowly, and therefore the real buying power of wages rose.  With real wages higher, employers started to hurt, and unemployment rose.  The economists of the day had one concern: to further their careers by kissing the hindquarters of the rich and powerful.  What was happening was that wealth was flowing back and forth between two classes.  During the money expansion wealth flowed from the workers to their employers.  During the money contraction wealth flowed from the employers to the workers.

How did the economists of the day deal with this situation?  They asked, “How can I serve the interests of the rich?”  Well, the rich were hurting during the money contraction.  “Therefore, I can kiss up to the rich by renaming this money contraction as though it were bad for society as a whole.”  And so the word “depression” was invented.  They were, they told us, academics who studied depressions and made scientific commentary.  Conversely, they called the periods when the rich were benefiting at the expense of the poor “booms” or “periods of economic growth.”

In short, these economists were the leeches of society.  They defined their job as helping the rich to steal from the poor, and to that end they made up nice sounding words for the periods (and policies) to the advantage of the rich and bad sounding words for the periods (and policies) to the advantage of the poor.

Was there any real economics here?  All we have to do is to look at some facts.  The “boom” of the early 1860s occurred during the Civil War.  Millions of men were pulled off the farms and factories and put into the army.  These men, to say the least, did not produce any wealth.  Many of the goods that were produced, furthermore, were not wealth.  What wealth is represented by a bullet, a cannon or an explosive?  Nothing except to destroy other wealth.  A war (if we set aside the loss of life) is simply two groups of people destroying each other’s wealth.  One side creates an explosive and destroys some buildings and equipment of the other side.  Then the other side does the same thing.  At the end, both sides are poorer.  In what sense is this a period of economic growth?

After 1865, there were a series of “depressions” which were caused by a long contraction of the money supply.  This lasted until 1896.  This period of “depressions” was the most productive in the economic history of any nation.  It was the age of Thomas Edison and Nikola Tesla.  It was the age of railroad expansion.  The automobile, the telephone, the electric light and many other inventions were created.  From 1866-1896, the real wages of the average American worker increased by 90%.  People from other countries (my great grandparents among them) flocked to America because the streets were paved with gold.  This was true in more than one sense.  Despite the opposition of the railroad interests the country returned to the gold standard in 1879.  It was also the period when America took the world economic leadership from Britain.  I ask all of the economic idiots, in what sense was this a period of  depression?

The same thing happened in the early 20th century.  The Government increased the money supply during WWI.  The economic leeches called this a boom although the real wages of the working man fell sharply.  The Republicans of that day figured out what was happening and realized that the extra money had to be taken out of circulation (a good 5¢ cigar).  In the period 1920-1933, they reduced the money supply and brought the average price level down to that of pre-WWI.  During this time real wages rose, per capita meat consumption increased (from 129 lb in 1930 to 144 lb in 1934), people switched from margarine to butter and gave more to charity.  And yet the idiots tell us that this was a depression and the nation was poorer.  Statistics available from Historical Statistics of the United States, Colonial Times to 1970, published by the U.S. Department of Commerce.

So you see what the nation barely escaped in 2008.  And you see what Ben Bernanke has spent his life studying and wherein lies his field of expertise.  He is an expert in dragons and witch infestations.  Greenspan at least knew that he was a liar and a fraud and acted ashamed.  He is on record (before he became Fed chairman) as condemning the policies he later practiced.  But you can bet your life that the national and world media did not report a word of this.  Greenspan was repeatedly on the record as favoring the gold standard.

AND YOU CAN TRUST ALL OF THE MEDIA WHICH REPORTED THIS CRUCIAL FACT (which is very close to none).

Now let us return to the commodity collapse of 2nd half 2008, which itself was caused by the media in general and the New York Times in particular as these media were screaming “Great Recession” and “depression” at the top of their lungs.

What happens to human beings who go through a panic?  During the panic they are wildly irrational.  But as the emotion gradually subsides, there is a return to reason.  That is what we have seen in the commodity markets since early December 2008.  The CRB first formed a small head and shoulders bottom and has now recovered almost 2/3 of its loss.  There is no recession or depression.  It is all a figment of our society’s imagination.

The State of the Union Address was used by Obama to shout defiance against the newly emerging conservative movement, and this can be taken as evidence that he will pursue his policies, including massive budget deficits, as long as he can.  This printing of money has to cause both gold and commodities in general to make massive further advances.  The chart of gold indicates this with several aggressively bullish patterns.  The CRB will not be aggressively bullish until it breaks above its July ’08 high of 618.

Right now gold is hanging just above its Dec. 22 support area at $1,075.  If the gap between $1,075 and $1,000 remains open, this will be an aggressively bullish signal.  If gold returns to $1,000, closing the gap, it will still be bullish (but less aggressively so).  $1,000 is strong support, and the odds that it will be broken are very small.  Meanwhile any analysis of the long term, as above, shows that commodities are extremely bullish, and that is the place for the astute speculator to be.

My economic newsletter is the One-handed Economist: price $300 per year.  I use Austrian economic analysis, technical analysis and my theory of the commodity pendulum to decide what to buy and when to buy it.  I am trying to discourage use of Paypal because the company has no regard for customer good will and has never heard the expression, “the customer is always right.”  However, I will continue my relation with them for the sake of customers who are some distance away.  For the remainder, I offer a $5.00 discount for paying the old fashion way (via the post office).  Send $295 to the One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.   If you wish to use Paypal, go to my web site, www.thegoldspeculator.com.  (My political and social blog has been suspended for the time being.)  Thank you for your interest.

© 2010 Copyright Howard S. Katz - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - 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