Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
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
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Gold, the Internet and Creating Imaginary Money

Commodities / Gold and Silver 2011 Jun 28, 2011 - 12:05 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleOne has to love today's technology. Where else can we get so much mail from people whom we do not want to get mail? Never has porn been delivered in such high quality. But, the good news does not stop there. While creating social networks for people with lives in which no one is interested and providing the capability for old people to twitter among themselves, the internet is now providing an important government function, imaginary money.


Bitcoins

Source: bitcoinchartscom

Chart above is of the value of an imaginary money that trades on the internet, bitcoins. (See Coins of the Geeks, Businessweek, 20 June) Bitcoins may be the perfect modern money, and will no doubt be recommended by intellectually inbred Keynesians academics as a replacement for Greece's use of the Euro. This money has no intrinsic value, exists only in the electronic imagination of a server, and can be created in unlimited quantity. Is this not every government's dream come true?

In the above chart note the distinctive parabolic formation that occurred in the value of this imaginary money, and the ensuing collapse out of that formation. As the price of bitcoins has no reality, it traded on fantasy and emotions. Such is what technical analysis attempts to gauge, in part. That chart pattern was totally imaginary. And no, we have heard no claims yet of a banking cabal manipulating the price of bitcoins, but am sure it will develop.

Similarity of that chart pattern to that of Silver should be considered. Both traded into that pattern based on fantasies of future price. Real value was essentially ignored. With Silver having broken the critical US$34 level, attention should be on the intraday cash low of ~$32.25. A move through that prices raises the potential for the completion of the parabolic chart pattern failure.

At the same time the value of an imaginary money was rising, world's demand for real money was faltering. In the chart below is plotted the Gold holdings of GLD, the Gold ETF. That chart seems to show a slightly negative bias for Gold demand. Since June of last year, the Gold holdings of GLD have declined by approximately 110 tonnes.

Peak holdings: June 2010, 1320 tonnes, Down 110 tonnes.

Peak Holdings $Gold vs Gld Tonnes

What should Gold investors being doing in this period of faltering demand for Gold and weakening prices? To answer that question, let us think of something else. Suppose one owned the stock of a company that was to release a patented cure for the common cold in "5 years." Price of that stock is faltering because investors would at this time rather invest in really important concepts, social networking sites. Would you sell the stock?

Same is true for Gold. Investors should retain their Gold as "5 years" from now somewhere in the world politicians and Keynesians will again be making muck of something. Rather, investors should consider building on their Gold foundation. Adding Rhodium and Chinese Renminbi to those holdings would make good sense at this time.

From where might the money come with which to purchase these additional investments? Chart below may help answer that question.

Gold Stock Junior Index

In that chart is plotted MVGDXJ, index used for ETF of junior mining stocks. Recent action in that index has taken out the previous short-term low. It is developing a negative trend. That development, combined with the faltering of markets for precious metals, may suggest that substantially lowering prices for an extended period of time for junior mining stocks is likely. All of which is a nice way of saying that with no support evident in that chart, the junior mining stock appear on the verge of collapsing into a significant bear market.

In that chart is also plotted a stochastic oscillator. That measure is useful during bull markets in selecting entry points as it attempts to gauge when price is at the lower edge of a presumably positive channel. In bear markets, however, the interpretation of the stochastic becomes more difficult. As it attempts to proxy the trading channel, an over sold reading on a stochastic at the time price is moving to new lows may be an indication of a breaking down of the previous channel. It might be signally that a new channel, with a negative trend, is developing. If that is the case, then we may need to modify our interpretation of the stochastic oscillator. Over sold, a normal buy signal, would become a Do Not Sell signal. An over bought condition, stochastic more than 80%, would then be interpreted as a Good Time to Sell signal.

US$GOLD & US$SILVER VALUATION Source: www.valueviewgoldreport.com
  US$ GOLD US$ GOLD % US$ / CHINESE YUAN CHINESE YUAN % US$ SILVER US$ SILVER %
CURRENT $1,500   $0.1544   $34.00  
SELL TARGET $1,970 31% $0.5000 224% $35.50 4%
LONG-TERM TARGET $1,827 22% $0.3330 116% $33.00 -3%
FAIR VALUE $860 -43%     $15.60 -54%
ACTION Gold preferred to Silver.   Buy Chinese Yuan   Sell Silver  

¹These estimates are subject to change.

By Ned W Schmidt CFA, CEBS

Copyright © 2011 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 www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

chetrasho
28 Jun 11, 20:41
bitcoins misinformation

Is this article a joke? I'm not sure where to begin correcting all the misinformation...

First of all, there will only ever be 21mil bitcoins. So, bitcoin is actually a Keynesian's nightmare.

It's actually the USD and GBP that "have no intrinsic value, exist only in the electronic imagination of a server, and can be created in unlimited quantity."

Bitcoins are not every government's dream. Bitcoins are competition for government money monopolies.

Why not do some research ?


Post Comment

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

6 Critical Money Making Rules