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Challenging Gold Price None Manipulation Analysis

Commodities / Gold and Silver 2010 Mar 16, 2010 - 04:17 AM GMT

By: Brian_Bloom

Commodities

Best Financial Markets Analysis ArticleA reader has written in challenging me on my view that the gold price is not being manipulated at this juncture in time. FYI, here is my response to him


Hi Les,

The reason that I think the gold price is not being managed at this point is that I think the central banks have run out of wriggle room.

You and I are not far apart. As the saying goes: The spirit is willing but the flesh is weak. I believe we may be close to capitulation by the Fed in this mega game of chicken. I’m watching the bond markets more than I’m watching the gold price. The bond markets are where the big money is invested.


If the 30 year bond yield breaks up from the reverse head and shoulders neckline then the target yield is 4.6 + (4.6 – 2.5) = 6.7%

The Point and Figure measured move is 6.4%. (Charts courtesy stockcharts.com)

The stark reality is that the Fed cannot “manage” the bond markets by suppressing the gold price. The very concept is ridiculous. The simple truth is that the Fed is powerless to manage the bond markets, full stop. If the Fed wants to avoid runaway price inflation and skyrocketing interest rates (and a skyrocketing gold price) it has one option and one option only: It will have to take its foot off the money supply accelerator. There is therefore no longer any purpose to be served in “managing” the gold price. The bond market is saying “you better stop priming the inflation pump or we will cream you”

That doesn’t mean I am a bear on gold. To the contrary, I am bullish. Gold is in a Primary Bull Market. But it needs to consolidate.

Of course, if the Fed has too much testosterone coursing through its system then they will keep trying to pump money and credit and they will get creamed, as sure as God made little red apples. But if it’s obvious to me then it must be obvious to them too. I just can’t bring myself to believe that they are as stupid as some people seem to think they are.

By Brian Bloom

www.beyondneanderthal.com

Once in a while a book comes along that ‘nails’ the issues of our times. Brian Bloom has demonstrated an uncanny ability to predict world events, sometimes even before they are on the media radar. First he predicted the world financial crisis and its timing, then the increasing controversies regarding the causes of climate change. Next will be a dawning understanding that humanity must embrace radically new thought paradigms with regard to energy, or face extinction.

Via the medium of its lighthearted and entertaining storyline, Beyond Neanderthal highlights the common links between Christianity, Judaism, Islam, Hinduism and Taoism and draws attention to an alternative energy source known to the Ancients. How was this common knowledge lost? Have ego and testosterone befuddled our thought processes? The Muslim population is now approaching 1.6 billion across the planet. The clash of civilizations between Judeo-Christians and Muslims is heightening. Is there a peaceful way to diffuse this situation or will ego and testosterone get in the way of that too? Beyond Neanderthal makes the case for a possible way forward on both the energy and the clash of civilizations fronts.

Copies of Beyond Neanderthal may be ordered via www.beyondneanderthal.com or from Amazon

Copyright © 2010 Brian Bloom - 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.

Brian Bloom Archive

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


Comments

Brian_Bloom
16 Mar 10, 17:35
US Long Bond Yield

Hi Steve,

The charts are signaling the possibility of a 50% rise in the US long bond yield from current levels. I invite you to consider what would happen if the 30 year bond yield were to rise by around 50% from its current level:

…to capital values in the multi trillion dollar treasury markets

…to the US government’s cash flows if no one will buy its paper and/or if it has to pay 50% more interest on its for its new borrowings against the backdrop of today’s public debt of $12,636,662,956,140.07.

…to the US Dollar if the Fed moves to plug the cash flow deficit by creating all the money the government needs out of thin air; thereby ramping the entire world’s greenback inventory of over as opposed to merely recycling the majority of the current US$7 trillion held in central bank reserves across the planet. (See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a4x9dIJsPn4U Quote from this article: “The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999.”, October 12 2009)

… to price inflation within the US

… to the US consumer, who is up to his ears in debt in an environment of 16% - 17% “true” unemployment (taking into account under employment) and who therefore has no bargaining power to ask for wage increases

… to “real” US GDP given the importance of consumption. (Real growth statistics measures volumes, not dollars and I would submit that there has been no real growth in the US economy for longer than the US Federal Government would care to admit).

In the last few days the Fed has started to “talk” as if it wants to raise yields. The decades old minutes from which the gold bugs are quoting offer another clue to the way the Fed works: When it wants a particular outcome it starts to talk about what it “might” do. When it starts to talk about the possibility that it “may” raise rates in an environment of high unemployment you can bet your last dollar that its sphincter is starting to contract. It is terrified of inflationary pressures and the possibility that there could be a train smash in the bond markets. It is sending out a signal in the hope that people will react to the idea rather than the reality. This jawboning tactic is the generic message that those decades old minutes reflect in respect of the Fed’s market “management” tactics. Gold price manipulation is yesterday’s news and the discussion on gold is largely conceptual except insofar as it is an insurance policy against financial catastrophe. Up to now the rising gold price has not really had any affect on the world at large. Tomorrow’s news will be the bond markets. If the US long bond yield rises by 50%, that will affect everyone who draws breath. It might well have the capacity to bring the global economy to its knees.

For nearly nine years I have been trying to tell the gold bugs (of which I happen to be one): “Be careful what you wish for”.

I call it as I see it. It’s your call if you want to publish it. Perhaps if you cut and paste this particular email to the bottom of the earlier one the message might have a greater impact. The days of partisan politics and lobbying tactics are behind us. We need to close ranks.

As I see it, the solution to our problems will not lie with the central banks and/or economists of the world. It will lie in entrepreneurial embracement of new energy paradigms to replace fossil fuels. But it will take several years before any new energy paradigm begins to gain economic traction. There are no silver bullets. Natural gas is certainly not a silver bullet. It contains less thermal energy per unit of measure than either coal or oil and it is still a fossil fuel. We have passed peak oil and the cost of sequestering carbon dioxide from coal will add over 50% to electricity prices. This will open the door to coal replacement energy technologies.

The replacement options are: Nuclear (fraught with human frailty issues), wind (seriously space inefficient), thin film PV solar (years away from commercialization), solar thermal (will work well with thin film), high lipid algae (to replace oil derived raw materials in some manufacturing industries) and – as an “out there” wild card – over unity, electromagnetic energy. We also need next generation electricity storage technologies of which – as an out there wild card – gold might hold the key to one. The latter two wild-card possibilities are primarily what Beyond Neanderthal examines. It can be ordered at the website below or from Amazon. The novel on which I am currently working will examine the human frailty issues with regard to nuclear and, possibly, some alternative structures which might serve to address these issues.

Kind Regards,

Brian Bloom

Author, Beyond Neanderthal


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