Down the Rabbit Hole

To be a precious metals sector trader or investor, you need to be square with the idea that you are out of kilter with the rest of the financial world. In fact, a huge segment of the macro financial apparatus has a vested interest in putting you and your asset class down - as in 6 feet under.

I first fell down the rabbit hole in 2002, guided by the writing of several people - Steve Saville (noted in previous post) included - who seemed to make sense above other financial commentators. Not coincidentally they tended to write a lot about gold and the history and nature of money. Once down the rabbit hole I met one character (remaining nameless) who above all others shaped my early view; who in almost militaristic fashion snapped me to attention and laid out the rules as in "Gary, off the debt... ALL OF IT!", "Gary, make preparations... do it NOW!" While I had a wood stove at the time I now have two more and each Autumn look forward to getting out to my wood pile. I got a generator too. And - this has caused some strange reactions in some who thought they knew me pre-rabbit hole - I got a large capacity license and own a 9mm semi-automatic which I am sure will never be used for anything other than target practice. But I am not the sort to take any chances. Be prepared.

Since 2002 I have watched this society come apart at the seams - in much the way Biiwii guest writer James Howard Kunstler does (listen to this week's FSN interview posted here). As I go about my preparations ('Be prepared' was a big lesson from Boy Scouts after all) I have actually had people who work for me laugh right in my face. It's okay though, I laugh at myself too... all the while remaining focused. This is about not forgetting once you've had your consciousness raised - and about being reinforced by seeing actual current events unfold just as envisioned years ago. Check my early writing dudes.

Anyway, I was doing a little background work on the gold miner IAMGold (IAG - I do not own it) based on a Motley Fool piece I stumbled upon, whereby IAG is attempting to control costs by buying back royalties on their own mines. As part of it I checked the company's sales, PE, cash to debt ratios, etc. and I also took a look at the Yahoo message forum and saw some IAG investors bemoaning one of the slicksters from Fast Money - Guy Adami (pictured employing the 1000 mile stare all battle tested warriors have :-)) - dissing gold. Nothing new there. I decided to check his bio and found he was head gold trader at Goldman Sachs. Hmmm... Then I noted that he began his career at Drexel in 1986 - around the same time that my militaristic 'guru' began his AT THE SAME SHOP.

The irony hit me over the head like a mallet; One Drexel kid becomes an underground guru trying to sort out the truth (trust me when I tell you that some highly successful and in some cases notable people used to hang on his words) while the other goes on to a long career in the financial establishment. The irony reminded me of the scene in Platoon where the kid is talking about 'being born of two fathers', the pure and good Sgt. Elias and the killing machine known as Sgt. Barns "If the machine breaks down... WE break down and I'm not gonna allow that to happen". Sgt. Barns was part of the machine - as is CNBC and Mr. Adami. IF THE MACHINE BREAKS DOWN, WE BREAK DOWN and CNBC is not gonna allow that to happen - if it can help it. Which it can't.

But to those of us putting our money up in an effort to keep pace or outperform this mess, you'd better know who has sincerity in their hearts and who has ratings in theirs. Because the machine does not care about you. It cares about next quarter's net income or limiting its losses. It cares about keeping up appearances even as the rats scurry out of the smoking casino through a crack under the back door. That is in fact how we got into this unraveling mess in the first place, isn't it? Keeping up appearances for too long while moral hazards built? Major financial media are now getting on board and helping fan the fear - which actually makes me look ahead to a bullish time out on the horizon. But where were they when I was writing about this mess unraveling in 2004 and others well before that? They were right there enabling more and more conventional investors to take on more and more moral hazard, that's where they were. It's just the way the game goes. The way the machine works.

Okay, pulling back out of the hole, dusting off and getting back to the real world, here is the chart of IAG and a link to the Motley piece The Lean, Mean, Cost-Cutting Machine. I am not by any means abandoning the A-B-C correction scenario for precious metals but I am always on the lookout for quality miners to buy when the time is right.



Edit (4:06) Otto sez after reading this post:

Buzz! Sorry!!! thanks for playing anyway!!!!! IAG is a dog with fleas. It's going to add more uncharted assets soon when it buys *** (proprietary info omitted ;-) I will tend to take this guy's word for it. He knows his stuff.

The Coming Deflation Scare

Here is Steve Saville getting right to the heart of a lot of the analysis and commentary you read here: The Coming Deflation Scare. In this article he articulates in his usual level headed fashion the dynamics at play between those two words that we see all the time - in bright neon letters - inflation and deflation.

Reading stuff like this is not as sexy as reading about nefarious and clandestine groups manipulating the markets to their advantage and our detriment. No, in fact it is kind of boring reading about true money supply growth, inflation expectations and commodities moving back "into line with the monetary backdrop". Saville consistently gets less readers by my analytics than some of the more dynamic writers I publish, but I think the stuff he writes - in the big picture - is very helpful and grounding. It is so simple that the majority of the financial world misses it. Simple as 123 in fact; The Fed is an agent of inflation. The Fed tells us that they are inflation fighters. The Fed needs the cover of the fear of deflation to do what their entire history tells us they always end up doing... IN FLAY SHUN.

Did someone say gappy?

Not anymore. UNG has relieved my concern about getting overly frothy and gappy by turning down before manic over bought, where I would have sold. Gaps filled and now we continue what still looks like a grinding bottoming process.

Speaking of grinding bottoms, I'll throw in the USO & GDX charts as well. This is difficult action that could ultimately provide a platform for a stronger rally once the laborious task of filling the gaps and washing out any enthusiasm is complete. I suspect this completion will come at about the same time the broad market and USD finish puffing out their plumage. If these patterns are busted by new lows or breaks of fledgling up trends, risk should be controlled as needed.

Is Gold About to Decouple...?

Here is a good article by Julian Phillips posted at Safehaven: Is Gold About to Decouple From the Euro and Rise With the $?

I think his conclusion that this evolution may happen "in the next few months" is a good one but I remain weary about the current rise - counter bear trend that I think it is - with the commodity complex. I am a seller of all that is not the most core holding on this rise to the parameters I have shown previously. Gold bugs are getting a bit optimistic again and I expect the commodity complex to take another hard plunge in Sept/Oct. After that let the decoupling begin - and not just from currencies.

A look at divergence in panel indicators

This morning we present what will be a guest post (Aug. 28th) on the ino.com Traders' Blog, a solid resource for trading knowledge both from INO itself and guest bloggers.

Biiwii.com
Biiwii.blogspot.com

[click chart for larger image]

I want to have a look at divergence by the lower panel indicators and the valuable clues they can provide when used in conjunction with price activity, support/resistance levels and of course fundamentals of a given stock, commodity or other asset.

Divergence can be used to help define bullish or bearish setups. With my M.O. as a 'bottom feeder', today I will focus on a chart that sports most of the components I like to see when setting up for a swing trade; it is the etf UNG (the United States Natural Gas Fund) which has been declining relentlessly from a manic high in June and mercilessly punishing anyone innocent enough to buy into this mini-bubble under the incorrect assumption that it was 'commodities to da moon'. But as "what goes up comes down" so too does the reverse eventually assert itself.

In looking at NatGas, I like the fundamentals much better from a seasonality and value perspective (thanks to a 40% decline) if only for a swing trade into the fall or winter. Fundamentals are the first priority. Check. Next, the decline has brought the price down to a notable area of lateral support. A decline like this is simply not going to be arrested until support can be defined. Check, we are at noticeable support.

Finally, what I like to see in a bottom feed is relentless and and dispiriting price action down to said support with bullish divergence by the indicators. We have that in spades with RSI, MACD, CCI and Rate of Change all nicely divergent even as bubble participants give up the ship (fresh lows in price). Right at support. I have included the full Stochcastics which have also diverged but more importantly are on the verge of 'triggering' above 20. That would be another important cross reference to a bullish case.

So there you have it. A simple bottom feed amid terrible price action down to support and bullish divergence. Nothing but NOTHING in this market is 100% and it is all about risk vs. reward. This trade in my opinion has a good risk profile. The risk is certainly better for Natty than back in July, wouldn't you say? I have my own money in this trade and speaking of risk, if the noted support fails so too will the trade and I will book a loss. It won't be the first time. But the key is to always understand your risk profiles and control same.

Edit (10:00) At the time this post was written (pre-market 8/27/08) I was expecting UNG and NatGas to continue hammering out a painful bottom (those are the best kind for sustainability). But during normal market hours we appear to be getting quite excited and gappy. If UNG registers a manic over bought condition directly off of the low I am going to sell it. Please use the above as a chart study on indicator divergence only.

Mind the Gaps

A couple gaps may need to be filled before the rally continues. SLV has filled. USO has filled. Now there is the matter of GLD & GDX. Edit (9:47) Or maybe not? ;-) If the gold and gold miner gaps don't fill I believe they might classify as breakaway gaps and imply strength relative to the other stuff that has filled once the rally gets going and this would meld nicely with the fundamentals as I perceive them. I remain mindful however of the ABC prospect and the unhealthy - beyond perhaps a strong intermediate rally - commodity correlation of gold.

SPX - Log & Linear views

Please excuse the "SPX has retraced entire bull market from '03" bit in there as I meant to write "retraced 38% of the entire bull". I have not finished my coffee yet.

Hey Otto, dis one's for you!

John screws up in the middle of this one and pulls it off anyway. Kind of a lesson for life and markets, no?

Obama - Biden

As you know, I have supported the died in the Wool Consitutionalist, Ron Paul even though I think his ideals are more Utopian than realistic when juxtaposed against the state of hubris choked modern America. I wrote in Dr. Paul's name in 2004 after voting for GWB in 2000 (or was I voting against Gore?) and have been thinking along the lines of once again casting my usual 'protest' vote in '08. Ron Paul himself is an ideal and it is heartening to see so many people activated by his campaign.

The USA is a country supposedly of and for the people and a theme of my writing - from an economic standpoint as I really am not overly political - has been that it is the PEOPLE who are mostly responsible for the current state of affairs because the people as a collective entity have become slovenly and they get the government they deserve. I don't believe there one day came an evil government that set out to deceive and exploit the people.

To make a long story short, I love that an honest man like Ron Paul - who I have been following since 2002 along with David Walker - has done so much good. I love that Mr. Walker has left his post as top cop at the GAO in order to more effectively help fix this financial mess he saw us getting into long before probably everyone in government save Dr. Paul. But I have rarely heard Joe Biden say something I disagree with (at least in my casual listening) and Obama's selection of him for Veep tells me that Barrack is a good manager who understands his limitations and maybe just maybe would run an administration that truly delegates in its decision making.

The middle class is being blown up under our current economic system. Something has got to be done and change needs to happen. Up to this point I was unable to define what change means from Obama's perspective. But I look forward to learning more about both Obama and Biden going forward and may actually cast a vote this year instead the usual protest.

We now return to our regularly scheduled program as the financial blogger who is really not very sophisticated politically puts down the megaphone, goes back to twittling his charts and enjoys a stellar weekend in sunny New England. ;-)

Dow, SPX, Tranny... Bearish 60 min. charts

I know I am getting a little carried away with the 60 minute thing and these tests of the rising wedge breakdowns, but I find it fascinating. The utter desperation employed yesterday with a magical jawboned rally on an equally magical sunny day in New England (all too few of 'em this summer) appears to be very transparent indeed. I am not a perma-bear and in fact look forward to the day I can buy into America again, but you can't tell me that the jawbones and dike pluggers have this under control. A huge orgy in misplaced credit and leverage cannot simply be wished away by a few wonks clicking their heels and visualizing Kansas.

Gold-Oil

A fundamental cost driver goes down hard and so do the PM miners. It does not make sense but this is exactly why I did some selling yesterday. But that does not mean this condition will not be remedied over time. Today, using the USO-GLD proxy for the GOR we see gold holding support vs. oil and turning back up.

New dance craze: Doin' the Buffett Gap!

Some well coordinated hilarity...

Good times courtesy of Jimmy... err, Warren Buffett. There's some talk about a Lehman buyout... and then there is this guy trying to sell you a cart with no horse. Honestly, this poor man is trying to hold his finger in a dike while hoping for the thing that could drown him and the rest of us - a contraction that could cascade untold amounts of debt and derived casino games upon us all so that inflation can 'moderate' so that he can, you got it, inflate to beat the band. We are truly a late stage, hubris addled and very silly economic entity.

JACKSON HOLE, Wyoming (Reuters) - Federal Reserve Chairman Ben Bernanke on Friday said the stronger dollar and lower oil prices, along with the weak economy, should curb inflation, in a hint that interest rates would stay on hold, though he warned the inflation outlook is "highly uncertain."

Bernanke called a recent decline in commodity prices and stabilization of the U.S. dollar "encouraging."

"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next," he told a Kansas City Federal Reserve Bank symposium in Jackson Hole, Wyoming.

Buffett does not suffer from E.D.

A few not terrible words from the oracle and stocks erect an insta-rally. Pom poms all around! I hear Jimmy Buffett likes stocks too. Maybe that'll be worth an extra 100 points. Meanwhile, here is a slight revision to the Dow 60 minute chart. I do not give this mess much beyond the next few days or at best very few weeks.

STOCKS ATTRACTIVE - Reuters

Buffett said U.S. stocks are broadly "more attractive" than they were a year ago, adding that Berkshire has no currency bets against the U.S. dollar.

HUI - Weekly

I am going to dump some of the stuff I bought into the puke fest and thus overweighted myself with. Gold and silver stocks and the metals themselves are dutifully trading in tandem with oil - as feared and expected. I believe the USD impulsively signaled its intentions for a fun filled Autumn and I believe oil has had a top of some significance. I also believe we will not just sail through Deflation Scare '08 without some real pain.

You can see by the weekly chart what the parameters are. Since I was buying the barfage I will damn sure take profits on those positions and until we wash out the commodity bulls from the precious metals, I will not again be over-exposed. You do as you please and as you think is right and good luck.

PS: If the above is curt or quick here's a rejoinder; this is enjoyable, yes. But my personal fundamental outlook is muddied and I have already given the oil, base metal (GYX huge topping pattern on weekly chart) and general commodity correlation too much rope. As Steve Saville noted, the gold stocks can certainly rally in the 2nd phase of rising USD. But the commodity correlation is a tell to the contrary on that until proven otherwise. Regardless, I plan to hold the core stuff, but I am no huge gold bug until we clear out more of the 'inflationistas'.

Edit (11:20) Adding USD chart showing likely pullback levels.

Forex Free Week - What are you wating for?

I just got done reviewing Jim Martens' Euro/USD currency pair end of day analysis as well as some intraday stuff on the Dollar and various currencies. This currency technician's take is really helping me - given that it's EWI you might be surprised to know he is not bullish the Dollar at this time. Again, I recommend the Free Week and joining Club EWI. Give the banner a click if you're interested. EWI is first rate in all regards in my book.

60 Minutes - Dow & Huey

HUI - Current status

Here is Huey illustrated with some near term possibilities. The damage done to the precious metals complex - whether you believe it was at the hands of an evil cabal (really, wouldn't a world full of large speculators overly short the Dollar be more apt?) or just market forces correcting imbalances - was impulsive. So was Uncle Buck's first leg up. This means the damage will take time to repair.

That is why I got ahead of myself last week and pondered that any bottom (if that is indeed what this is) might only be point 'A' of an ABC correction. I am leaning toward this being a bottom of some note, due to the short term bullish divergence of the miners vs. gold (and silver) and the 'in the dumps' sentiment out there, but we want to see the STO get above 20 and that little symmetrical triangle-like object broken to the upside because if they don't, the 260's ultimate low target off the topping formation might come sooner rather than later.

So here are the possible scenarios as I currently see them in order of how they are favored:

1) HUI made a bottom in the 309's and will 'B' up to near the broken neckline around 400.

2) We will soon break to the downside toward target now that ridiculous over sold levels are being worn off ever so slightly.

3) This is THE rally to eventual new highs. Highly doubt it.

Edit (9:22) Adding a more bullish weekly interpretation of an ABC correction. Not my favored view but with the hammering of sentiment recently, it is certainly viable.

Forex Free Week

You hear me reference Robert Prechter quite often. The guy was an early influence and I think deflation scare '08, of which we are currently in phase 1, presents an opportunity for people who haven't done so to become acquainted with Prechter and EWI. With the Dollar expressing itself as it hasn't done since 2005, it is a good idea to review EWI's Free Week Forex Forecasts. In EWI's words...

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Kunstler

James Howard Kunstler, once again saying so much better a lot of the stuff I tried to say over the years: Reality Bites Again

Guts & Glory

No, this is not an inspirational post about gold bugs hanging in there. This is a Boston Globe article on my former scout master, Vee. Yup, I hiked 200 miles through peaks and valleys in Cimarron, NM with this apparent madman when I was 14. Did a few 50 mile summer weekends with him on the Appalachian Trail too. Vee is one of the people, along with my dad who taught me about hard work, dedication and loving what you do.


Guts & Glory

By Derrick Z. Jackson Globe Columnist / August 16, 2008

AS MIDDLE-AGERS at the Beijing Olympics exalt the iron abs of 41-year-old swimmer and mother Dara Torres, the gold medal for guts goes to 81-year-old Vahram "Vee" Sookikian. Three days before the games began, Sookikian jubilantly bore his backpack on spindly legs back into base camp at the Philmont Scout Ranch in Cimarron, N.M., the oldest national high adventure camp of the Boy Scouts.

He finished a 10-night, 60-mile trek in the mountain wilderness with one of the four, 12-person crews from our Boston Minuteman Council. Sookikian's crew included his 50-year-old son Steve and 15-year-old grandson Julian. There are families where three generations can chat on a porch. There are three generations capable of a gentle stroll or a genteel round of golf.

Few are the families in our sedentary nation where three generations share a trail, undulating between 7,000 and 10,000 feet under a withering sun. Few families have an octogenarian who can carry 40 pounds on his back for a week and a half to sleep on the ground under the stars. Vee was sturdy enough to fall off a log bridge into a stream, right himself, wipe himself off and keep hiking, only complaining that he drowned his digital camera.

Few families have a grandson who thinks this was another walk in the park. "He's always been out there with me," said Julian, a sophomore at Waltham High School. "I remember him in my earliest memories, camping out, sleeping in an old station wagon, fishing, hiking around in Vermont. It's a big deal to other people around me. To me it's just normal."

Sookikian, a retired electronics engineer, never stopped walking from the time he joined a troop in Brooklyn, in time to be part of the 90th birthday celebration in 1940 of Dan Beard, a founder of American scouting. By age 16, as World War II sapped the adults from the troop, Sookikian played scoutmaster, leading younger Scouts onto subways and buses in full backpacks to woodland camps out of New York City.

"My dad walked everyday in his life and lived to 86. I never knew him to be sick until just before he died," said Vee, whose Armenian parents escaped genocide in Turkey. "When I started, I never thought I'd make a good Scout or hiker. I never made Eagle (Scouting's highest rank) because I could not do a standing broad jump . . . My family being Depression-poor, we had no equipment, no mess kits, not much food, slept in blankets pinned together, and wore city shoes with leather soles with no grip."

He stayed in shape over the decades by starting a troop in Watertown and completing a Philmont trek at age 45 with Steve. Vee section-hiked the 2,175-mile Appalachian Trail until he finished it at age 64. At age 74, he hiked Philmont again with two other grandsons. He vowed to do it with Julian as well. On the last day, even Julian as amazed. "We gave him a big head start but we'd always thought we'd catch him," Julian said. "But we were huffing and puffing and when we got to where he was, he was sunning himself with our sister crew from Texas. On his good days, he was a speed demon."

Sookikian said the one time he was scared was also on the last day, when a storm of lightning, hail, and 40-mile-an-hour gusts hit the crew atop an exposed, 9,000-foot peak. "I was slipping and falling several times," Sookikian said. "My knees were starting to fail. I was mad at myself because I thought I might create an emergency."

The storm subsided, allowing the jubilant victory steps down to base camp. Philmont has no record of the oldest person to finish a trek. Sookikian needs no record or gold medal to know how rare he is. "I knew so many people who, when they turned 65, all they could talk about was sitting in a lounge chair and smoking a pipe," a glowing Sookikian said. "To me, that was like preparing to die. I hope to do this until the day I die."

Royal Gold & the RGLD/HUI Ratio

Here are the weekly charts of Royal Gold and the RGLD-HUI ratio. Don't ask me what it is about an economic contraction environment that makes a gold royalty company outperform actual gold miners, but it happened during the last contraction and it appears to be happening again. Remembering back to the 2002 time frame, I recall RGLD garnering a lot of attention and some well coordinated smear (short) campaigns in the major financial media. Yet the stock continued to say 'screw you' and powered higher, a strong leader in the sector. Well, it is happening again on a relative basis, which if recent history repeats could translate to a big move for the entire sector. Me like.

A bunch of Pertinent weekly charts

Tomorrow morning I am going to put up another weekly chart that really gives me heart.

Gold-Silver Ratio

Messy macro chart comin' at ya. It is not trying to deliver any kind of message in particular but it is trying to offer a glimpse into some different phases in recent financial history and the attendant correlations and lack thereof.

You know I was uncomfortable during the 'inflation boom' years with the gold miners' close correlation to their cost inputs like oil, base metals and human resources. You also may know I had a bearish potential for gold (chart below) back in March on the old COW as I was well spooked by the pervasive bullishness in the sector. But it was just potential and I failed to account for the degree to which the outlandish commodity complex bullishness would hurt my stance.

So be it. We look forward while always learning from the past. And looking forward, I see things coming back into line and as I have always said, fear rides shotgun in this sector. Bad stuff - including high profile newsletters going bearish on technical breakdowns - often prove bullish in the end as the herd follows the negativity right out the door. But I am committed to the idea of a stable anchor amid global funny munny and I am looking for a strong rally in the companies that mine or collect royalty on that anchor as the fear inevitably turns to greed one day. This even as the deflation scare that has been anticipated for years now kicks off phase 1.

The coming rally may or may not be sold depending upon what I see fundamentally. The chart below shows a perfectly viable decline to 700-750 in gold that will not kill the bull. It will simply kill the remaining holders who do not know what or why they hold.

Trend & Value Report

On a tip from my friend Otto (Link just to the right over there --->) I checked out this gentleman's blog and before I finished skimming the first page I knew this was quality, no b/s market commentary. So I am wholeheartedly recommending Lucas' blog, the Trend & Value Report. We don't want to hear what we want to hear, we want to be right. Right?

CoT report, etc.

CoT Gold, Silver & USD report compliments of GoldSeek.

Anybody surprised the specs are dumping out? Unfortunately just as the CoT is not a timing tool for tops it's not going to call bottoms either. But it's heading in the right direction and I'm sure it has improved since this data was made available.

What was interesting about today however was the new lows in the metals (I bought some SLV while sucking my thumb in a fetal position) and the conspicuous absence of same in the miners. It's a start I guess. In the accounts slated for risk I still await potential lower prices with a last chunk of cash that I'd prefer not to use. In the account designated as low risk I hold a few investments along the lines of RGLD, UNG and SLW (latter 2 added this week) and around 75% cash in the form of t-bill and short term treasury funds and I don't see that changing in a rising Uncle Buck (vs. competitive paper) intermediate scenario. Despite the differences in philosophy, I still have some Prechter in me. ;-)

Have a good weekend.

Man, deflation scares get their name for a reason...

This from a guy I like and respect, Kevin Depew of Minyanville:

Panic Selling in Gold: What's Next?

As for gold, I would like to be more positive on the metal itself, but I believe this selling is related to a buildup of longer-term deflationary pressures in the credit markets that will dwarf the inflationary mask of (formerly surging) food and energy costs.

When debt and leverage are this excessive, cyclical inflation simply accelerates the deflationary outcome and makes the unwind more severe. Watching the Consumer Price Index is like driving over a cliff with your eye on the rear view mirror. Deflationary pressures will cause bids to evaporate and disappear as financial assets that must be sold to repair balance sheets and destroy debt overwhelm the capital available to compete for them.

Few see this coming because the leveraging of debt in our economy simply to get it to work has been so massive, so all-encompassing, that the vast majority of market participants have forgotten what normalcy is.

I most certainly believe gold will eventually be an asset to own in coming years. However, at the onset of deflation, gold will be sold indiscriminately - like all assets - to pay down debt and repair balance sheets.

The initial asset price inflation and central bank reflation efforts that made gold seem attractive during the building of the asset price bubble sow the seeds of the selloff as speculators attracted to the metal simply as a detached, non-fundamental momentum play will need to unwind their leveraged bets. Weak holders will be shaken out and ultimately replaced by those seeking a store of value. That is why the selloff won't make sense on a fundamental basis.

I show on the metal itself DeMark exhaustion sell signals on the long-term quarterly and monthly charts. But, the only people that should really be concerned about whether gold is going up or down right now - other than in the macro sense - are those very people who will likely need to sell and therefore be resonsible for it overshooting on the downside. I expect in the next few years for gold to retrace part of its long-term move, perhaps coming below 600 and, in the worst case, possibly even coming below 500. A 50% retracement of this major bull move would be about 458. But that doesn't change the long-term, secular bull market for gold.

...and this from Bloomberg (while we're at it):

Gold Heads for Biggest Weekly Drop in 25 Years as Dollar Gains

By Pham-Duy Nguyen

Aug. 15 (Bloomberg) -- Gold fell, heading for the biggest weekly slide in more than 25 years, as the dollar surged against the euro, reducing the appeal of the precious metal as an alternative investment. Silver dropped as much as 14 percent.

The dollar headed for a fifth straight weekly gain against the euro as economies in Europe slow. Gold generally moves in tandem with the euro as an alternative to the dollar. The metal plunged into a bear market this week, declining as much as 25 percent from a record $1,033.90 an ounce reached on March 17.

``There's just a lot of long liquidation,'' said Joel Crane, a metals strategist at Deutsche Bank AG in New York. ``Commodities are priced in U.S. dollars. There's no getting around that.''

Gold futures for December delivery fell $22.70, or 2.8 percent, to $791.80 an ounce at 12:43 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark an 8.5 percent drop for the week, the most since Feb. 25, 1983.

Earlier, the price touched $777.70, the lowest for a most- active contract since Nov. 20. Gold has fallen every day this month except for a 2.1 percent gain on Aug. 13.

Silver futures for December delivery fell $1.37, or 9.5 percent, to $12.99 an ounce on the Comex, after earlier reaching $12.305, the lowest since September. Before today, silver sank 3.8 percent this year while gold lost 2.8 percent.

The dollar touched the highest against the euro in almost six months and climbed to an eight-month high versus the yen. Investors sold commodities and bought U.S.-denominated assets on speculation the slowdown that began in the U.S. will spread to other countries, analysts said.

Economic Slowing

``People are not clamoring to the dollar because our economy is strong,'' said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``We've already started slowing and it's going to catch up in other countries.''

A housing slump and a credit crisis that threatened to push the U.S. economy into a recession spurred the Federal Reserve to cut the benchmark interest rate 3.25 percentage points between September and April. The federal funds rate is now at 2 percent.

While the U.S. cut rates, the European Central Bank held their main rate steady at 4 percent from June 2007 to July 2008 to fight inflation as commodities such as oil, corn and gold soared to records. After raising the rate by 25 basis points to 4.25 percent in July, policy makers kept the rate unchanged at their August meeting.

The euro traded as low as $1.4663 today. It reached a record $1.6038 on July 15.

``We are saying this is euro weakness, not dollar strength,'' said Crane of Deutsche Bank. ``We're not convinced that the U.S. dollar can stage a meaningful rebound. At these levels, a lot of these commodities are looking attractive.''

Silver Falls

Silver, which has wider industrial applications than gold, has fallen 27 percent this month as commodities plunged on concern a global slowdown may cut demand for raw materials. Crude oil traded as low as $111.34 a barrel today, down 24 percent from the July record.

``It's just stops cascading into stops,'' said Frank McGhee, a head dealer at Integrated Brokerage Services LLC in Chicago, said of silver's decline in overnight trading. ``There was no event. This was just throwing in the towel out of exhaustion.''

Bull

You know who they are - they are commodity complex and resource bulls and they are becoming alarmed about the possibility of the end of their bull market in the inflation-fueled 'resource trade'. Rightly so in my opinion as I have been bearish the complex for months now in anticipation of Deflation Scare '08.

So they are selling and selling and selling; anything that is not nailed down and the fact that gold and silver rise and fall with the complex is sending the PM's out to the wood shed. This situation, while anticipated, turns out to have been a bad miscalculation on my part because if I had known the depth of the collective precious metal-commodity tie-in I would certainly have been free of gold and silver mining stocks heading into last week. But the question I ask myself is 'how do you account for other people's mis-perceptions?' and if the fundamental view I go by is correct, that is certainly what this is, incorrect perception.

I am that most sad of things; a technical guy cursed by bias. That is because I was a macro-fundamental guy (due to my real world business experience) before I overlaid the technical on top of it. So while I can be cold hearted about the stock market, commodities and economy, I cannot be when it comes to currency and precious metals - the last store of sanity (in my opinion) and value in the monetary world. So be it. The hedge funds, newsletters and their flocks are now stampeding out the door. The casino has a feel to it that I have not sensed in years; it is starting to quiet down. The din silenced by collective self-reflection on the part of all participants.

I am not happy about recent events but there is nothing I can do about it but wait it out and take advantage (last wad of expendable cash awaiting HUI 265). I have always been something of a loner and while it may take quite a while for this to work itself out, I am getting more comfortable with the big picture now that Uncle Buck (weekly now over bought, joining daily and monthly is threating the down trend line - that ought to really freak out the USD bears/commodity bulls) has finally popped some steroids and slapped the world upside the head. This sets the stage for whatever is next.

Anyway, here are the most pertinent charts to my stance. I am not submitting this stuff to the din of the analysis websites. If you are here reading you have at least recognized value in the thoughts presented and this is a time to tune out the noise, know who YOU are (you are not me and I am not you) and make peace with yourself. 'Come to Jesus' as the saying goes. We soon find out who is right and who is wrong.

Good luck and good fortune to us.







Edit (9:32) Received this email from a reader this morning:

This A.M. from a blogger, Howard Blackstein, whom I follow on Stockcharts:

8/14-11P.M.- A BIG ,BIG THANK YOU TO LEEANN FOR EMAILING ME WITH THE
FACT THAT THE U.S. MINT HAS JUST DISCONTINUED THE SALE OF 1 OZ. GOLD
AMERICAN EAGLE BULLION COINS TO DEALERS.( I KNEW SOMETHING WAS ROTTEN IN DENMARK,WHEN A LARGE BULLION DEALER HAS NO KRUGERRANDS FOR
SALE)-INVESTORS ARE BEGINNING TO HOARD GOLD COINS.I DON'T OWN ANY GOLD
COINS,BUT I MIGHT START ACCUMULATING ,NOW-WHY THE [DISCREPANCY] BETWEEN GLD AND GOLD COINS? CASH STRAPPED SPECULATORS (HEDGE FUNDS,QUANT FUNDS,ETC,)ARE BEING FORCED TO UNWIND GLD TRADES AS MARGINS ARE CALLED ON THEIR LOSERS. WE NOW KNOW THAT PHYSICAL DEMAND FOR GOLD IS HIGH.

Me: Hmmm, now why would the U.S. Mint discontinue selling 1 oz. gold
coins if gold is indeed a near-worthless relic?