May Day in Paris

By Scott Silva

Editor,  The Gold Speculator

5-8-12

It’s May Day again in Paris. Over the weekend, French voters elected Socialist Party leader François Hollande who promises to repeal all austerity measures in favor of a robust Keynesian spending program. This development is a setback for EU fiscal stability, and will likely undermine Franco-German cooperation and may spell the end of the Eurozone. What effect will the new socialist regime in France have on us here in the United States? Is socialism the answer to our economic problems? What affect will socialist Europe have on my portfolio?

May 1^st is celebrated traditionally in most socialist, Marxist and communist countries as Labor Day and International Workers' Solidarity Day. It is commonly marked by organized street demonstrations, parades and marches by working people and their labor unions throughout most of the world. In the heyday of the Soviet Union, May Day in Red Square included a parade of the latest military equipment, a feast for cold war intelligence analysts and NATO war planners.  Nowadays, May 1^st is a national holiday in more than 80 countries. It is also celebrated unofficially in many other countries.

The United States has attempted to counter the left-wing May Day tradition. In 1921, following the Russian Revolution of 1917, the Veterans of Foreign Wars and other conservative groups promoted May 1^st as Americanization Day. In 1949, the holiday was renamed Loyalty Day. In 1958, Congress declared May 1^st Loyalty Day a national holiday. Popular recognition of labor-centered May Day has largely died out in the US. No longer do labor union-led crowds gather as thousands did in Times Square every May 1^st during the Great Depression.  Last week, fewer than 100 Occupy Wall Street protesters showed up at Bryant Park in midtown Manhattan as part of the planned nationwide Occupy General Strike.

It’s no wonder that May Day and its modern day Occupy movement has failed to take hold in the United States. Collectivism has failed everywhere it has been tried. Communism failed in the Soviet Union. It failed in Cuba. It failed in South and Central America. It failed in communist China and North Korea. And the welfare state is failing today in Greece, Spain, and France.

Collectivism may show early signs of success. But economic prosperity in the collective state is fleeting and deceptive.  Sooner or later the fundamental flaws of central planning reveal themselves. Price control, production control and “fairness” give way to corruption, graft and shortages. The central planners create the illusion of success built on a body of lies. The hint of prosperity for all provided by a benevolent government hand gives intervention its pernicious, seductive appeal. In the long run, collectivism in all its forms has always proven to be the path to tyranny and misery.

As Margaret Thatcher observed “"The problem with socialism is that eventually you run out of other people's money [to spend]." Apparently, citizens of France and Greece have yet to learn this lesson. In elections over the weekend, voter backlash to strict austerity regimes in the debt-ridden Eurozone countries toppled conservative French president Nicolas Sarkozy in favor of anti-austerity Socialist Party candidate François Hollande, and fascist anti-austerity factions defeated the centrist coalition Greek government which had negotiated the EU/IMF bailout based on massive budget cuts. The radical reversal presents a new existential threat to Eurozone and to the Euro as a currency.

Socialism does not work because it is inconsistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. The welfare state seeks to replace incentives with “entitlements”. The government that delivers “free” goods and services expects to gain voter loyalty and remain in power. We can see the flood tide of welfare state entitlements swirling in to swamp federal budgets and submerge the nation into unprecedented debt. Any thinking person knows that 100% debt/GDP is unsustainable. The demise of Eurozone economies under the weight of crushing national debt and an aging, dependent population should provides a clear, real-time example.

But Washington central planners are blind to the failure of the European welfare state. The current Washington regime clings to the notion that the Federal government has the solution to every problem. Government intervention is the answer to any ailment. The snake oil comes in many flavors: “Free” healthcare for all;  Social Security retirement benefits for all and forever; affordable mortgages through federally mandated load modifications; low cost, subsidized college loans for all, with no repayment after 10 years!” And on and on.  It doesn’t matter that budget cannot support current federal spending. And it matters not that we must borrow 40 cents of every Dollar the federal government spends. Will foreigners buy US debt when the US debt reaches 120% of GDP?  Or 150%? Will anyone buy US debt when entitlements consume 100% of federal revenue?

Well, to be fair, socialism would work if central planners could anticipate demand and control production and distribution perfectly. We need only look at the Chevy Volt to conclude that government has great difficulty in judging demand for even one product, never mind the millions of products and services that make up the US economy. The genius of capitalism is that it accounts for demand, price, production and distribution of every product and service through the “hidden hand” of the free market and the incentives that accrue on through private property.

Free markets operate most efficiently when government intervention is minimal, or as Thoreau wrote in 1849 in his Civil Disobedience, “That government is governs best which governs least”.

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter. Capitalism works because it is aligned with the principles of human behavior. Adam Smith recognized the driving force of economics to be self interest. Individuals act in their own self interest, and respond to incentives of the marketplace. Capitalism is the best hope for the individual liberty and prosperity.

How can we tell that the current path towards the all-encompassing welfare state is failing? We can ask ourselves a simple question:  “Are we better off today than we were four years ago?”

There answers are clear and stark. Real wages are lower than they were four years ago. Prices are higher than they were four years ago.  Gasoline prices have more than doubled. Bread, eggs and coffee prices are higher. Mortgage rates are down, but 22.8% of all US mortgages are underwater. Unemployment remains at Great Depression levels- 14.2% including those unemployed, underemployed or no longer looking for work. Taxes are high and will be higher yet if the Bush tax cuts expire at the end of the year and new taxes kick in to support national socialized medicine. Education costs continue to rise by 7% or more each year.

May Day in Paris (and Greece) marks a return to socialist and fascist economic policy. Similarly, current White House economic policy is based on principles put forth by John Maynard Keynes and Karl Marx, namely, the font of prosperity is government redistribution of wealth and government intervention is virtuous.

So what can investors expect from the socialist revival in France and return to fascism in Greece? We are seeing the dynamic play out in the markets today. Stocks are selling off for the second day in a row. The Euro is trading down below the $1.30 mark, and funds are flowing into US Treasurys. The stronger Dollar is pushing commodity prices down; oil is trading below $100/bbl and gold is testing the $1600/oz support level.

Gold bugs see strong support at the $1600/0z level, the price that typically brings in the bargain hunters. The reason for this is longer term prospects for gold are bullish. New government spending sprees in the Eurozone will further debase fiat currencies which is bullish for sound money. The US economy continues to struggle; White House economic policy and US monetary policy have failed to stimulate robust economic recovery. Additional poor economic data will tempt the Federal Reserve to enter into a third phase of Keynesian Quantitative Easing later this year, which will weaken the Dollar and push gold prices up.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec   Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

Gold Stocks Ready to Rise?

By Scott Silva

Editor,  The Gold Speculator

4-10-12

Some are calling the bottom for gold mining stocks. One popular measure for the gold miners is the NYSE Arca Gold BUGS Index, trading on AMEX under the symbol HUI. The HUI Index was developed with a base value of 200.00 as of March 15, 1996. The AMEX Gold BUGS Index currently consists of 15 of the largest and most widely held public gold production companies. Other gold miner indices include the Philadelphia Gold and Silver Index (symbol XAU) comprised of sixteen precious metal mining companies. The HUI and the XAU each contain several of the same mining companies, so the indices tend to move together. The HUI and the XAU are the two most watched gold indices on the market.  Let’s look at the HUI from a technical standpoint to see if the gold mining stocks have bottomed.

Some analysts rely on crosses of the 50-day and 200-day moving averages as indicators of a trend reversals. We can see the bearish cross back in early December on the daily basis chart and the subsequent bearish price action in the HUI then and later in March. The daily chart gives no sign of change to the bearish trend. According to this indicator, the HUI looks to be headed lower yet.

The monthly basis chart is not so bearish. In fact, according to the 50-day and 200-day cross, the HUI has been in bull trend since November 2009. The March 2012 decline seems to have halted 440, precisely at the 200-day moving average support level. A break below 440 on the weekly chart would be significant, indicating a further decline to the 375 support level. So, the daily chart and the weekly chart yield conflicting views of likely future price action for HUI.

This is not uncommon for the 50-day and 200-day moving average indicators, which is why many

traders use Ichimoku Kinko Hyo technical indicators to guide their trading decisions. As you have read in these pages before, Ichimoku analysis gives the trader a more accurate view of trends and momentum of any traded security than other technical trading tools. We use Ichimoku indicators combined with other technical tools to make trading recommendations for the Model Conservative Portfolio in The Gold Speculator investment newsletter. So what does Ichimoku tell us about the HUI?

We can see from the “one look, equilibrium chart” above, all Ichimoku indicators for HUI on the daily basis are bearish. The index has been driven down to support levels four times this year, with the most recent decline in March and April.

The Ichimoku indicators for the HUI are bearish on the daily basis chart above and bearish also on the weekly chart. Price action is below the cloud, which is bearish. The projected cloud is bearish. The Tenkan Sen made a bearish crossover of the Kijun Sen March 3rd. And the Chikou Span is below price action and below the cloud which is bearish. The separate MACD oscillator made a bearish crossover on April 4^th.

For the conservative investor, selecting specific gold stocks has been more effective than buying the index this year. Shorting the index, on the other hand, has proved effective for the more aggressive speculator. Bottom feeder speculators may see an opportunity at current price levels, but the technical trend is bearish, and there is no technical sign of a reversal in the established bearish trend for this broad gold stock index.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec   Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

www.thegoldspeculatorllc.com

editor@thegoldspeculatorllc.com

None so Blind

By Scott Silva

Editor,  The Gold Speculator

4-3-12

It seems the administration can never see the realities that stifle economic growth-- the hard realities right before their eyes that most of us see and must deal with every day. The terrible trio at the controls of the US economic engine is driving us not into a ditch, but over a cliff. The Fed Chairman is flooding the economy with too much liquidity. The Treasury Secretary believes the best way to recovery is through more government spending, taxing the rich and forcing broader redistribution of the nation’s wealth. The president’s vision for prosperity is government control of production and economic equality. Our elected leaders pander and deceive in full-time re-election campaign mode, with Newspeak and misdirection to mask the realities of high unemployment, high consumer prices, falling wages and slow economic growth.

The scorecard for the last three years is clear and bleak. The US credit rating has been downgraded. The Dollar is weak. Unemployment is at Depression-era levels. 46 million Americans are on food stamps, an all-time high. 2.6 million people slipped into poverty last year, bringing the total in America to 46.2 million, a 52-year high. Housing prices continue to fall and the number of foreclosures continues to rise. Commodity prices are high. $4.00/gal gasoline prices are forcing consumers to cut back. Corporations are not hiring, opting instead to hoard $1.7 Trillion in cash that would otherwise go to capital investment, expansion and new hires.

The simple fact is economic policies put forth by Washington today have never created wealth or prosperity anywhere or any time in history. No one has ever become wealthy by taxing the rich. Socialist redistribution has always failed. And the majority of hard-working citizens know just how out-of-touch the Washington ruling class is.

In the 1700’s, the Age of Enlightenment, the field of economics was known as the “Political Economy”. Political Economy originally referred to the study of production and commerce and their relation to law, custom, and government. It also referred to the distribution of national income and wealth through the political budget process. Political economy is rooted in moral philosophy, the ethics of right and wrong behavior. Since the 1900’s, the study of such relationships adopted some elements of scientific method, and became known as the science of economics. But economics is not a science bound by the laws of physics, which is why most political economic theories such as communism, socialism and fascism largely fail, save one, namely laissez-faire capitalism.

The economic policies of overarching Federal government control, Fed intervention, crony-capitalism, growing entitlement class, and massive wealth redistribution are morally bankrupt and injurious to individual liberty and happiness. All free citizens should resist tyranny and plunder forced on them by out-of-control Federal government. And here is how.

Own True Money.  Gold has been the only true money for over 3,000 years. Buy and own gold as a store of value to protect your wealth against the vagaries of fiat currency.

We have seen the unprecedented debasement of the Dollar by ultra-easy Fed policy and the printing of $3Trillion out of thin air. The growth of the money supply has outstripped growth in output which has caused prices to climb and the purchasing power the Dollar to fall.

           

Deleverage.  Eliminate consumer debt. Invest in hard assets.

            Be Vigilant.  Stay informed on current legislation that may impact your financial wellbeing. Take action to protect your individual liberty and private property against incursions from federal, state and local governments.

            Be Prepared. Make preparations to protect yourself, your family and your property for an environment Without the Rule of Law. Read Atlas Shrugged by Ayn Rand.

            Vote. Vote for pro-growth candidates who respect and will defend the Constitution.

The difference between ultra-progressive economic policies and pro-growth economic policies are clear in our history. Plymouth colony nearly perished under its first government, which was based on the communist principles of central planning, labor classes and government owned property. The fledgling colony only survived by later recognizing that its members tended to work harder to generate healthy crops and individual wealth by cultivating their own private land, rather than working the “common land for the common good.”  In the 1930’s the “common good” became the rationale for massive government intervention in the labor markets, in which the federal government taxes the labor of young workers to support retirement “entitlements” for the elderly. But demographics have changed such that Social Security will be bankrupt in ten years without massive reform. Perhaps the best comparison between progressive vs. pro-growth policies is a look at the Reagan years and today’s administration.

As did Reagan, Obama came into office during recession. In the current recovery, real GDP has averaged 3%.  Employment as defined by nonfarm payrolls and reported by the BLS has edged down from 10.2% in early 2010 to 8.3% in March.  Actual unemployment today (BLS U-6 measure) is 14.9%, up from 14.1% when Obama took office. During Reagan's recovery real GDP averaged 7.7 percent annually while nonfarm payrolls rose by 5.3 million.  Reagan reduced inflation from 12.2% when he took his first oath of office as president to 4.4% in his last year of office. Today, inflation is negligible at 2.1%, according to the Fed, yet everyday citizens pay much more to live this year than last year, and the years before that.

Why are there such major differences in US economic performance under Obama and Reagan?  Reagan saw free market, private-sector enterprise as the road to prosperity.  Obama has chosen massive expansion of the federal government as the way forward.

Obama's first act was an $835 billion government-spending package.  One of Reagan's first decisions was to cut $50 billion (($100 billion in today’s dollars) from domestic spending.  Obama focused priorities on nationalized health-care, energy cap-and-tax-and-trade, and pro-union card check. Reagan focused on free market measures; he ended wage and price controls, deregulated all energy prices and fired the striking federal union air-traffic controllers.

Reaganomics spurred growth through limited government, a strong dollar and lower taxes. Reagan slashed marginal tax rates from 70 percent to 28 percent. Reagan’s lower tax rate policy (attributed to the Arthur Laffer) actually raised tax revenues from $300 billion to $450 billion.

The current administration seeks to raise tax revenue, particularly for the nation’s highest earners. In his fiscal 2013 budget, released earlier this month, the president would allow the Bush tax cuts to expire for income above $200,000 for individuals and $250,000 for couples and charge a new 3.8 % tax on net investment income above those levels.

Under Reagan, overall federal spending dropped from 23 percent of GDP to 21 percent. Obama has grown the size of government to 25 percent of GDP.

Reagan ran a budget deficit of about 3 percent of GDP, the same percentage left by Carter. Obama’s 2011 budget deficit was $1.6 Trillion or 11% of GDP.

Reagan believed in sound money and a reliable currency. It was Reagan’s pro-growth tax cuts and counter-inflationary monetary policy that ultimately reversed the 15-year decline in the US Dollar.  Since 2009, the Fed and central banks have flooded the world with more and more paper money. More dollars, Euros, Yuan and Yen have steadily pushed up commodity prices at the expense of currency values. The US Dollar, for instance, has fallen 17% since February 2009, when the $838 Billon American Recovery and Reinvestment Act of 2009 was passed.

 GDP priced in gold gives us further insight. We can see the upswing in gold-priced GDP in the post WWII boom, the decline in the Carter years, the resurgence under Reagan, Bush ‘41, Clinton and Bush ‘43, and the fall under Obama.

Overall, Reagan's free-market, pro-growth policies created 21 million new jobs as real GDP averaged 3.5 percent annually for seven of his eight years in office. The unemployment rate dropped by over 50%.  The stock market doubled, and household net worth expanded by $8 trillion.

The Obama administration believes that increasing the size and scope of government is the path to prosperity.  In 2009, rather than allow large banks, insurance companies, mortgage companies and Detroit automakers to fail due to market pressures, Obama nationalized them using taxpayer dollars to bail them out.  That same year, the administration projected its new stimulus package would “create 3 to 4 million jobs.” But most of the funds went to state governments that used the windfall funds to close their own budget gaps. Few permanent jobs were created. The private sector jobless rate actually increased.

So which is the path to prosperity?  Gold and silver prices give the answer. Gold had quintupled during Jimmy Carter’s recession; gold and silver hit new all-time highs under Obama.  Gold prices fell 40% (from $750/oz to $450/oz) under Reagan’s 8-year presidency.

The price of gold has nothing to do with political ideology or government reports on the status of the economy. The gold market sifts through the myriad of economic data, investor sentiment and global events to measure reality with crystal clarity. Gold is trading at all-time highs, in direct contradiction to reports of sustained growth in the world’s largest economy. It just might be that massive deficit spending and easy money policies have little or no stimulative effect on the economy and that government spending does not create jobs in the private sector. Because the government must tax or borrow in order to spend, it takes money from citizens and businesses that otherwise would go to consumption, savings or investment to produce more wealth.

Likewise, the gold market shows government reports of low inflation and growing employment to be false. We have seen on these pages before that actual US inflation is closer to 10% than the reported 2.1%, and the actual US unemployment rate today is 14%, a rate not seen since the 1930’s. 

Re-election campaign politics from the bully pulpit further distort economic realities. The administration cites an increase in US oil production, while it thwarts added production (and new job creation) by rejecting new drilling permits and the XL Pipeline project. The administration cites 2.3 million new jobs were created through its renewable energy initiatives, at the same time that government-backed alternative energy companies Solyndra and Fisker Automotive go bankrupt, and GM suspends Chevy Volt production for lack of demand for the expensive, short range electric car, having wasted billions of taxpayers’ dollars. Last week the Supreme Court took up the constitutionality of the individual mandate and other provisions of the Patient Protection and Affordable Care Act (Obamacare) while earlier last month the CBO reported that the cost of implementing the federally mandated universal healthcare program has nearly doubled to $1.76 Trillion over the next ten years. More distortions in the name of re-election are surely coming our way. As Diogenes, one must lift his lamp and be ever on the search for an honest man. There are none in power in Washington today.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec   Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Fed Liquidity: Good as Gold

By Scott Silva

Editor,  The Gold Speculator

3-20-12

We all have experienced that sinking feeling when in difficult times; we seem to have run out of options. Sometimes our frustration gets the better of us as we lash out at anyone or anything however innocent. But kicking the dog is no solution to our problems.

Chairman Bernanke is acting beyond reason lately. He has realized what others have known for some time--his monetary stimulus has failed to jump start the economy. The Fed is now grabbing at straws, hoping that “increased visibility” into Fed forecasts, and “closer communication” with the public will somehow reverse the ebbing economic tide. The Fed chief seems at ends, ready to point the blaming finger at unsustainable fiscal spending and Congressional gridlock, and phantom “headwinds” as the culprits for the stalled economy.

But increased visibility into Fed forecast models is not helping. New economic data is inconsistent and contradictory. Much of it is biased by re-election campaign politics which mask actual data with much more optimistic numbers. Actual US unemployment for February, for instance, was 14.1% (U-6), not the 8.3% that the administration touts. Likewise, the Fed understates inflation, and forecasts optimistic inflation “central tendencies”.

The fact is, Fed monetary policy has been ineffective. Monetary policy cannot fix unchecked deficit spending, massive Federal debt and oppressive federal taxes and regulation. Rather than allow market forces to correct, the Fed is overwhelmed by the urge to take action. The Fed action is limited to maintaining its zero interest rate policy and buying more bonds. So Wall Street hangs on every word. When Bernanke does not mention QE3, as he did in his last public meeting, the markets plummet. When the Wall Street Journal reports the Fed is considering a new “sterilized” bond buying spree, the Dow jumps 200 points. This is no way to build the foundation for sustained economic recovery.

What we can rely on is more of the same from the Fed. As new uneven economic data emerges, the Fed will fall back to a third dollop of Quantitative Easing. Most bank economists have already trimmed GDP estimates for 1Q2012 down to 1.7% from 3.0% last quarter. Higher oil and gasoline prices are already slowing economic activity. Last week, consumer confidence fell below expectations. Friday, Chicago Fed president Charles Evans called for the Fed to take additional action now to “accelerate the pace of recovery”.

The EU is fully aboard the QE bandwagon. It will add another €1Trillion to combat the debt crisis. China is also easing. Election-year politics are likely to muddle things further. The president needs to show some improvement in the economy to be re-elected. So far his record has been dismal on that count. So his economic team will be pushing the Fed to buy more bonds. What this means for investors is more volatility and more QE is on the way.

QE, the Dollar and Gold

We have seen the effect QE has had on the value of the Dollar and the price of gold. QE weakens the Dollar and boosts gold prices. This is because adding to the money supply debases the currency which reduces its purchasing power. When the Dollar is weak, it takes more Dollars to buy an ounce of gold, so the price of gold in Dollars rises. That is why people over the centuries have stored their wealth in gold.

One of the primary stimulus measures implemented by the Federal Reserve over the last three years has been the injection of cash into the economy by giving money to the banks. The scale of the cash injection is unprecedented– officially, the Fed has pumped over $2.3 Trillion into the banks. The Fed also pumped more than $16 Trillion into banks in secret loans recently uncovered by Congressional audit. In 2009, the US economy was in a deep recession, with the potential, it was thought, to slip into the Second Great Depression. The Fed and many demand-side economists believed that adding liquidity during a period of deflationary recession would have a stimulative effect on the economy. With more credit from the Fed, banks would lend more, making more money available to consumers to spend and businesses to expand to meet the increased demand. Recession would then give way to broad economic expansion and prosperity, with low unemployment, rising wages and strong GDP growth.

The idea that increasing the money stock increases aggregate demand has been around for decades. In 1936, John Maynard Keynes first presented the idea in The General Theory of Employment, Interest and Money.  Keynes believed that government is more effective than the private sector at stabilizing the business cycle.  In his model, control is applied by central bank monetary policy and government fiscal policy. Keynesian theory served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion. Japan implemented Keynesian policies in the 1990’s; the “Lost Decade” resulted. Since the financial crisis of 2007, the US, the UK and much of the EU have relied on Keynesian stimulus programs as the basis of their recovery efforts.

Quantitative Easing (QE) has weakened the currency in every case. We can see the effect QE on the Dollar.

We have seen the effects of Fed monetary policy on the US Dollar. The Dollar buys 17% less today than it did in 2009 when the Fed increased its balance sheet with bonds paid for by printing money.  The new “sterilized” bond-buying of QE3 will further debase the Dollar, shrinking its purchasing power for all who use the currency.

Many see similarities to the 1970’s in the today’s economic conditions. The US economy was failing during the Carter years. The 1970’s were characterized by “stagflation”, that debilitating mix of high inflation and slow growth. Double digit inflation, single digit growth and lack of leadership forced Carter out after a single term as president. 

Today oil prices are high, prices for food and other necessities are high, unemployment is high and the economy is limping along, barely growing. The misery index, coined in the 1970’s, has returned as a measure of popular dissatisfaction with the nation’s economic policies.

Chairman Bernanke’s Fed policies are similar to Fed policies in the 1970’s. In both periods, the Fed responded to recession by expanding the money supply, although the scale of monetary expansion in the recent case is unprecedented. Under Fed Chairman Burns, monthly money growth, which had averaged 3.2 percent in the first quarter of 1971, jumped to 11 percent in the same period of 1972. The money supply grew 25 percent faster in 1972 compared to 1971. Money supply growth under Chairman Bernanke has been nothing short of remarkable.

Debasement of the Dollar has made many eager to shift out of Dollar denominated assets into hard, commoditized assets precisely because dollars are losing value. We have seen this trend in history. Gold prices tripled in 1980-1981; gold has double in price since 2009. Prior Fed QE policy has boosted the price of gold, and QE3 at $1Trillion will likely push gold above $2000/oz.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec  Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Stealthy QE3

By Scott Silva

Editor,  The Gold Speculator   Follow @TheGoldSpec
www.thegoldspeculatorllc.com

3-7-12

Today, there are new reports that the Federal Reserve is planning to inject more cash into the ailing economy though another round of Quantitative Easing (QE3). You have read in these pages before that More QE is on the Way (1-23-12, The Gold Speculator).  The new bond-buying program would be “sterilized” by coincident selling of short-term instruments in an effort to control increased inflation that would result from the addition of another $1 Trillion or so to the money supply. This approach is not new; the ECB has used large, “sterilized” bond purchases over the last year in its attempt to stimulate the Eurozone economy and provide bailout funds to ailing European banks.

The Fed bond-buying program would be the third attempt to jumpstart the US economy through aggressive monetary policy. The previous cash injections added $2.3 Trillion to the Fed’s balance sheet. The results of Fed stimulus efforts have been underwhelming. US unemployment has actually increased since QE1 was implemented in 2009 and the larger QE2 in 2010.  Today, the US Labor Department, Bureau of Labor Statistics reports US unemployment at 15.1% (U-6), up from 14.1% in January 2009. And GDP continues to limp along at 1% to 3% since QE2 went into effect.

Milton Friedman instructs us that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” (The Counter-Revolution in Monetary Theory, 1970). The Fed policy of extended accommodation has increased the money supply (M2 measure) to $9.8 Trillion. M2 includes demand deposits (M1) plus small time deposits, money market funds and the like. M2 is considered money available to the transactional economy. These levels are unprecedented, and we can see supply has increased almost $1 Trillion in the last twelve months.

The Fed reports inflation is modest at 2.0%. But as anyone who buys food or fuel knows, prices for everyday goods have increased by multiples since the Fed first implemented Quantitative Easing.  The problem is the growth of the money supply greatly outstrips the growth in output, the sum of all production of goods and services. When more money chases the same amount of goods, prices rise.

We can see the rise in prices in the rise in the CRB commodity index. Higher commodity prices, particularly oil-based energy products, dampen economic activity, and slow economic growth. This is another example of Bastiat’s “unseen” effects. The Fed’s policy, in fact all government intervention, is counterproductive to true economic growth. So as more and more poor economic data emerges, it is no wonder that the Fed is now preparing to revert once again to the only tool in its “stimulus” tool bag:  additional Quantitative Easing (QE3).

With every new Dollar the Fed prints, the value of each Dollar in your wallet declines. And the price of any commodity priced in Dollars increases. We can see that dynamic play out in the CRB index, and in particular, the price of oil. Certainly there is a “war” premium priced into oil, as Iran threatens to close the Strait of Hormuz. But the more fundamental reason for high oil prices over the last few years has been the decline of the Dollar. After all, the Iranian threat to oil transportation in the Persian Gulf has only recently resurfaced.

But some say that the US does not rely on imports of Iranian oil. Well, we do feel the effect of the Iranian war premium. Oil is traded in the global market, and oil is fungible. That is, a barrel of oil from Saudi Arabia can be substituted for barrel of similar quality oil from Iran or Venezuela at the same market price. Because the US is a net importer of oil, we pay the global price. Unfortunately we are likely to be a net importer for some decades yet.

           

We can see the inverse relationship of oil (WTI) to the value of the Dollar in the chart below.

WTI has jumped from $95 bbl to over $110 bbl as the Dollar dipped from 82 to 78. Gasoline prices have jumped in turn, to over $4.00/ gal in some states. Higher energy and transportation costs eventually find their way into the prices of most consumer products, acting as a tax on the consumer. This causes many consumers to pull in their horns and puts a damper on consumer demand which slows economic activity. Higher oil and gasoline prices are additional examples of the unintended consequences of the Fed’s ultra-accommodative monetary policy.

Stealthy QE3 would pump up the stock market, particularly bank stocks. But QE3 would also mean higher prices in general. QE3 would further debase the Dollar and reduce purchasing power. QE3 means more inflation. QE3 means there is more reason to guard against inflation and artificially inflated assets. QE3 means higher gold and silver prices. To the prudent investor, QE3 means buy more gold and silver. The way to preserve wealth is to own and hold sound money.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec  Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Following the Trend

By Scott Silva

Editor,  The Gold Speculator

2-28-12

Gold and silver are headed higher propelled by a powerful bull trend. Gold is climbing on its way to new multiyear highs, buoyed by massive government intervention in the capital markets. We will see gold exceed its 2011 highs this year. Silver will also soar to new highs.

What is behind this bullish prediction? Can we pinpoint the cause and effect relationship to the rise in the precious metals? Is now the time to buy gold and silver?

The answers to these questions come with a firm understanding of the dynamics of the business cycle, and the power of market trends. As we know from Mises and Hayek, interest rates have a profound effect on capital investment. Left to the free market, interest rates are determined by the supply of credit (a proxy for the savings rate) and investors’ willingness to risk placing capital in the market (a proxy of the return on capital). And as we know from Adam Smith, because investors act in their own self-interest, capital is allocated in free markets very efficiently. Investors tend to put more capital in “winners” and are quick to cut the losses in “losers”.

But if free markets are so efficient, how can there be downturns in the economy, ranging from recession to depression?  The cause of most economic downturns has been manipulation in the markets, typically by government agencies that seek to “manage” one or more segments of the economy by controlling interest rates, prices or both. Governments use coercion under the color of law to achieve their ends. Government intervention distorts natural interest rates and spoils price discovery, which leads to malinvestment and market bubbles. Downturns and displacement occur when economic bubbles burst.

The Federal Reserve has been one of the chief market manipulators. By setting interest rates and controlling the availability of credit and money, the Fed distorts the natural demand for money and credit, which obscures purposeful capital investment and contaminates prices for labor and commodities, often with disastrous results. When the Fed feeds artificial credit into the economy by lowering interest rates, it spurs investments in projects that eventually fail. The high-tech and dot com and housing manias all were fueled by decades of easy Fed money and credit. In each case these artificially induced booms collapsed with massive loss of wealth and devastation of the general economy.  

The data support the theory of cause and effect. The dot come run up coincided with a money supply run up which began in 1995. The money supply slightly flattened in 1996 and then zoomed up again in 1997, peaking at a 15% increase in January of 1999. The rate of increase began to fall precipitously thereafter, which popped the dot com bubble. The housing bubble, created by easy money and social engineering in the 1990’s popped in 2007, creating the Great Recession. The Fed and the Treasury added an unprecedented $2.3 Trillion to the money supply in 2008-2010 in the name of economic stimulus. The Fed’s MZM money supply measured $907 Billion in 1980 and is reported to be $10.8 Trillion as of this month.  The MZM does not reflect the $16 Trillion in bailout loans the Fed provided to large US banks in 2008-2011.  There is no doubt that judgments of investors and entrepreneurs are distorted by massive injections of money and credit by the Federal Reserve.

So what does easy money and credit from the central bank have to do with the price of gold?  Well, every Dollar the central bank creates out of thin air debases the value of Dollars already in circulation. That is the nature of fiat currency. Because gold is priced in Dollars, it takes more Dollars to buy the same amount of gold with every new weaker paper Dollar printed. We have seen the price of gold climb along with the money supply, accelerating its climb in 2002 coincident with the fall in the Dollar.

We are now seeing technical breakouts in gold and silver. Last week, gold broke out of a bullish head-and-shoulders pattern dating back to November 2011. The price target from this pattern is just over $2000/oz.  Silver followed last week, with a breakout from its own bullish head-and-shoulders pattern indicating a return to its September 2011 highs.

The trend in precious metals is up from here. Now is the time to buy gold, silver and selected gold and silver stocks.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and growing inflation?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the Dow and the S&P 500 by more than 3:1. Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Charting Gold

By Scott Silva

Editor,  The Gold Speculator

2-22-12

The charts are displaying new strength in gold and silver. We will see new highs in gold and silver this year. It’s not too late to buy the precious metals at bargain prices.

Technical analysis is a powerful tool for understanding the market for a traded good. Technical analysis employs time-tested techniques for predicting future price levels. The successful technical trader uses a combination of indicators to support the decision to take a long or short position in a given commodity. The planets are lining up in favor of another leg up in gold and silver. Let’s examine what the charts are telling us about gold today.

First, gold has broken out of a bullish falling wedge chart pattern dating back to September 2011.

The falling wedge pattern can be a continuation or a reversal pattern. It this case, it is a reversal pattern, signaling a reversal of an intermediate bearish trend. The falling wedge is a bullish pattern that begins wide at the top and narrows as prices gradually move lower. This price action forms an extended cone shape that slopes down as the reaction highs and reaction lows converge. The pattern is defined by the down-sloping upper resistance line and the lower, converging base support line.  The bullish breakout occurs when price action closes above the resistance line (upper descending tend line) with confirming volume. The point count for the pattern is calculated by adding the magnitude at the widest span to the price at breakout.

We can see the falling wedge reversal pattern in the daily basis chart for April COMEX gold above. The intermediate bearish trend began in early September 2011. The price at the break above the resistance line was 1674.40.  The point count is 321 which sets the price target at $1995/oz.  The breakout is confirmed by significant volume at the breakout day, January 25^th.

We can see the same breakout in gold using Ichimoku Kinko Hyo indicators.

Here we see spot gold on a daily basis with Ichimoku indicators. The January 25 breakout above resistance on higher volume is highlighted in the oval. Today’s chart shows all Ichimoku indicators are bullish for gold. Price action is above the cloud, which is bullish. The Tenkan Sen made a bullish cross (from below) the Kijun Sen back on January 17^th. The projected cloud is bullish (shaded green).  And the Chikou Span is well above price action and above the cloud, which is a strong bullish signal.

Silver is displaying similar bullish patterns and indicators. So are selected gold and silver stocks.

Now is the time to own gold and silver.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and growing inflation?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the Dow and the S&P 500 by more than 3:1. Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Trading Above the Clouds

By Scott Silva

Editor,  The Gold Speculator

2-14-12

Technical analysis is replete with analytic tools, techniques and systems all designed to provide insight into the future price movement for a traded security. The technician relies on price and volume history to predict future outcomes. Can looking at the past be a reliable guide to divining the future? Can anyone drive a car by looking only at the review mirror? Amazingly, in trading securities, the answer is yes.

This is because the markets for stocks, bonds, commodities and virtually any traded good is driven by human behavior. In the search for profit, buyers and sellers act in their own self interest. The buyer always buys at a discount to his perception of the security’s value. Likewise, the seller always sells when he perceives value is realized, or his capital is better used elsewhere. When a transaction occurs, the buyer and the seller each believe they have struck a bargain at the mutually agreed sum. As Adam Smith instructs us, this is the magic of price in a free market.

So how does price history guide the investor? Well, it turns out that price movements develop distinctive patterns of human behavior in the markets. When a stock or commodity is considered undervalued, the buyers step in, bidding the price up. Likewise, when prospects for the commodity diminish, then sellers rule. It the dynamic pressure between sellers and buyers over time that creates the peaks and valleys we see depicted in the charts. Price history creates repeatable patterns. Understanding chart patterns is the key to predicting future price action.

You have seen in these pages before, I believe one of the best analytic tools for predicting future commodity prices is Ichimoku Kinko Hyo. It provides “equilibrium at a glance”- all we need to know about the state of the traded good as well as its likely future price. Let’s examine gold using Ichimoku Kinko Hyo, to see if we should buy sell or hold gold today.

Here is the Ichimoku chart for spot gold. Most trading platforms and chart services include this indicator set. I use the Thinkorswim trading platform from TD Ameritrade. It provides excellent technical analysis tools and Level II access to stock, option and commodity futures markets in a single, integrated platform.

We can see immediately that gold is in a bullish trend on the daily basis. The Ichimoku Kinko Hyo chart feature that signals the bullish state is price action above the cloud (“moku” in Japanese) represented by the pink and green shaded areas. (Conversely, if price action were below the cloud, the trend would be bearish). The cloud represents support and resistance levels. It is constructed by traces of two leading lines, known as the Senkou Span A, and the Senkou Span B. Together they form the complete view of longer-term support and resistance. One of the kumo's most unique aspects is its ability to provide a more reliable view of support and resistance than that provided by other charting systems. Rather than providing a single level for support and resistance, the kumo expands and contracts with historical price action to give a multi-dimensional view. Also, the kumo projects support and resistance levels into the future.  We can see the cloud is projected into the future, and that in early March, the cloud changes color form pink to green. This reversal is a bullish indicator. Without the cloud predicted cloud reversal, we would not make a long trade today. The projected cloud tells us that resistance level changes to 1710.89 (top of the projected green moku) and support is 1645.50.

The next set of Ichimoku indicators important to our trading decision is the relation of the Tenkan Sen (blue line) to the Kijun Sen (red line). These are trend lines, similar to short-term and longer-term moving averages. A strong buy signal occurs when the Tenkan Sen crosses above the Kijun Sen from below. A strong sell signal occurs when the Tenkan Sen crosses from above. We can see the Tenkan Sen made a bullish cross on January 17^th when gold opened at 1635.80. Together with the price action/kumo bullish indicator, the bullish projected kumo indicator, the bullish cross by the Tenkan Sen remains intact, so we are not prohibited from taking a long position as yet. We are close to deciding, however.

The last an perhaps the most important Ichimoku indicator we need to check is the Chikou Span (green line) in relation to price action and the kumo. The Chikou Span is current price projected back 26 periods. The Chikou Span gauges the strength of the current trend. The bullish trend is strong when the Chikou Span is above price action and above the cloud. The bearish trend is strong when the Chikou Span is below price action and below the cloud. The trend is neutral or week when the Chikou Span touches prices action or is in the cloud. We can see that the Chikou Span is above price action and above the cloud for gold, another bullish signal.

Together, the five Ichimoku indicators show gold to be in a bullish trend. Ichimoku trading rules all indicate it’s safe to enter a long position in gold today, or to hold a long position in a portfolio.

The Ichimoku indicators tell me it’s safe to buy silver at today’s prices as well.

Trading precious metals above the clouds using Ichimoku indicators is an excellent way to increase the value of your portfolio.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

By the Numbers

By Scott Silva

Editor,  The Gold Speculator

2-7-12

We all know that numbers don’t lie. Numbers are objective. There is nothing that numbers do except represent some value. In this sense, mathematics is pure, and therefore reliable and repeatable. Mathematics is one of the foundations of science. Physics is nature expressed in numbers. The world has come to respect numbers. From ancient weights and measurements, to architecture, chemistry, astronomy, agriculture, engineering, trade and commerce, and many other human endeavors, numbers provide universal understanding of every aspect our existence on the planet.

The Federal government, however, has trouble with some numbers. When numbers don’t represent its policy, agenda or campaign strategy, then the administration changes the numbers. They manipulate the numbers. They “smooth” the numbers. They ignore the offensive numbers. They even make up their own numbers. They outright lie about the numbers.

This is the case of the most recent US unemployment numbers.

Friday, the stock market jumped and gold declined on the release of January jobs and unemployment data from the US Labor Department’s Bureau of Labor Statistics (BLS). The government reported that 234,000 new jobs were added in January, bringing down the national unemployment rate to 8.3%.

This would be great news...if it were true. But the BLS is not reporting the actual unemployment rate. If the BLS reported truthfully, the headline unemployment rate would be 11% for January, much worse than the number reported, and certainly not a continuing upward trend. This is an intentional deception, motivated the  

administration's re-election campaign strategy.

 Here’s why the true unemployment rate is grossly understated. The January data does not account for 1.2 million qualified workers who dropped out of the job market last month. This is the largest monthly reduction in the available workforce by the dropout of  “discouraged” workers ever.  The labor participation rate declined to 63.7% in January, down from 65.7% when the president took office. Many qualified workers have simply quit looking for jobs. When the BLS ignores them, the U-3 unemployment rate appears to improve. The broader, U-6 measure of unemployment which includes the discouraged plus underemployed part-time workers is 15.1%.  Quite a difference. 

We have not seen US unemployment at these high rates since the Great Depression.

It is clear from the U-6 numbers that the employment situation is declining, not improving. It’s fair to say that based on the high unemployment rate, the administration’s economic policies have clearly failed. It’s no wonder that the economy continues to lag. US GDP growth is forecast to decline further in 2012. Clearly, the US has not turned the corner in its economic recovery. The BLS uses the “discouraged worker” data in a deceptive way in an attempt to paint a rosy picture of an improving economic recovery. This is not the first deceptive BLS report. The BLS has been understating unemployment since the president was inaugurated. So the BLS reports are fake-a snare and a delusion. The mainstream media picked up on the January bogus report as if it were real; stocks jumped and the president took immediate credit over the airways. What a travesty!

Well, not everyone is fooled by the bogus BLS report. Several knowledgeable sources have spoken out including the editorial staff of the Washington Times, FOX News and Larry Kudlow, to name a few. The Congressional Budget Office also sees things differently than the administration’s spin machine. The non-partisan CBO is forecasting unemployment at 8.3% for 2012 and 9.2% for 2013. That’s not a positive trend.

Bogus BLS unemployment reports affect the markets. They give an artificial boost to stocks, and impact gold and silver prices. Because the truth will eventually emerge, and because there remain fundamental risks in the European debt crisis and increasing threats to stability from Iran and Syria, gold and silver have not collapsed. In fact, the pullbacks in gold and silver present new buying opportunities.

Today, gold is telling us that it is not fooled by the bogus jobs report. Gold is headed up again, continuing its breakout from a bullish falling wedge chart pattern. There are several technical indicators that we see calling for gold to retest the $1900/oz level over the next few months.

The price of gold is one of the numbers we can appreciate.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

Golden Cross

By Scott Silva

Editor,  The Gold Speculator

1-31-12

Technical analysts define the “Golden Cross” as the chart feature that occurs when a security's short-term moving average (such as the 50-day simple moving average) breaks above its long-term moving average (such as the 200-day simple moving average) or resistance level.

Long term indicators carry are considered to have more weight, so crossing the longer-term average by short-term average price line is a significant indicator of a change in momentum.  The Golden Cross indicates a bull trend may be starting and is confirmed by higher trading volume. The long-term moving average becomes the new support level in the rising market after a Golden Cross.

The S&P 500 index is approaching a Golden Cross now. If it happens, some analysts will forecast a new bull market for stocks. And they will have the numbers on their side.

 The S&P 500 has produced 16 “golden crosses” since 1962, 75 percent of which were followed by positive returns in the next six months, with gains averaging 4.4 percent, according to historical studies. There were 26 instances in the past 50 years when the S&P 500’s short-term average crossed above the long-term measure. The data show the index rose 81 percent of the time with an average increase of 6.6 percent in the next six months.

We can also see the Golden Cross in the great bull market for gold.  The last occurrence of the 50/200 crossover can only be seen on the monthly basis chart. It occurred back in 2005. Since then, the price of gold on the spot market has moved up from $348/oz to $1734oz today, a 398% percent increase.

Investors who spotted the start of the great bull market in gold early on have done very well.

But what about now?  Is there more profit to be had in gold and the precious metals going forward?  Can I determine the best time to enter the market?  I say yes, and we can use the Golden Cross concept to pinpoint profitable trading opportunities.

Here’s how. We use technical analysis tools which are based on momentum, the best of which, in my opinion, is Ichimoku Kinko Hyo combined with MACD.  The Ichimoku Kinko Hyo is a well established technical trading system developed by Goichi Hosoda in the 1930’s. Today, it is used by almost every securities trader in Japan, Asia and a growing number in Europe and North America. The indicator can be found on most trading platforms. Ichimoku Kino Hyo translates from Japanese to mean “one glance equilibrium chart”. It gives the analyst, at once, the trend and momentum of the market, and a good forecast of future price action, as if he could see everything at an instant.

The key to Ichimoku Kinko Hyo is crossovers. That is, four of the five components that comprise the system are comprised of short-term and long-term moving averages. Two establish support and resistance levels and are represented by the “cloud”, or moku. Two others (Tenkan Sen and Kijun Sen) establish trend. The fifth component, known as the Chikou Span, is not an average, but measures momentum.

Like the Golden Cross, crossovers by Ichimoku Kinko Hyo indicators signal changes in momentum. But the Ichimoku Kinko Hyo indicators provide much more information than the cross by a short-term simple moving average and a longer-term simple moving average. Ichimoku Kinko Hyo provides valuable trading information. It can tell the speculator when to enter the market with the best chance for profit.

So let’s examine the case for gold using Ichimoku Kinko Hyo and its trading discipline.

A look at the daily spot gold chart with 50/200-day moving average indicators shows no Golden Cross events over the last year.  Also, support and resistance levels are not evident. Price action suggests the long-term trend is bullish, but more recent price action shows some consolidation. There is little information here to support a decision to trade.

Now let’s see what Ichimoku Kinko Hyo says about spot gold.

There is much more information here. To the uninitiated, it may seem confusing. But to the skilled trader, it provides almost everything needed for profitable trading.

Here’s what I see from this single chart. There have been two high probability buy signals and one high probability sell signal over the last four months for spot gold. These correspond to crossovers of the Tenkan Sen (blue line) and the Kijun Sen (red line) moving averages. The trading rule is momentum turns bullish when the Tenkan Sen crosses the Kijun Sen from below.

We can see this buy signal with a bullish crossover on October 26th and another on January 17^th.

Likewise, momentum turns bearish when the Tenkan Sen crosses the Kijun Sen from above. This sell signal occurred on November 29^th.

High probability trading requires confirmation by other indictors. Ichimoku Kinko Hyo provides these by the Chikou Span (green line), and price action in relation to support and resistance levels, displayed by the cloud, or “moku” (shaded areas of the chart). There are trading rules associated with each of the five Ichimoku indicators. Trading volume and the MACD are two separate indicators that support the decision to trade. We can see that crossovers of the MACD tend to lead Ichimoku crossovers. The aggressive trader can act on MACD crossovers for timing trades. The conservative trader will use Ichimoku to trade into the meat of a momentum move.

Using the technical trading tools Ichimoku Kinko Hyo and MACD has produced excellent results in trading gold, silver and other commodities. These are golden crossovers that work.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055