Gold-Backed Currency? Not Any Time Soon, But Be Prepared
Commodities / Gold and Silver 2014 Dec 06, 2014 - 03:34 PM GMTBy: Michael_Noonan
Last year, many in 2013 were calling for the price of gold and silver to double, and more! Then came 2014 and those dashed hopes were pushed back to the second half of 2014. Earlier, in the first half of the year, we said that the second half could likely be more of the same, as in 2013, [See 2014 Could Be A Yawner]. With just a few weeks away from the end of the year, prospects for 2015 can equally be brought into question re PM price appreciation.
Is the petrodollar on the way out? More frequently, the signs say yes. Is a gold-backed currency standard waiting to replace it? Beliefs, at least in the PM community, remain high, but facts to substantiate the beliefs are hard to find. Sure, China and Russia have been and continue to be the largest buyers of physical gold, but is either the Renminbe or the Ruble ready for Prime Time? The short answer is no, and more emphatically for the Ruble. While the Renminbe is becoming more widely viewed as a potential replacement for the "dollar," China has nowhere near the capability of a world reserve currency system and all that it entails.
How, then, can there be a gold-backed currency? Last week, we discussed the likelihood of Special Drawing Rights, [SDRs] and how both China and Russia favor their use! SDRs are a creation of the existing elite banking system, and any such change to them would be a lateral move that will ensure New World Order domination as a fait accompli, and any illusion of change would be a delusion in fact.
Can there be some ray of hope on the horizon for past and current buyers of physical gold and silver? It seems the best chance [cannot say best "opportunity"] lies in chaos, as in more war skirmishes prompted by the United States. Despite ample US alienation of its largest European ally and de facto 51st state, Germany, if Germany refuses to exercise her own sovereign backbone and defend her economy's financial interests, instead of undermining them, [a proven fact] with support of the failed sanctions against Russia, there is no strong support for an alternative to the petrodollar, despite all the bluster against it. The irony cannot be lost that one of Germany's most important trading partners, especially for energy, is Russia. Merkel comes from the same school as Obama when it comes to protecting one's economy.
Along comes Turkey. In what may be yet another advanced chess move by Putin against the checkers player Obama, Putin just dropped the important South Stream project and made a deal to build a gas pipeline through Turkey to Greece. Turkey is Gazprom's second largest customer, after Germany. This then eliminates a gas line transit through Ukraine along with all the attendant problems the US has tried to impose as measures to weaken and destroy, if possible, Russia. Obama does not know Russian history.
What punctuates the importance of this move by Putin is that Turkey is a NATO member. Additionally, located within Turkey is Incirlik Air Base, one of the largest US air bases outside of the continental United States. It even has its own web site. Incirlik is critically important as the US wages its numerous wars in the Middle East, and there is the equally important SIGINT, [Signals Intelligence] station used against, who else: Russia. What has all of this to do with PMs and/or a gold-backed currency? Everything. While all eyes are focused on some kind of gold-backed currency emerging to replace the failing petrodollar and skyrocket gold and silver prices, all should be aware of the current world reserve currency and how all of these war-induced skirmishes are to maintain and protect it. Plus, the moves by China [rapidly expanding Yuan-Swap facilities around the world] and Russia making all kinds of economic growth deals around the world while it appears "burdened" by US-led [read forced] EU sanctions against it, continue to grow.
With the Saudis smashing the price of crude lower, an important source of revenue for Russia, Putin has decided to sell its oil in exchange for gold, at current suppressed prices. He will also accept "dollars" at the dollar's current inflated high price. He then takes the high-priced "dollars" and sells them to buy low-priced gold. Could Obama do any more to help Russia in the US effort to cripple it? For an in-depth explanation, read this superb article by Dmitry Kalinichencko, Grandmaster Putin's Golden Trap.
For as long as events such as these are being played out [so poorly by the US, begging the question, does anyone in the Obama administration have a clue about anything?], the fate of gold and silver remains in the hands of the manipulators, and their sole intent is to keep PMs down to not be considered as competition to the elite's fiat Ponzi scheme.
There are so many different events like this unfolding. It is impossible to make a cohesive presentation of them, but they are all pieces within the same puzzle. All relate back to the preservation of the inflationary-inducing petrodollar, and by extension, how gold and silver are currently [mis]priced as an intended consequence.
There has never been a greater divergence between the demand for physical gold and silver and the elite-controlled supply of the excessively large derivatives paper market for them. At some point, reality will prevail to reflect the demand but not before the demise of the US stranglehold on the rest of the not-so-free world. Sadly, if the US has its way, it will end badly in a potential major war. It is the way the US knows for "solving the problems it creates."
The biggest unknown that the PM community wants to know is WHEN? [Certainly not IF]. It will remain an unknown but virtually guaranteed event in the ultimate repricing of gold and silver. The ONLY thing the PMs community can do is to continue to do what the financial giants are doing, buying as much gold and silver as is available. Follow in their footsteps, following a proven path. No one can know/control the when, but each can exert control over their preparation for when the When occurs.
Most trend bottoms have a certain look about them, and weekly silver does not fit any pattern with which we are familiar. It could be the result of central bank artificial manipulation as opposed to the natural forces of supply and demand. If it turns out to be the bottom, fine, but for now, there is no confirmation either way. What we know for certain is that every bottom undergoes a process of retesting, with none yet apparent.
Silver Weekly Chart
It is possible that what appears as a weak retest of last Monday's high may be attempts of buyers to overcome sellers, and if so, the process is not complete. Again, we take the largest rally in silver as mostly short-covering, and it stopped at the end of October's broken resistance for a reason.
So far, what little activity there has been since the spike low has held near the high of that bar. In a strong up trending market, that would be a positive sign. Silver is not in a strong up trending market, and that makes the likelihood of further retesting under 16 a greater possibility. It may not happen, but odds favor retesting lower from here.
Once there has been some confirming indication of a low, it would still take time for the bottoming process to develop before considering the long side from a futures perspective. Being first in in an unconfirmed bottom can be expensive, and one need only look to the left of the chart to see where anyone who had previously thought a bottom had formed had formed a premature "opinion." Better to trade on established facts than fleeting opinions.
The gold:silver ratio remains around the 73 area, and we are still of the belief that silver will outperform gold once the next rally phase gets underway. There is no substitute for buying physical silver and gold, and the reason for doing so are even more compelling at current price levels.
Silver Daily Chart
While trying to assess last week's surprising sell-off and equally surprising recovery within several trading hours, after a few years of price decline for context, the "look" of how gold has developed since the July swing high stood out in the 4-step process as outlined on the chart.
It is but one way to view this market because it shows an inability of buyers to make a stronger show of strength. How the market develops next week and beyond may alter that view, but until it does, the risk of saying gold has put in a bottom could prove costly.
Gold Weekly Chart
The daily activity echoes the weekly assessment when noting how price is struggling as it has rallied from the November low. The bars have been overlapping since the strong rally bar in mid-November, and last Friday's close is just about $6 higher after 14 more TDs [Trading Days]. So much for the "argument" that gold was at its seasonal low starting in the Fall and a rally should ensue.
This analysis is light on making a more positive assessment because there is not much that argues for a stronger stance. More developing market activity is needed before drawing a more definitive conclusion. Otherwise, the risk of buying futures has to be a stop under the low of 1130. Anything else would be a "money stop," as in how much are you willing to risk between now and under 1130? Money stops are an admission of too large of a viable stop-out price location. Until that changes, it continues to be caveat emptor, which does not apply to buyers of the physical metals.
Gold Daily Chart
By Michael Noonan
Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.
© 2014 Copyright Michael Noonan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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