Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Correcting Towards Oversold Buying Opportunity

Commodities / Gold & Silver 2009 Mar 02, 2009 - 03:43 PM GMT

By: Ned_W_Schmidt

Commodities Best Financial Markets Analysis ArticleTwo things happened in the 1960s. Most importantly, that decade ended. Second, consumers and investors began learning to not be fooled by governmental policies and actions. That learning experienced was reinforced by the many policy errors of the 1970s.


At the start of those two decades, consumers and investors did not understand the future effects of excessive government spending. Monetization of debt and price increases was not part of their experience. Only after inflation ravaged their investments down into bottom in 1974 did they fully comprehend how damaging governments might be. The important lesson consumers and investors learned was to anticipate what government policies would do to them. Importantly, they learned to alter their investment postures and consumption spending to defend themselves from governments. And finally, they learned that the purpose of government is to deprive them of wealth and liberty, not to provide those to them .

Markets look forward, discounting events in advance,. That they have done with a vengeance. From middle of summer through confirmation by November election, U.S. investors began to anticipate Obama's policies. They began to immediately discount the soon to be most investor unfriendly U.S. administration in history. Knowing that jobs and wealth would be destroyed by adverse tax policies, consumers retrenched further. Yes, Obama, by vocalizing in advance his wealth damaging intentions, owns these financial markets and unfolding U.S. depression.

Our first graph reports on the status of the Obama financial markets. Picture is not pretty. Investors, anticipating wealth destroying tax policies from the new administration, did what investors do in such a situation. They sold, and continue to sell as adverse tax policies pour forth. Gold, perhaps the only haven, has responded favorably. The difference in performance of these two markets is about 50 percentage points, and that since only the first Tuesday in November.

Perhaps the only market yet to respond is the foreign exchange market. With the U.S. plunging into the Obama Depression, the dollar will ultimately reflect the fundamental flaws in U.S. economic policies. At the moment, the U.S. is a cash vacuum. It is sucking in cash from around the world in order to “stay afloat.” Drivel about the European Union collapsing is the normal sign of a market well past its fundamentals. Some are promoting or seeking out rumors to feed the now malnourished move of the U.S. dollar. Not since the pound crashed have fundamentals so pointed to a currency, the U.S. dollar, going down.

Anthony DiNozzo wisely advises that movies can be a great source of wisdom. “Viva Villa”(1934), starring Wallace Beery as Poncho Villa, might be a good candidate for viewing at the White House and Federal Reserve. At one point, the General has taken power in Chihuahua(1913-4). Typical of government leaders, he orders money to be printed to pay for things. The printers deliver the money, demanding payment for their work. Villa suggests that they take some of the newly printed paper money as payment. They respond that the paper money is worthless. They wanted real money. Is it possible that printers in Chihuahua 100 years ago were wiser than today's Federal Reserve and the U.S. Council of Economic Advisors?

Our second graph would have warmed Villa's heart. The Federal Reserve was apparently not happy with the extent to which they had been able to monetize U.S. debt. In February, the Federal Reserve launched massive purchases of mortgage debt. Those purchases are reflected in the annualized 13-week growth rate of the Fed's holdings of debt. That rate of debt monetization has recently approached a 100% annual rate.

As we reported in a previous discussion, the Federal Reserve had been happy to let foreign central banks finance the U.S. economy. It is for that reason that the growth rate for debt monetization had been negative in the early part of the graph. No longer are they content with that. The Federal Reserve, now a central bank fully captive to politics, is monetizing with abandonment. Villa would have loved these guys!

Holders of U.S. dollar denominated assets must make some serious decisions. They must abandon political ideology, or face the loss of their wealth. U.S. will soon be the most investor unfriendly developed country in the world. Wealth within the U.S. is to be taxed unmercifully under the “trickle up” policies of the new administration . One media network has wisely coined the name, Obama's War on Wealth . Investors shoul not allow their wealth to remain in dollars or in the soon to become most taxpayer unfriendly U.S.

U.S. government deficit will be something on order of $2.5-3.0 trillion over the next year. That money will be raised from gullible foreign central banks, or more likely by debt monetization by Federal Reserve. Quite frankly folks, Gold will be the primary beneficiary in such a world. With China's economy gaining on U.S. and with a far friendly business climate developing there, investors already owning Gold might consider investments that will gain from Chinese prosperity.

Gold has rallied incredibly since the October low, shortly before the Obama election victory . It recently reached an intensely over bought condition from which it is now correcting. With daily doses of fantasy over possibility of U.S. government actually creating an effective economic solution to the Obama Depression, investors have stepped back. We have high hopes that $Gold will develop an over sold condition in the coming week and that we can issue another intermediate buy signal to investors. Yes, change has indeed arrived. Your financial wealth has been changed to a considerably lesser amount. Gold's value has been changed into a higher amount.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

Ned W Schmidt Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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