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Monday, March 30, 2009

Gold and Silver: If Not Up, Then Down


Gold (GLD) and Silver (SLV) could not go up even as Ben "Helicopter" Bernanke finally lived up to his name. Gold put in a major intraday reversal the day the Bernanke announced $300 billion in debt monetization... and then quickly faded. GLD has now broken a rising trendline.
If not up, then done.

The fact that Bernanke actually decided to monetize debt should be interpreted as a sign of fear and extreme economic weakness. Clearly the Fed knows something. They've stared into the eyes of the Deflation Monster and blinked. If there was even the slightest possibility of inflation the Fed would NEVER dare monetize any debt. The fact that they are probably means that the global economy and the global financial system have actually deteriorated further. The prolonged deflation threat is now very very serious.

It may be time to ADD to the short Gold and Silver exposure.

19 comments:

Anonymous said...

Ben,
Why make a directional bet when you can short gold and go long silver betting that the abnormal divergence relationship between the two will return to normal?

I'm not saying I don't agree with your thesis, just thinking that this is a safer way to make a play.

Goat

Anonymous said...

"If there was even the slightest possibility of inflation the Fed would NEVER dare monetize any debt."

hot air

Anonymous said...

"Gold and Silver: If Not Up, Then Down"

wow... really?
one can't just trade in a range for awhile until more people get a clue as to what's going on?

i love the 'black or white' oversimplification of markets. its quite endearing.

Adam said...

Gold is money. Money does well during deflation. When will people recognize gold for what it is: a currency! Cash is king during deflation and gold is cash not backed by debt. The deflation thesis is correct - the proposed outcome for gold is not.

Now, jag-offs will comment that gold can't be spent at the store, but neither can CDs or T-Bills.

Set some tight stops, bro, 'cuz gold will be making new highs this spring..

Ben Bittrolff said...

"wow... really?
one can't just trade in a range for awhile until more people get a clue as to what's going on?"

No it can't just trade in a range. Technically (charts) Gold is precariously balanced. So the big swinging dicks are gonna push it just enough to squeeze out the weak longs. Thats the game. You know it. Because whenever Gold doesn't go up to a kaballion you blame 'the Gold cartel' (or whatever)...

Anonymous said...

You give Fed way to much credit.
Do not believe a word Bernanke is saying, he has proven wrong on every occasion before which clearly indicates the man has no idea what he is doing.
He gambles that US will not get inflation.
Bernanke does not understand the concept of inflation vs deflation.
Short Gold which is in a secular bullmarket just when the moneyprinting machine is heating up? Never! Be careful my friend.
Great blog otherwise!

constant said...

by Martin D. Weiss, Ph.D.: See OCC table at the bottom of pdf page 11, "Derivative Contracts by Type." In it, the OCC reports total U.S. bank-held derivatives of $200,382 billion at year-end 2008. Among these, the single largest category is interest rate derivatives, representing $164,404 billion, or 82 percent of the total. In contrast, credit derivatives are only $15,897 billion, or 7.93 percent of the total. Within the credit derivative category, the OCC reports (page 1, fourth bullet) that nearly all — 98 percent — are credit default swaps, which have proven to be the most toxic and damaging category of derivatives so far. But they represent only 7.77 percent of all derivatives (7.93 percent x 98 percent).
http://www.occ.treas.gov/ftp/release/2009-34a.pdf
I wonder

dogismyth said...

please do me a flavor...STOP USING GLD FOR TECHNICAL ANALYSIS!!

Sorry...had to get that off my chest.

If you look at GOLD, spot price, the closing price today was above the trendline...actually resting on it!

http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=0&mn=11&dy=0&id=p41074059656&a=164317304

Anonymous said...

You're playing with fire shorting gold. The printing presses have really just started rolling. Let's see the reaction when the next trillion is rolled off and confidence in the U.S. ability to repay debt wanes.

Any number of other catalysts could trigger a pop (geopolitical tensions, etc.)

Seems like a stupid trade to me. Poor risk/reward profile. If you want to play the deflation trade, short oil or some of the other overpriced assets.

EDC said...

Gold is going down. One would only know that if the tin foil was taken off of one's head.

With ALL the crud that heli ben has stated and done so far it should be at 1500 but it is not. Emotion is why those believe it should be going up now.

It will make new highs not this spring, maybe this fall. as it typically peaks in the spring and we are already past the mendoza line.

Gold will see the low 700s before 1000.
Write it down and remember that... after the G20 when the whole gold standard is shot down by the g6 nations.

g6 nations have no desire to have a gold standard, the banking cartel prohibits that... why because they lose control. (now i should take off my banking cartel hat) hah!

oh... there is no inflation on the horizon even if heli ben prints like mad because he will call a collapse in bond prices which... wait for it, wait for it... is deflationary (prior to hyper inflation).

set your stops.

Greenlander said...

Ben,

Now if we were are re entering the general deflationary scenario how does that bode for other commodities like oil/ Ag's?

Hulu said...

Damn Ben!

You're DA MAN!

Unlike all these annoyusmost posts, you lay it all out there for all to see.

Lots of noise out hyping gold with inflation. This could be the perfect time for gold cartel to sell. Who are the biggest buyers of gold? Government?

Tschäff said...

Here is my two cents:

Cent One: a simple supply and demand calculation says gold's price reflects hoarding of this metal. Regardless of money supply, when people choose to hoard, the price goes up.

Cent Two: The deflationary forces in the economy are great. Look at capacity utilization, and you see for the time being in order for factories to increase capacity, wages / input costs need to decrease to reflect the new monetary environment. The Fed has made it loud and clear they are serious about fighting off deflation, but the economy in crisis really wants to go that route. CPI figures showed deflation at least ended and there is a slight bit of inflation. Personally I'd be careful about betting against the fed.

[Full disclosure I am short gold for the time being]

Josh said...
This comment has been removed by the author.
Anonymous said...

Good short it more for me to buy on the dip.....fools.

Josh said...

How about sideways ??
The trouble is if you use Technical Analysis in the gold market, you will lose your shirt sooner or later ! If you do momentum you can definitely kiss your ass goodbye. Did the price action of the past couple of weeks knock out your stops ? (Like with the sudden rally to $965 that obliterated the nice head and shoulders pattern and crucified many of the short specs such as Tim Knight). Or did you pyramid and blow a good entry around $1000 !? Do I notice a bit of petulance in your writing now ?
EDC. The gold market will "see" hyper inflation long before it actually occurs. In the mean time it alwys does well in deflations because of its safe haven status.
Ben the other thing is that the big swinging dicks (JPM and HSBC) are shrinking inwards at an alarming rate with derivative books in the trillions of dollars, much of which also happen to be under water gold derivatives. A short squeeze in the making that could in a second or two make your buy stops irrelevant. The short squeeze is baked in the cake.

Ben Bittrolff said...

@ Josh (and others)

I never short gold outright. My short positions are all via options... just in case. I'm not converned about having my stops 'slipped'... because I don't use any on my options positions.

Hey, if gold ever clears $1k with authority I will be on board faster than a ninja gone apeshit. Believe it. In the meantime... I'm short.

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