How will Gold Hold Up with the 2011 Stock Market Crash All over Again?

Model ETF Portfolio Trading

How Much Will a 15% Hair Cut Cost Your ETF Portfolio?

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Over the past few weeks I have been watching the DOW and Transportation index closely because it looks and feels like the Dow Theory may play out this year and the stock market could take a 15% haircut.

But what if you skipped on the haircut and opted for a 40% refund?  What? Keep reading to find out how.

Keeping this post short and sweet, I think the US stock market is setting up for a sharp selloff. And it will look a lot like the July 2011 correction. If my calculations are correct this will happen in the next 3-9 weeks and we will see a 15% drop from our current levels. Only time will tell, but I have a way to hedge against this with very little downside risk to youETF portfolio.

 

The Dow Theory Live Example for ETF Portfolio

The daily chart of the SP500 index below shows our current trend analysis with green bars signaling an uptrend, orange being neutral, and red signaling bearish price action. Currently the bars are green and we can expect prices to have an upward bias.

The Dow Theory could be  in play. When both the Transports (IYT) and the Dow Jones Industrial Average (DIA) cannot make higher highs and start making lower lows, according to the Dow Theory the broad stock market is topping.

We are watching the market closely because they have both made lower highs and lows.  This rally could stall in the next couple weeks and if so we expect a 15% correction.

 

Model ETF Portfolio

 

Take a look at the 2011 Stock Market Crash

Model ETF Portfolio Trading

The chart above shows how fearful traders have a delayed reaction to moving money from stocks to a mix of risk-off assets.

The choppy market condition during August and September clearly helped in frustrating investors and created more uncertainty. This helped prices of this ETF portfolio fund rally long after the initial selloff took place. This is something I feel will take place again in the near future and subscribers of my ETF newsletter will benefit from this move.

Because we have a Dow Theory setup, our risk levels are clearly defined as to when to exit the trade if it does not play out in our favor. But with the potential to make 40% and the downside risk only being 4%, it’s the perfect setup for a large portion of our ETF portfolio. And just so you know this is not a precious metals trade as we are already long that sector and up 10% in that position already.

Get My Daily Video Forecasts & ETF Trades Today – Get Off The Fence Make Your ETF Portfolio Perform

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Gold Model Calculates Gold Price Of $2400 To $2900 In 2017

In this article, contributor Gary Christenson presents the results of his intense efforts to work out a model for the gold price. This “gold model” is not meant to predict short term gold prices, nor is it intended to act as a target price for investors. The aim of the gold model is to derive a “fair value” for gold in a longer term context, based on a fundamental basis. Such a fair value should act as an objective measure to calculate the deviation with gold’s spot price.

As an example, the gold price crash of 2013 was said by mainstream media and financial pundits to bring the gold price back to “acceptable” levels as gold had been in a bubble. While it was true that the gold price was getting ahead of itself in 2011, it was nowhere near a bubble. The “gold model” from Gary Christenson confirms that the gold price was rising too fast, but it’s fair value was nowhere near the levels of its 2013 bottom.

In that respect, it is interesting to note what several famous bankers have said about the gold price. Consider the following quotes. Paul Volcker once said “Gold is my enemy.” Ben Bernanke recently said “Nodoby really understands gold prices and I don’t pretend to understand them either.” Janet Yellen her recent quote was “I don’t think anybody has a very good model of what makes gold prices go up or down.”

So here you have it, a gold model that has been 98% accurate in the past four decades, worked out by an individual who looked at the fundamentals and the big picture, in an unbiased way. Admittedly, we believe bias is the main issue for bankers.

Gold persistently rallied from 2001 to August 2011.  Since then it has fallen rather hard – down nearly 40%.  This begs the question: “Did the gold bull market end at the top in August 2011 as many mainstream analysts believe?” OR “Was the decline during the past 2.5 years merely a correction in the ongoing bull market?”

The answer, in my opinion, can be found in my gold pricing model that has accurately replicated AVERAGE gold prices after the noise of politics, news, high frequency trading, and day to day “management” have been purged.

I presented the specifics of my model at the Liberty Mastermind Symposium in Las Vegas on February 22, 2014.  A detailed presentation would be much too long for this article so the following is a quick summary.

OBJECT:

  1. Create a simple model of gold prices based on a few macro-economic variables, NOT including the price of gold.
  2. Each variable must be intuitively sensible in its affect upon the price of gold.
  3. The results must be graphically similar to actual prices for gold since 1971 and be statistically significant.

VARIABLES:

  1. The most obvious macro-economic variable is the currency supply or some proxy for it.  Since 1971 the U.S. currency supply has been increased much more rapidly than the underlying economy has grown.  Hence the value (purchasing power) of each currency unit (dollars) decreased and prices, on average, have risen considerably.
  2. Other variables that might be applicable are the CPI, Japanese Yen, real interest rates, dollar index, 30 year T-bond yields, DOW Index, copper prices, national debt, commodity prices, and many more.
  3. A logical and causal relationship can be established between each of these variables and the value of gold based on either the declining value of the currency, or the changing demand for commodities and hard assets versus the demand for financial assets.

PROCESS:

  1. My model was created, tested, and refined to include only three variables – simplicity makes the model more credible.
  2. My model attempted to replicate the smoothed annual prices for gold.  Smoothing filtered out most of the market noise and clarified what I refer to as an equilibrium or “fair” value for gold.
  3. My model made NO attempt to predict actual weekly and monthly gold market prices.
  4. Smoothing was accomplished by using monthly closing prices for gold since 1971, creating a centered 13 month moving average of those prices, averaging January to December monthly prices to create an annual price, and then making a 3 year moving average of those annual prices.
  5. Smoothing examples:  Actual market prices in 1980 went as high as $850 but the smoothed gold price for 1980 was about $460.  Actual market prices in December 2013 went to an approximate low of $1,183 but the smoothed gold price for 1980 was about $1,520.

MODEL RESULTS:

  1. The calculated Equilibrium Gold Price (EGP) had a correlation of 0.98 with the smoothed gold price from 1971 – 2013.  Examine the graph of EGP and Smoothed Gold.
  2. The model was both simple and robust.  It worked effectively, on average, during gold bull and bear markets, stock bull and bear markets, blow-off tops and crashes, volatile oil prices, Y2K and 9-11, QE, Operation Twist, ZIRP, various hot and cold wars, occasional peace, gold leasing, gold manipulations, and high frequency trading distortions in many markets.
  3. In August of 2011 gold was priced about 30% ABOVE the EGP.
  4. In December of 2013 gold was priced about 26% BELOW the EGP.

gold price model 1971 2013 price

GRAPH NOTES:

  1. Smoothed gold prices are shown in a “gold” color.
  2. Calculated equilibrium gold prices (EGP) are shown in green.
  3. The long-term trend from 1971 – 1980 was up, from 1980 – 2001 the trend was down, and from 2001 to 2012 the trend was up.  (Actual gold market high price was August 2011.)
  4. Nixon closed the “gold window” in 1971, removed any semblance of gold backing for the dollar, and thereby enabled the creation of significantly more dollars into circulation. The various measures of “money” supply, official national debt, Dow Index, price of gold, many commodities, and most other prices increased exponentially between 1971 and 2013.

FUTURE PRICES FOR GOLD per the EGP Model

Assume:

  • Macro-economic variables continue to increase and decrease as they have for the past 42 years.
  • The U.S. economy continues along its typical, but weakened, path with government expenses growing more rapidly than revenues, as they have for decades.  National debt rises inevitably.
  • Congress continues its multi-decade habit of borrowing and spending, talking about change, and changing little.  The Fed supports the stock and bond markets and continues “liquidity injections” as it deems appropriate to benefit the 1%.
  • Monetary, political, and fiscal policies will NOT be materially different from what they have been during the past 42 years.
  • The U.S. will NOT be subjected to global nuclear war, Weimar hyperinflation, or an economic collapse, while we will continue to be subjected to the same Keynesian economic nonsense that has created many of our current “challenges.”

Given the above assumptions, a reasonable projection for the EGP (a “fair” price for gold) in 2017 is $2,400 – $2,900.  Remembering that market prices can spike significantly above or crash below the EGP for many months, we could see a spike high above $3,500 or $4,000 in 2017.  Extraordinary events such as a global war or dollar melt-down could push prices higher and sooner.

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ANOTHER BIG MOVE UP COMING IN MINING SHARES

Gold Scents

Now that the first leg off the bear market bottom has been completed the mining shares have been consolidating for the last three weeks in preparation for another leg up, and I expect the second leg will be almost as powerful as the first.

As gold is now late in its daily cycle I’m looking for one more dip down into Friday’s employment report to complete the short-term correction. Then I look for gold’s third daily cycle to test the $1425 resistance zone over the next month.
Over the next few days stocks should move up to test or more likely marginally break above 1900 before settling into a consolidation as they await the next FOMC decision on March 19. As stocks settle into this consolidation phase buying pressure will move back into the commodity markets and drive gold aggressively out of the impending daily cycle low.
Then when a third taper also fails to halt the slide in the dollar I look for a mini dollar panic during the second half of March that will drive a very powerful rally in commodities as they move toward an intermediate top.
As gold rallies out of its impending daily cycle low, and especially during the dollar panic later this month, the mining shares should deliver a very powerful second leg up in this initial thrust out of their bear market bottom. I expect GDX will at least test the August highs, and maybe even fill one or both of last April’s gaps before the intermediate cycle tops sometime in early to mid-April.
I think traders need to enter initial positions before the close on Thursday, and if gold is down Friday morning after the employment report use the weakness to complete purchases as I think next week miners will break out of the consolidation zone and begin the second leg up of this brand-new bull market.

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Koos Jansen: China’s Gold Demand Up 51% So Far This Year Over Same Period Last Year

The gold price was up sharply at the 6 p.m. open on Sunday evening in New York, but the sellers of last resorts were also there as well.  Volume was immense, so the long buyers had no trouble finding a willing short seller to take the other side of the trade.  By the London open, volume was almost 50,000 contracts—a monstrous number.  The gold price hit its high 15 minutes after London closed for the day—and the gold price got sold down a bit going into the 5:15 p.m. electronic close.

The CME Group recorded the low and high ticks as $1,330.70 and $1,355.00 in the April contract.

Gold close in New York yesterday at $1,350.30 spot, up $21.70 from Friday’s close.  Net volume was around 147,000 contracts—and as I mentioned in the first paragraph, more than a third of that came before the London open.

Silver was kept on a pretty short leash on Monday.  Every time it rallied above the $21.40 spot mark, there were not-for-profit sellers waiting to sell it back down to that price level again.  This happened in Far East trading—and in London and New York as well.

The low and high ticks were recorded as $21.26 and $21.74 in the May contract.

Silver finished the day on Monday at $21.405 spot, up 18 cents from Friday.  Net volume was very decent at 48,000 contracts—and a third of that amount was done before the London open as well.


Continue Reading at CaseyResearch.com…

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Don’t Bet on the US Shale Oil Boom

by Bill Bonner
Acting Man

Avoid Car Dealerships

Today, a warning about the US shale oil boom …

But first, a little practical advice. You want to buy the car you want at the price you want? Don’t go into a dealership. We met a man here in Aiken, South Carolina, who owns a nationwide car dealership. He explained:

“This is how it works. The dealer doesn’t really make much by selling cars. He makes it on the add-ons. The customer comes in. He knows what he wants. But he leaves with much more. The salesman shows him the upgrades. The shiny wheels, the on-board entertainment, four-wheel drive, service contract, and so forth.

Continue Reading at Acting-Man.com…

 

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Studying Gold and Silver’s Past Gives Us a Glimpse of Where We’re Heading in the Future

smartknowledgeu.com / By JS Kim / March 3rd, 2014

The banking-government industrial complex has been pulling the wool over investors’ eyes for years when it comes to getting the masses to keep their savings tied up in ever rapidly devaluing fiat currencies instead of intelligently converting them into the only real money out there – physical gold and physical silver – that has no counterparty risk. Just note the massive 50% collapse of the Argentine peso in less than 5 years, the 40% collapse of the Venezuelan bolivar in one year, and the Ukranian hryvania’s collapse of more than 50% against gold just this year, and the fact that Ukranian banks are now limiting withdrawals to about $100 a day now. Hard as it is to believe, and by now most people have forgotten this fact, but back in 2006, the bankers tried their hardest to sell the world on the notion that the gold bull was dead when gold had climbed to just $620 an ounce. Bankers attempted to misinform people by releasing a flood of anti-gold articles and banker predictions that gold had peaked and that it was going to crash to $250 to $300 an ounce later that year.

In reply to this banker disinformation campaign in 2006, I released a number of emphatic opinions that all the anti-gold propaganda was just that – propaganda – and I even called out the head commodity analysts at some global banks as I waged war against their disinformation campaigns. I believe we can learn a lot about the future of gold and silver today by taking a step back in time to re-visit the bankers’ propaganda campaigns in 2006.

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Chinese Physical Gold Demand YTD 369t Up 51 % Y/Y

 

ingoldwetrust.ch / by Koos Jansen / March 2, 2014 at 5:24 pm

The Shanghai Gold Exchange (SGE) is back on schedule publishing their trade reports on friday that cover the previous trading week. Last friday’s report covered the trading week February 17 – 21. For me the most important numbers is always the amount of physical gold withdrawn from the vaults as this equals Chinese wholesale demandWithdrawals in week 8 (February 17 – 21) accounted for 49 tonnes, year to date there have been 369 tonnes withdrawn from the vaults. If we divide the later by the number of days of the corresponding period (52) we come up with an average demand of 7.09 tonnes per day – this includes weekends and the one week holiday at Lunar year when the SGE was closed.

I got a few request regarding demand compared to last year and daily moving averages. Great ideas which I have carried out (request are always welcome, we’re doing this together). Compared to last year demand is up 51 % over the same period. Of course we had the shocker in April 2013 when withdrawals exploded to 117 tonnes in week 17. I don’t expect any spikes that big this year so probably this year’s growth compared to 2013 in percentages will be decreasing when we’ll pass April. Nevertheless, the daily average of 2013 was (2197/365) 6.02 tonnes, while this year we’re up to 7.09 tonnes. China is on schedule to establish a new record, if the world can supply any more gold.

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Bloomberg Reports London Gold Fix Is Manipulated Although Evidence Exists For Many Years

It was only a week ago when we wrote that the Financial Times removed the article “Gold Price Rigging Fears Put Investors On Alert”  from their website, a couple of hours after being published. We were able to dig up the original article in Google’s caching memory and took screenshots of the removed article.

Less than a week later, it is Bloomberg releases the article “Gold Fix Study Shows Signs of Decade of Bank Manipulation.”

From Bloomberg (source):

The London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.

Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”

The paper is the first to raise the possibility that the five banks overseeing the century-old rate — Barclays Plc, Deutsche Bank AG (DBK), Bank of Nova Scotia (BNS), HSBC Holdings Plc (HSBA) and Societe Generale SA (GLE) — may have been actively working together to manipulate the benchmark. It also adds to pressure on the firms to overhaul the way the rate is calculated. Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are examining the $20 trillion gold market for signs of wrongdoing.

The remainder of the article does not add particularly interesting information.

We have no interest in analyzing the findings of the research. Readers interested in a critical analysis should read Ross Norman’s comments, managing director of bullion company SharpsPixley in London (read analysis).

We would like to point out how Bloomberg’s news is no news at all. In the past two years, we released several articles in which gold and silver price manipulation was discussed at length, based on facts and figures, without any bias. Obviously, there was no reference from the mainstream media to any of these findings on our site or on similar precious metals sites (think of GATA, Goldseek, and the likes).

First, on November 30th 2012, a year and a half ago, we released an interview with statistical researcher Dimitri Speck. We explained that his research showed evidence of central banks influencing systematically the price of gold as of August 1993. Mr. Speck’s conclusion comes from intraday price statistics, where he observed several anomalies. First, since 1993, the price has been falling systematically during the trading session of COMEX in NY. Another trading anomaly is that during the PM fix the price systematically tends to drop significantly. The following chart is the result of 16 years of recording intraday data. The sudden price drops are so sharp and systematic, that it can only point to intervention.

gold intraday average 1993 2009 price

It was not only us who released this information. Dimitri Speck’s own website had existed for much longer and his work was released by GATA long before. The gold price manipulation during the London Fix was clearly much longer visible.

Bloomberg comes indeed very late with the “discovery” of gold price manipulation. Ironically, just two weeks ago, precious metals analyst Ted Butler explained here that Bear Stearns went bankrupt mainly because of excessive short positions on gold and silver in 2008. Butler wrote “What baffles me today is that no well-known journalist from outside the gold and silver world has yet picked up on what is an easy-to-document story of epic historical proportions. It’s the story of why Bear Stearns went under, and how the gold and silver price manipulation continued since the day JPMorgan took over Bear.”

Butler has provided evidence of gold and silver manipulation for several years. The key findings of Butler are based on COMEX gold and silver dominant positions by Bear Stearns and JP Morgan. Since the fall of Bear Stearns, JP Morgan has taken over those dominant positions in the futures markets, allowing them to set the direction of the price.

Backed by evidence and facts from the official COT reports (released by the CME group), Butler wrote in JP Morgan’s Perfect Silver Manipulation Cannot Last Forever:

JPMorgan’s real crime resides in its ability to sell unlimited quantities of COMEX silver contracts short on the way up in price to the point of creating unprecedented levels of market share and concentration. In December 2009, JPMorgan held more than 40% of the entire short side of COMEX silver and close to that market share on other occasions. To my knowledge, there has never been a greater market share or corner in any major market in history. These unlimited short sales by JPMorgan inevitably satisfy technical buying interest and then that technical buying turns to selling at some point, with JPMorgan then working to induce the tech funds into selling. The buying back by JPMorgan is the illegal ringing of the cash register and closing out of the manipulative silver short positions sold at higher prices.

Moreover, in 2013 – The Year of JPMorgan, Butler discussed evidence of JP Morgan’s market corners in both gold and silver:

It is well-established that a market corner is against commodity law. In fact, this is the most important aspect to commodity law, because market corners are unquestioned proof of manipulation. CFTC data indicate that JPMorgan held short market corners in COMEX gold and silver at the start of the year and that this crooked bank holds a long market corner currently in COMEX gold. There can be no question that JPMorgan held and holds market corners in COMEX gold and silver based upon market share.

While the London Fix price manipulation was already known for years (for instance by research from Dimitri Speck documented on several sites including ours), it is the COMEX futures dominant positions of JP Morgan that is an even bigger act of price manipulation. As usual, the mainstream media are running behind the truth and are not able to report on the most relevant facts.

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Gold Investors Weekly Review – February 28th

In his weekly market review, Frank Holmes of the USFunds.com nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. The price of the yellow metal went lower after two consecutive weeks of gains. Gold closed the week at $1,326.44, up $2.16 per ounce (0.16%). The NYSE Arca Gold Miners Index fell 2.62% on the week. This was the gold investors review of past week.

Gold Market Strengths

Gold is heading for a second month of gains, the longest such run since August. Bullion has gained more than 10% this year, rebounding from the biggest annual decline in more than three decades, even as the U.S. Federal Reserve announced a reduction in asset purchases at its past two meetings.

The rally in gold seems to be halting the 13-month outflow from the biggest ETF backed by the metal. Assets in the SPDR Gold Trust are poised for the first monthly inflow since December 2012.

GLD Gold Holdings vs Gold Prices 28 February 2014 investing

Gold demand apparently remains very strong. China’s January Hong Kong gold imports soared 326 percent year-over-year. The Hong Kong region exported a net of 83.6 tonnes of gold to the Chinese mainland in January, down slightly from December exports of 91.9 tonnes. Exports from Hong Kong to China last year in January were very low at 19.6 tonnes. Macquarie notes that Russia was the biggest buyer of gold last year, purchasing 77 tonnes of the metal. Kazakhstan added 28 tonnes, Azerbaijan 20 tonnes, South Korea 20 tonnes, and Nepal 12 tonnes for a total estimated central bank addition of 185 tonnes.

Gold Market Weaknesses

Recently, Shanghai gold premiums have moved from a slight discount to flat, partially ameliorating concerns over China’s import appetite.

Gold Market Opportunities

With the stronger gold performance this year we are seeing some analysts revising their price predictions higher. For example, UBS analyst Edel Tully has revised her gold one-month average forecast price from $1,180 to $1,280, and her three-month gold price prediction stands now at $1,350 vs. $1,100. Also, RBCCM’s Toronto-based analytical team has revised its long-term gold and silver price assumptions to $1,400 and $23.50, respectively. The higher the price goes, the more likely commodity forecasters will start adjusting their price targets higher.

For those investors that have thought bitcoins might be a viable alternative to gold, they have something new to consider. Mt. Gox, once the world’s largest bitcoin exchange, filed for bankruptcy after the company lost 750,000 bitcoins belonging to users and 100,000 of its own. The company blamed weak computer systems for the theft of bitcoins, focusing attention on the digital currency’s risk. For digital currencies, security measures may leave a lot to be desired in comparison to the security one has of physical gold being locked in a bank vault.

Gold Market Threats

The world’s biggest macro hedge fund says Canada has a tough decade ahead of it, with Ray Dalio’s Bridgewater Associates saying in its well-read daily note that the country’s economy is just beginning a tough period of rebalancing. While this could be negative for the country as a whole, further currency weakness would likely be a positive for the gold miners which sell their production benchmarked to a U.S. dollar gold price.

Rosa Abrantes-Metz, a professor at Stern’s School of Business, and Albert Metz, a managing director at Moody’s Investors Service, conducted a study on gold fixing and found signs of collusive behavior that need to be investigated. The gold fixing study revealed unusual trading patterns around 3:00 pm in London, during the time when the five biggest gold dealers actively work together to manipulate the benchmark. This likely is a bigger problem for the banks involved in the price fix, but could lead to more transparent markets for customers.

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Ukraine’s Acting President Puts All Armed Forces On Full Combat Alert

In a stunning 24 hours, it now appears that Russia and the Ukraine are one formal announcement away from a state of war. From moments ago, as reported by Bloomberg:

  • UKRAINE ACTING PRESIDENT PUTS ALL FORCES ON FULL COMBAT ALERT

And this, as reported by the NYT, virtually assures the escalation to a hot war, as some provocation, somewhere will certainly take place: “a Ukrainian military official in Crimea said Ukrainian soldiers had been told to “open fire” if they came under attack by Russia troops or others.

Finally, this:

  • Ukraine protects all Ukrainians, acting President Oleksandr Turchynov says in Kiev briefing.
  • Ukraine Prime Minister Arseniy Yatsenyuk: “diverting funds for military”
  • Turchynov: untrue that Russians are under threat
  • Turchynov: no reason for Putin request
  • Turchynov calls for national unity
  • Yatsenyuk says to take all measures to ensure peace
  • Yatsenyuk: no reason for Russia to intervene in Ukraine

Too late.

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