Posted: 04 Feb 2014 05:24 AM PST

Mainstream economists and mainstream media remain convinced that the economy and markets are in full recovery mode. Along the same lines, gold is unanimously expected to decline in the year(s) head.

One of the most recent appearances of that kind was the 2014 outlook of IMF economic counselor, Olivier Blanchard, who explained last week that global growth would average 3.7% in 2014.

Ironically, the recovery story, based on the central bank premise that they can create wealth by simply exploding their balance sheets, seems as solid as a "house of cards." Past week Thursday and Friday, several emerging markets suffered from an economic earthquake, especially in their currency markets, which resulted in losses in most developed world markets not seen since 6 months. The Yen and the Swiss Franc were considered a safe haven, just like gold (PHYS) and US Treasury bonds (TLT).

Bloomberg says this is the worst selloff in emerging-market currencies in five years, revealing the impact from the Federal Reserve's tapering of monetary stimulus. "Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability."

Argentina, Venezuela and Turkey have been hit hard. Argentine's Peso and Turkish Lira lost significant value against other major currencies in the past week. They recovered slightly today.

In Argentina, the central bank pared dollar sales aimed at propping up the peso to preserve international reserves that have fallen to a seven-year low. "The central bank said it would lift two-year-old currency controls and allow the purchase of dollars for savings starting next week. […] The government told today it is not intervening in the peso's decline, allowing the market, which is mostly closed to buyers of dollars, to adjust prices. It was not a devaluation induced by the state. For the lovers of free markets, supply and demand was expressed in the capital markets yesterday."

The Turkish central bank tried an unscheduled intervention in the market to stop the lira from falling to record lows, something they haven't done since two years. "Investors are speculating the central bank's efforts to prop up the lira by burning through foreign-exchange reserves will prove futile without raising interest rates."

The loss in purchasing power for people holding Argentine's Peso is astonishing:

The Peso closed on Friday, January 31st at USD 8.0.
Since mid January, the Peso lost 17.6% of its value against the USD.
Three months ago, the Peso stood at USD 5.9, a decline of 35.5%.
Since September 2012, the Peso lost 69% against the USD.

The loss in value of the Turkish Lira (TRYS) is not as dramatic as the Peso, but it is still very bad:

The Lira closed on Friday, January 24th at USD 2.26.
Since mid January, the Lira lost 4.4% of its value against the USD.
Three months ago, the Lira stood at USD 1.97, a decline of 19.2%.
Since September 2012, the Lira lost 27% against the USD.

The interesting part for us, gold enthusiasts, is the price of gold in the slaughtered currencies (prices on the close of January 31st):

Gold in Argentine's Peso is up 30% in the last 30 days; it is trading at all time highs.
Gold in Turkish Liras is up approximately 10% in the last 30 days; it is trading just 10% below its all time highs of September 2011.

This chart shows the price of gold in USD (yellow line) and in Peso (blue line). The black line is the currency exchange rate Peso against the USD. Chart courtesy: Sharelynx.

(click to enlarge)

Interestingly, the explosion of the gold price in Peso and Lira has pushed the gold price higher in the Western currencies. That is an important evolution, as it indicates what gold really stands for: a monetary asset. One should note that gold has gone higher even without inflation fears. This could be one of those catalysts that could break the downtrend in gold in major currencies.

The underlying reason for the emerging market turmoil is said to be attributed to capital flight out of those markets. Directly linked to that is the tapering fear from the US Federal Reserve.

What is the importance of this for Western investors? There could be a counter intuitive answer to that question.

Basically, up until today, there was a narrative surrounding the Federal Reserve who got credit for the positive economic results after having stopped the implosion of the financial system in 2009. However, there is still no empirical evidence that the plan has worked, because the world is still on the monetary infusion. We should note that the present type of situation, characterized by tapering in a global fiat based monetary system with huge amounts of debt, is unique in human history.

As John Mauldin pointed out this week, if the narrative about central planning changes, indicating that the present monetary experiment was the wrong answer to the problem, there could be very nasty effects, especially out of the emerging markets. This is why (courtesy of Ben Hunt):

For 20+ years there has been a coherent growth story around Emerging Markets, where the label "Emerging Market" had real meaning within a common knowledge perspective. Today … not so much. Today the story is that it was easy money from the Fed that drove global growth, Emerging Market or otherwise. Today the story is that Emerging Markets are just the levered beneficiaries or victims of Fed monetary policy, no different than anyone else….

I'm not asking whether the growth rate in this Emerging Market country or that Emerging Market country will meet expectations, or whether the currency in this Emerging Market country will come under more or less pressure. I'm asking if the WHY of Emerging Market growth and currency valuation has changed. The WHY is the dominant Narrative of a market, the set of tectonic plates on which investment terra firma rests. When any WHY is questioned and challenged you get a tremor. But if the WHY changes you get an earthquake.

What are the investments that such an earthquake would challenge? You don't want to be short the yen if this earthquake hits. You don't want to be long growth or anything that's geared to global growth, like energy or commodities. You don't want to be overweight equities and underweight bonds. You don't want to be overweight Europe. You can run from Emerging Markets with US equities, but with S&P 500 earnings driven by non-US revenues, you cannot hide. If you think that your dividend-paying large-cap US equities are immune to what happens in China and Brazil and Turkey … well, good luck with that. My point is not to sell everything and run for the hills. My point is that your risk antennae should be quivering, too.

Nobody knows exactly how a change in the narrative will play out, but given the effects we are seeing in the emerging markets currency crisis, it seems likely that a flight out of risk assets into gold is very likely. Our belief is that, once the central bank narrative changes, the major currencies will likely be hit by a trust crisis. That is one of the most reasonable catalysts for dollar gold and euro gold. Our belief is that a loss of trust in central banking could materialize in the next 12 to 24 months.

Disclosure: I am long PHYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

Gold Price Might Cut Through Down Trend this Week

Posted: 04 Feb 2014 07:50 PM PST

Gold Price Close Today : 1251.70
Change : -8.70 or -0.69%

Silver Price Close Today : 19.402
Change : 0.013 or 0.07%

Gold Silver Ratio Today : 64.514
Change : -0.492 or -0.76%

Silver Gold Ratio Today : 0.01550
Change : 0.000117 or 0.76%

Platinum Price Close Today : 1371.80
Change : -13.20 or -0.95%

Palladium Price Close Today : 699.90
Change : -2.60 or -0.37%

S&P 500 : 1,755.20
Change : 13.31 or 0.76%

Dow In GOLD$ : $255.08
Change : $ 2.95 or 1.17%

Dow in GOLD oz : 12.339
Change : 0.143 or 1.17%

Dow in SILVER oz : 796.06
Change : 3.20 or 0.40%

Dow Industrial : 15,445.24
Change : 72.44 or 0.47%

US Dollar Index : 81.240
Change : 0.100 or 0.12%

The GOLD PRICE dropped as low as $1,246.80 and the 20 DMA ($1,247.44) but came right back to close Comex at $1,251.70. Then it gained $3.20 in the aftermarket. Silver gained an infinitesimal 1.3 cents to 1940.2c.

stockcharts.com

The GOLD PRICE is trading out into the nose of a triangle formed by its rising uptrend line and the downtrend from its April high.

This is an even sided triangle so could break either way, but the gold price remains above its 20 and 50 DMAs and has been steadily advancing, recovering every time it is knocked back. Reasonable to expect it might cut through that post-April downtrend this week, barring a close below $1237.50.

Since December began the SILVER PRICE has traded sideways between 2050c and 1889c, with one intraday low at 1872c. It has just bounced off that roughly 1890 support again, and now needs to cross 1950c and get past 2050c.

Other reasons to look for the gold price rally to continue: the GOLD/SILVER RATIO appears to have peaked and begun dropping. The Gold/Philadelphia Bank Index, which reflects investor confidence and risk appetite, has been falling since December ended.

stockcharts.com

Think about it: when investors buy bank stocks, which are mostly the Too Big To Fail/Too Big To Jail banks, they MUST have confidence in the financial system and its outlook. On the other hand, buying gold shows a lack of confidence in those same stocks, and turning away from risk toward safety. The chart divides the gold price by the bank stock index so when it rises bank stocks (the denominator) are gaining on gold (the numerator), and vice versa when it falls.

Every once in a while I check the numbers just to see if things are as bad as I suspect they are. In the last eight days the Japanese Nikkei 225 stock index has lost 10.8%. Reckon that Abe-nomix has hit a little hiccup.

Since 21 January when the present waterslide began, the Dow has lost 969.2 points or 5.9%.

Today the Dow bounced up 72.44 (0.47%) to 15,445.24. S&P500 clawed back 13.31 (0.76%) to 1,755.20.

Where does that leave stocks? Launched off a cliff, lifted on a tiny updraft, with no ledge in sight. Dow cut through its 200 DMA yesterday, bounced back to it today, but has little reason to stop here. More likely place is 14,760. But of course I could be fooled, and if the Dow turns, climbs, and crosses 16,000 y'all will know I was. Otherwise, bet on gravity.

The gold price fell $8.70 at Comex close today and stocks rose, but by the end of the day the Dow in Gold had risen only 0.7% to 12.32 oz (G$254.68 gold dollars). Dow in silver fell 0.51% to 792.47 oz, and is trying to break down. In case y'all have forgotten: Dow in Metals down, good for metals; Dow in Metals up, bad for metals. These indicators show the value of stocks in metals, whether metals are gaining or losing value against stocks.

Since mid-September the US dollar index has been jailed between 81.50 and 79.70, with one spike to 79.06 in October. It rises, it falls, it makes neither progress nor regress. Today it gained 10 basis points to 81.24. Unless it can jump over 81.60 or falls below 79.50, it's just jawing.

The euro, however, declineth in earnest. Down another 0.1% today to $1.3515. If the euro's chart were your EKG, you'd be scrambling for the phone to make sure your burial insurance was up to date. Hard to see why it won't sink to $1.3300 at least.

The radioactive Yen, on the other hand, is rallying in earnest, from a 94.83 c/Y100 low in January to 98.31 today, down 0.54% for the day but aiming for the 200 DMA at 100.1.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2014, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Long Term Charts 2: Western Markets Since The Middle Ages | Zero ...

Posted: 09 Feb 2014 12:29 PM PST

We previously examined 240 years of US market history for a sense of 'trend' or sustainability but some were not satisfied. In order to get a truly long-term perspective, we reach back 1000 years to The Middle Ages and look at how stock prices, interest rates, commodity prices, and gold have changed in a millennia (and most notably how the key historical events have shaped those price changes).

Western Markets Since The Middle Ages

Stock Prices

Interest Rates

Commodity Prices

The Gold Price

@Macro_Tourist for these increble charts

And just for good measure, perhaps the most important chart going forward - Nothing lasts forever... (especially in light of China's earlier comments)

Average:

Your rating: None Average: 5 (11 votes)

Gold Price Exploding In Emerging Markets [SPDR Gold Trust (ETF ...

<b>Gold Price</b> Exploding In Emerging Markets [SPDR Gold Trust (ETF <b>...</b>

0 Comment for "Gold Price Exploding In Emerging Markets [SPDR Gold Trust (ETF ..."

Popular Posts