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Gold and Stock Cream OutChris Laird This is just a theory.. but it seems quite plausible. If you follow my analysis, you would agree that all the devious pieces fit together all too well, and when there is smoke there is fire somewhere. First let us begin this story about my surmises of late that the sea change of the BOJ interest rates is going to hammer gold this week. I put that out last week, and lo, Monday of this week gold is dropping in a choppy way.. in anticipation of a BOJ interest rate hike this Friday, and I am not going to recapitulate all of that article. Then, after reflection on that study, I thought about the fact that the Fed is wavering on hiking interest rates further... and gold on that news two weeks ago rose 27$ that Friday the day of the latest Fed hike to 5.25%. Then, I reflected on the fact that the world Central Banks are all tightening in synchronism... or pulling liquidity out of their financial systems... Then I reflected on the fact that gold and stock markets are now trending together... and one outcome of that is that cash is being pulled out of stocks and gold markets together when they trend down. Then I reflected on the fact that the central banks have stated they want to buy more gold but it is just too expensive now... Then I reflected on the fact that overall the central banks are all caught between a rock and a hard place: rising inflation and having to raise interest rates VS crashing finance bubbles and asset bubbles and .. well there is no alternative because inflation and other factors are going to decide things for them and push up interest rates anyway... like the US treasury yields going up regardless of whether this or that central bank or the Fed does anything... IE the Greenspan interest rate 'conundrum' that rates would not rise after the Fed raised the target rate - is over. But now that is happening, and be afraid of what you ask for because now, interest rates are going to rise because people want the risk premiums back in bonds... And I have about a thousand other reflections and surmises that lead to the gold and stock market creaming theory, which if I listed all of them you would lose your train of thought... that is why I get paid to do what I do- Which is Macro gold and economic analysis... And it took me about 3 months of heavy thinking to come to the conclusion that we could see a major gold and financial market cream out. And, if it took me 3 months to come to this conclusion, you don't think I can include all the reasons in one lousy public editorial now do you? But if this missive has not put you off yet, let's get into the analysis of WHY: First, a major basic reason is that the world is going into a forced synchronized interest rate hike cycle. I surmise this synchronized hiking cycle is going to be very short lived because, if we get the great gold and financial market cream out that I expect, the central banks will change from hiking interest rates to stimulating in about a week. But at that point, all the central banks that wanted to buy gold will have been able to do that at fire sale prices! Gee, how convenient for them! How about that! We'll get into that in a few minutes. But it is not just about that, but that is a big part of this. Dang, this article is going to be long... Oh well. Only the Master of Macro Gold Analysis (wink) could tell you this story! One reader said a while ago
that Chris Laird is the Steven King of Financial Futurism. The theory: Macro analysis For the last year, we have seen progressive central bank interest tightening which has now become simultaneous raising. This trend has now coincided with a synchronism of gold and stock markets. This is going to continue for a while. Up and down. This process has accomplished two goals. One is to create an environment where stocks fall along with gold. Ultimately, this is a key. An environment has been created where financial institutions and hedge funds are going to desire to go into cash in general, and this is occurring now. This is going to free up a lot of gold. It is suspiciously convenient that this synchronism could enable central banks to load up on gold, something this paper is focusing on. They will let stocks and gold crash together, as speculators and everyone goes into cash, out of commodities and stocks. Then the central banks are going to jump in and do what they have been saying they intend to do- China, Dubai, Russia, Japan, and others... which is to go in, about a week after the crash, and buy all those extra tons of gold bullion... ahead of the financial community which is so focused on paper and cash... The financial community will then -somewhat late- join in after the initial gold correction - and amidst total financial collapses - try to use the cash they freed up to buy the gold left over and there will be a huge spike in gold and a breaking of the gold - stock market synchronism. The central banks' ultimate goal: To prepare for a new alternative to the USD as a world reserve currency- by getting their gold ducks in order because they have all now decided it is time to act to deal with the ever present/threatening USD crisis. Really, they could not give a damn about the financial community, or you either. They are thinking national financial survival post a USD centric financial world. The reason they don't give a damn is because the time is at hand for a USD collapse and they have to think about what will they do to survive it- and you are expendable. I can't outline everything here... having to go fast, or this article is going to be 50 pages. This is not all there is to it but I have to break here and use my new exciting chart viewpoints to illustrate the macro I just outlined so far: Here is a chart from Alex Wallenwein's excellent article Gold Head Fake;  Wallenwein states that the CB's are going to buy in after gold retraces to its long term trend at about 475 indicated here. Now, what I wish to add to that very excellent observation is some more analysis of the period from Jan 06 to the present: How interest rate increases are going to synchronize the gold and stock markets to enable the central banks to do what Wallenwein suggested. Now let's make comments:  In the Green circle, world central banks started to talk about and tighten interest rates, following the Fed up. In the Red circle, gold and stock markets are reacting in synchronism to interest rate hikes or comments. We need to look at this on a closer scale:  In the blue box, I indicate where the Fed indicated they intend to vigorously fight inflation. Gold drops over the ensuing weeks $100 to $150. Of course, there were a lot of long speculators then, and this pretext made them flee gold. But, the threat of Fed tightening faster than anticipated caused a rush out of gold. In the Red box, the Fed reversed course and said they may not have to tighten as much as they thought, and gold rallied back. In the Orange box, Japan indicates they are going to raise- starting a course of rate hikes from their 5 year zero rates. Gold stops rising in spite of tension with Korea and Iran and oil, and is falling as I write this article well below the 630 mark of Friday. This is speculator liquefying in anticipation of a BOJ rate hike this Friday.  At this point, the synchronization of gold and stock markets creates a situation where financial speculators will desire to go into cash, and if stock markets crash, gold drops. The speculating community will naturally want to wait till gold / stocks stabilize to get back into gold. This chart illustrates what synchronized world interest rate hikes are going to do to Gold:  This is the time central banks act to buy gold, probably a lot of it, since speculators are sidelined for a short time. The linkage/synchronism of stocks and gold breaks. Gold starts to rise. Stocks continue down. Speculators rush back into gold, but well after the CB's have gotten a nice load of gold at the bottom of the market. Gold now trends up while stocks world wide continue to tank. The central banks are set now to do whatever they intended to do vs vs the USD if that is their desire. They may feel that to wait for an accidental collapse is not a good idea, hence they initiate the gold-stock creaming, or plan for it- by allowing interest rate hikes to synchronize the gold and stock markets. Now they just wait... for the coming stock crashes that I am sure are on the horizon anyway, and that they know are coming. When the crashes finally materialize, they are all set to be the first into - not stocks- but gold, and break the synchronization. At this point, the private investors are way behind the whole scenario. They are the last to get into the gold market after, first the central banks get in and break the synchronized gold and stock markets, then after the speculators jump back in, and finally the private individuals, having been hoodwinked, are the last to get back in... The end of the whole scenario is that, first, central banks get to load up on gold at the bottom, then speculators who finally realize what is going on, then the last, the private investors are left holding lots of cash... which is going to buy much less gold in the end of the scenario! What to do? Now, according to this analysis, it would be wise to consider buying gold as it trends down if this scenario unfolds. You should not insist on waiting for a bottoming. Rather, your opportunity would be to capture some of the gold discounts on the way down, get it, and then eventually it would bottom out. But the CB's would be the first in, and know way before you do what the real gold bottom is becoming, and send their billions of dollars into gold well before you ever do, if you insist on waiting for the bottom! Chris Laird The Prudent Squirrel Newsletter is a big picture gold and economic commentary. Stop by and have a look. 321gold Inc |
