 Spread the Wealth
PMtrader
August 26, 2005
For over two thousand years
... Gold has been the ultimate safe haven in times of monetary
corruption.
It is unfortunate for the common
man that history is replete with these times of currency debasement
/ monetary corruption. It may be credibly argued - as in my novel
Eye
of the Pyramid - the Roman Empire fell as a result of a purposeful
mismanagement of the monetary system. "When the true
wealth was gone and only the paper remained, the empty shell
was crushed with disdain." [Eye of the Pyramid, p. 242]
When the United States was
founded, our Forefathers warned us against this corruption. Perhaps
Thomas Jefferson put it best when he said, "If the American
people ever allow private banks to control the issue of currency,
first by inflation, then by deflation, the banks and corporations
that will grow up around them will deprive the people of all
property until their children wake up homeless on the continent
their fathers conquered." [Eye of the Pyramid, p. 261]
During the American Civil War,
Abraham Lincoln provided more insight on these issues. "The
money powers prey upon the nation in times of peace and conspire
against it in times of adversity. It is more despotic than a
monarchy, more insolent than autocracy, and more selfish than
bureaucracy. It denounces as public enemies, all who question
its methods or throw light upon its crimes..." [Eye of the
Pyramid, p. 263]
In recent history, many argue
that the NASDAQ melt up - leading to the crash in 2000' - was
the result of irresponsible monetary policy. The subsequent housing
inflation is thought of as a means to reinflate the economy -
through the use of low interest rates and rising home prices,
allowing billions of dollars to flow into the economy from refinance.
The problem is ... what happens when the burgeoning debt of the
American consumer needs to be paid - not just postponed.
Thematically, through all of
the aforemention periods of monetary corruption - and many more
not cited - gold has served as insurance for the common man.
More than that, gold has served as the ultimate report card on
the integrity and efficacy of central back policy. As such, it
is not beyond the realm of reason to suspect that central banks
are motivated to keep the price of gold low. According to Bill
Murphy, president of the Gold Anti-Trust Action Committee (GATA), "A Gold Cartel,
consisting of bullion banks and the US Government, have been
artificially suppressing the gold price by many hundreds of dollars
per ounce since the mid 1990's."
After the considerable introduction,
it is time to move on to the technical thrust of this editorial,
which builds on a previous paper entitled, HUI
& POG - Spread vs. Ratio.
As in this referenced paper,
two primary sets of daily data are given: the HUI, and the Spread.
The spot gold price has been removed from the plot, so as to
better highlight the fundamental relationships being discussed.
In addition to the primary data sets, the 50 dma (shown as a
dark green line) and the linear trend line (the purple line)
for the Spread are given.
Notice the first four blue
arrows in the plot above, which track the broader trend performance
of the 50 dma of the spread. The dashed purple arrow shows the
expected performance based on this indicator. However, as shown
by the final blue arrow, something happened during the time period
- November of 2004 - highlighted by the purple circle.
What happened in November of
2004 that might be fundamentally new to the gold market, something
which because it was new, could not be foreseen by the analysis
of historical data? In this author's opinion, it was the introduction
of the exchange traded fund, streetTracks Gold Shares (GLD),
on the New York Stock Exchange.
Many were arguing about the
relative merit of this financial construct during the time of
its introduction last year. However, with the benefit of perfect
hindsight, it appears that it was short-term dilutive to the
gold shares - as measured by the performance of the HUI.
So what now? Well, if the free
market eventually has the final word (as is usually the case
historically), the solid purple arrows - which show a 5-year
peak in the spread and its 50 dma - may be telling us that a
major bottom has been put in for the gold shares and the price
of gold. So maybe, just maybe, it's time to Spread the Wealth.
August 25, 2005
Terry L. Krohn
PMtrader
email: PMtrader
 A
Personal Note
Jun 2006
Many thanks to readers of Eye of the Pyramid!
Axiom House is running a great special starting June 6 and running
all day June 7. You can check it out at the link below. GATA will
receive a $2 donation for every book purchased by a member.
http://www.axiomhouse.com/offers/bonuspage.htm
Eye of the Pyramid can also be purchased at Amazon.
 About Terry L. Krohn
Mr. Krohn is a research scientist living in the Washington D.C.
area.
His field of expertise is scattering physics - the analysis of
interactions between electro-magnetic waves and matter.
Copyright
© 2005 by Author - Reproduced with Permission.
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