There has been a ton of work done by GATA.org (and others) with regards to exposing the ongoing manipulation and fraud that is ever present in the gold market(s). They have managed to turn fringe conspiracies and rumors about price manipulation and suppression into mainstream issues that can move markets. At the recent CFTC hearings, GATA, with the help of Andrew McGuire, helped bring to light some of the most damning accusations against the LBMA I have ever heard. I think traders have begun to digest this information, and only now are we starting to see what I believe are the effects of these claims on the gold futures market.

Gold 2000-2010

Unfortunately, I do not have a way to generate charts for gold futures in my charting application, so further below I will be using the GLD fractional-reserve ETF as a charting-proxy for where I think the price of gold is headed since GLD does a good job of tracking the relative price of gold.

As evidenced by the recent bullish price action, it appears that gold is poised for a breakout over $1,200.00 With the recent accusations about insider trading, the 100:1 leveraged paper market at the LBMA, the manipulation of the futures contracts by the large bullion banks, the supposed empty bullion vaults at ScotiaMocatta, the concentrated short positions by only a handful of banks, and the fact that central banks around the world are net-buyers of physical gold, I believe we are left with very little room for extreme downward pricing pressure. To be honest with you, my gut instinct tells me that we will never see gold below $900.00 for quite some time.

There are many times when the studies drawn on a chart reveal stunning patterns that would otherwise go unnoticed. It is precisely these times when I like to sit back and ponder the big technical picture.

2010 Gold Analysis

In this case, we see that gold is trading within a very specific Fibonacci pattern that assumes an upper limit trajectory of $1500.00 per ounce of shiny yellow metal. The premise here is simple: I believe we will see a melt up in the price of gold over the next few years due to, among other things, the various fundamental catalysts I mentioned earlier. I believe that the melt-up will occur along this Fibonacci retracement pattern; first testing $1,200 in the near term, and anywhere between $1250-1500 in the intermediate term (2-3 years).

A move from $1,200 to $1,300 is a modest gain of only 8.33% and easily possible.

$1,200 to $1,400 is a nice gain of 17% and is also quite achievable.

$1,200.00 to $1,500.00 is a gain of 25.0% and I don’t think it is unrealistic to see this new high in the next few years

I noticed that gold and the sp500 are at parity today…and that got me thinking. If one happened to go long gold and short the SP500 a few years back, what would your situation be like today. Not surprisingly, you would be up 100% on your investment. Have a look at the chart, get familiar with the pattern, and pull up a chair.

Long Gold, Short S&P500

As you can plainly see, we’re in a consolidation pattern right now. Volatility is EXTREMELY low, and the chance for a gut-wrenching move in either direction is entirely possible. If you believe that things are getting better, and that prosperity is on the way, then maybe you should go long the SP500 and short gold. However, if you think we’re in for a rocky road ahead, you may want to do the opposite and get long gold and short the crap out of the SP500. As much as I despise the GLD ETF, it’s still a trading vehicle that (somewhat) tracks the price of gold enough to make it useful. At this point you can enter a neutral trade (50% upside risk, 50% downside risk) by purchasing one share of GLD and shorting one share of SPY. Depending on your risk tolerance, and your preference, you can give yourself a bias in either direction by modifying your ratio of shares long vs. shares short. Since each share is trading at roughly the same price, this is an easy trade to tweak in your favor as the trend becomes more apparent. Maybe you don’t like the SP500 and you want to short your country’s index of choice. Be my guest, the charts more or less look the same (except for Japan…the mother of all carry trades)! Don’t believe me? See for yourself:

Long Gold Short India

Long Gold Short China

Long Gold Short Korea

Long Gold Short Malaysia

Long Gold Short Singapore

Long Gold Short Taiwan

Long Gold Short France

Long Gold Short Germany

Long Gold Short The Queen

Long Gold Short Japan

It seems that the S&P 500 does not obey the laws of gravity. What goes up must come down. I believe we will see the SPY around $88.00-$90.00 sometime in the near future (3-6 months).

I almost choked on my drink when I read this. I could not believe that this guy is out there pulling the same stunt in front of the same people yet again. Honestly, how dumb do these bankers have to be to believe this guy?

If I were Japan or China I’d be clamoring to get out of my dollar holdings as quickly as possible. This charade has been going on long enough, but I guess the Japanese and the Chinese take Tim Geithner’s words at face value:

TOKYO — U.S. Treasury Secretary Timothy Geithner said Wednesday that maintaining a strong dollar is “very important” for the country’s economy, sticking to his mantra on foreign-exchange policy as the U.S. currency continues its broad downtrend.

“I believe deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar,” he said at a roundtable discussion with Japanese reporters. “We bear special responsibility for trying to make sure that we are implementing policy in the U.S. that will sustain confidence not just among American investors and .. savers but investors around the world” that the U.S. will fix its budgetary problems as its economy improves.

One word for you: BULLSHIT!

Take a look at this point and figure chart of the US Dollar Index. I have annotated it so that the Japanese and Chinese bankers can better understand the meaning of Mr. Geithner’s rhetoric:

Strong Dollar Policy

As you can plainly see, it’s backwards day at the treasury…every single day. It’s no wonder there is so much chatter about creating a new reserve currency. On top of that, it’s no wonder gold is currently trading at $1,121.00 Just take a look at this annotated gold chart as well:

2009 Gold Price Chart

It’s also no surprise that countries such as India and China are buying gold like it’s going out of style. I think India’s reasons for buying gold have more to do with the fact that the India SBI Prime (Prime lending rate of the State Bank of India) is up around 11.750% and less about diversifying reserves, however, this is merely conjecture.

I have written about our now infamous “Strong Dollar Policy” before. Additionally, I have written about the Global Experiment in Zero Interest Rate Policy that we are currently living through. Not only that, but I have also written about the Death of The Dollar. All of these pieces of the puzzle are intertwined.

If things keep up the way they are going, our dollar may look something like this:

Zimbabwe $100 Trillion Note

Lucky for you, I have saved the best for last: Tim Geithner’s comments are quite hilarious towards the end of the WSJ article. I will first present you with the his quote, and then I will translate it so the Chinese and Japanese bankers can understand it:

“I don’t want to say more than what I’ve said in the past, which is that China has laid out this very broad direction of reforms’ to invigorate domestic demand, Mr. Geithner said. “It’s a very complicated mix of policy changes. As part of that, they’ve recognized that it’s in their interest over time to move to a move flexible .. exchange rate.”

Those reforms being undertaken by China “take time,” he said.

What Tim Geithner is really saying goes something like this:

“I’m going to keep my mouth shut about how screwed the US Dollar happens to be. If anyone asks I’ll just reply with ‘strong dollar policy’. If I say it enough maybe they will believe me. On top of that, China has been kind enough to tell us that they are going to systematically destroy our economy. Since the Chinese have agreed to do this slowly, this gives us the opportunity to feel the pain over what could possibly amount to many long years.”

Roughly twelve years ago, my parents built a house in Arizona. The cost of building the house (3,500 sq. ft.) was approximately $250,000.00 (Remember, this was in 1994/1995) The same house is worth roughly $840,000 (in 2006) That is an increase of 236% in twelve years. That’s an average of 19.67% appreciation per year for 12 years in a row. I don’t believe such appreciation can sustain itself at this rate. It will be interesting to see whether or not we can achieve a “soft landing” in the housing markets, however, I don’t think we will. The reason for it is kind of simple: everyone is talking about whether we are going to have a soft landing. If you have to ask about it, it’s probably not happening.

I find this comical because I was right. In retrospect, the value of the house is now $556,000 …roughly 33% less than what it was worth at the peak. It still seems overvalued in my opinion. Almost 4 years after the peak of the housing bubble we find ourselves in an interesting point in time. The bankers have obviously failed at the whole “soft landing” thing, and I think we may be in for a second dip into the recessionary bucket.

Let’s do a real quick technical analysis of the home price just for fun:

Technical Analysis of Home Prices

In this chart you can clearly see the long term support that exists around the $430,000 price range. From 2004 to 2006 the price of this house went on an insane ride up to $844,000

I distinctly remember telling my parents to sell when the house was up around $800,000 and they ignored me…which leads me to the past 3 years. Prices have been dropping steadily and we’re almost back to pre-bubble levels. At this point in time, I would guess that as soon as the price of the house reaches the support line at $430,000 it will be safe to say that the “bubble” cycle is over.

Let’s see how long it takes for this to pan out. Judging by the median slope of the graph, I would have to say that we are in for a treat around 2011-2012.