A Recession, Under-Reported Inflation And A Run On Gold from Seeking Alpha...
Jul 5 2014, 14:49 | by James P. Montes
includes: GLD, SLV
Summary
US is nearing a recession according to the latest GDP data.
Are gold stocks missing in US vaults?.
Currency wars to intensify.
Real GDP figures are under-reported, meaning the United States is nearing a recession and, with physical gold stocks missing from US vaults, when there is a rush from paper currencies, there will be no gold to buy.
The US government recently revised the GDP growth figure for the first quarter down to -2.9%, which means the economy shrank. We are also probably going to have a negative second quarter. The Wall Street guys, whose job it is to sell financial instruments, attribute the poor performance to the weather. However, poor weather may keep people out of stores, but any decrease in sales is usually offset by fuel use for heating, which is included in the GDP. Clearly weather is not the excuse…What it implies is that we may officially have a recession declared later this summer…QE did not work…It did not revive the economy. After unprecedented money creation and unprecedented change in fiscal deficits, the economy still turned in negative growth.
The situation may be far worse than government figures suggest. According to Dr. Paul Craig Roberts, the deflator converter used to convert the nominal GDP into real GDP, is incorrect. The government uses a figure of 1.25% to adjust for inflation. " You can easily add to that number two full percentage points." He said. If you deflate the nominal GDP by 3%, then you get a much larger drop in GDP growth, about a 6% drop.
The debt/GDP ratio is also, therefore, much worse than reported. "Since the government has been understating the real inflation rate dating back to 1980," Roberts argued, if you take a reliable measure of inflation, and use that to deflate the US GDP, "you wouldn't have anything like the $17 trillion in GDP…That means the debt to GDP ratio is much higher than reported…The whole thing is a fraud." Roberts believes "US GDP is probably closer to $12 trillion…The situation is far worse than the figures reported to the public."
Given such figures, the United States is on the verge of a recession, which means a further drop in tax revenues and a further increase in debt. Roberts called it, "An amazing crisis waiting to happen."
Recently, Germany announced that it is content with storing their gold at the New York Fed?
The United States does not have the gold and cannot deliver it. They have forced Germany to stop asking for it…The implications are nobody will get it [gold] back. It has been suspected by many for years that the Fed has used up all the US gold to suppress the price of gold, and then started using the gold of others stored there on trust. We have seen more and more reliance on dumping huge amounts of naked gold shorts on COMEX…to knock the gold price down. The US was protecting the dollar from QE by shorting the paper gold market. They've mainly been controlling the gold prices using naked shorts.
With a recession looming and QE failing, a catastrophe is looming. The worst part of the catastrophe is a currency war environment and they won't be able to get into gold because the Chinese will have it all.
Even today, if the holders of all of the contracts for gold, demanded that the contracts be settled in gold, it would be impossible and most likely we'll see a default. What happens when the change takes place that the people who have these contracts are unwilling to settle in cash and want to take delivery? The United States has run through its stock of gold and the stock of gold it is holding for other countries, so there is no possibility of making delivery on very large orders. When that happens, there will be an astronomical run on gold.
Past, Present and Futures Swings
For the third week in a row the price of gold and silver managed to close above its 50 day MA respectively. This very is strong confirmation the weekly trend has turned up from neutral for the precious metals markets.
Echoing my comments recently, "The gold market rejected the low of $1250 that coincided with the 9-day MA, and found good buying support on high volume. A very good indication that we have some new players back on the long side for silver and gold, increasing the probability that the $19 levels for silver and $1240 for gold are fundamentally supported by technical and fundamental reasons."
With gold and silver dropping to the levels of support mentioned in our last report published in Seeking Alpha, they found the technical and fundamental support needed to complete a major long-term bottom on June 3, 2014. This is approximately the mid-point to the 180/360-degree cycle that created the high in the middle of March and projects an extension of time and acceleration in price towards the middle of September of this year.
The test of the June 3 low confirmed the latest swing trade bottom and advanced to the corresponding swing trading targets and weekly resistance levels of 1316 for gold and 20.79 for silver as documented in previous reports.
I also said, "Short-term, intermediate and long-term traders/investors should use this final window of opportunity to trade short term and accumulate to build a long-term bullish position as current prices trade around the $1,240 range and are truly in a historic environment when fortunes can be made in a relatively short period of time. The next 2 to 3 years will go down on the books as such a period of time in history for the yellow metal and current prices will be a thing of the past."
In a weekly report published for the Equity Management Academy last week, I made the following comments for the gold and silver markets:
"Cover short on corrections at the 1312 - 1309 levels and go long on a weekly reversal stop. If long, use the 1309 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1323 - 1.331 levels during the week."
"Cover short on corrections at the 20.67 - 20.44 levels and go long on a weekly reversal stop. If long, use the 20.44 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 21.17 - 21.43 levels during the week."
As we can see all swing targets have been completed and accomplished for both metals last week.
Gold and silver corroborated expectations for a June-September advance documented since December 22, 2014 by spiking to new lows in the month of June and testing critical long-term support. Rejecting the lows made on June 3, then surging to make an outside monthly close reversal it confirms a 2-3 month advance. This scenario fits perfectly with previous analysis we've documented and published in Seeking Alpha.
For a more detailed technical picture, let's take a look at the weekly gold and silver markets and see if we can identify trading/investing opportunities for next week.
GOLD
The June gold futures contract closed at 1320. The market closing above the 50 day MA (1299) is confirmation that the weekly trend momentum is bullish. A close below the 50 day MA would negate the weekly bullish short-term trend to neutral.
With the market closing below the VC Weekly Price Momentum Indicator of 1322, it confirms that the price momentum is bearish. A close above the VC Weekly, it would negate the bearish signal to neutral.
Cover short on corrections at the 1308-1300 levels and go long on a weekly reversal stop. If long, use the 1300 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1333 - 1.347 levels during the week.
