Tag Archives: Ben Bernanke

Gold shines in it’s “Moment of Truth” technical breakout!

On June 8th I posted this chart on gold, calling it — “gold’s moment of truth.”

https://goldsilverstockcharts.wordpress.com/2008/06/08/is-this-golds-moment-of-truth/

In my opinion, this is the most significant technical move that gold has made since the December bottom last year, held at the November highs, and led gold to new all time highs in March.

Here is gold’s “moment of truth” technical breakout.

gold chart - moment of truth breakout!

gold chart - moment of truth breakout!

With the ECB calling out Ben Bernanke to defend the dollar, by hiking rates; this sets up a situation where Bernanke’s hands may be tied through the November elections, given the weakening US economy.

And that is going to set the stage for the next major rally in gold, in which my price target is
$1,270.

$1270 Gold will also coincide with what I feel is a realistic 10:1 ratio of gold to oil. Oil is overdue for a technical correction to the mid $120’s. The correction in oil will also free up speculative capital which will re-enter the gold market.

While gold bears argue that the Fed has ceased cutting rates, and that the global economy is slowing, which will cap the commodity plays. I believe, that the key for gold is the negative real rates that exist in the U.S.

I also feel that Ben Bernanke may shock markets, and actually continue with 2, if not 3, or 4 more interest rate cuts, as the US banking crisis is poised for another seizure, and perhaps the failure of a major bank. Treasury Secretary Hank Paulson has just warned the European banking community of a coming major bank collapse, and is preparing the markets for a non-bailout of the next failure.

Lehman Brothers is experiencing a “Bear Stearnsesque” run on the bank, and Citicorp is virtually bankrupt, and will need to raise yet more capital. With Oil reaching speculative extremes, I believe that gold will soon resume it’s flight to safety haven status in times of economic, or geopolitcal turmoil – of which the world has both in spades.

Buckle up, and get ready for the next major rally in gold, because gold has shined in it’s moment of truth, and the technical & fundamentals couldn’t look any better.

— Michael Cerulean

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Is this Gold’s Moment of Truth?

While the long term trend for gold still looks positive. The HUI Gold Bugs Index chart since the March highs is clearly in a downward trend.

 

But I think that gold and gold stocks are going to reverse this trend very soon. And I may be in the minority with this opinion, but I think that Ben Bernanke is NOT done cutting rates. I predict that Bernanke will take the Fed Funds rate down to 1% before he’s done.

Housing is the key to the Fed’s rate cut decisions. Stocks are way off the DOW 14,000 highs from last fall. The US consumer is deeply in debt and has a negative savings rate. What’s different about this recession is that there is no savings nest egg, cushion for the consumer to fall back on.

Unemployment is rising and will continue to do so. Real incomes have been falling since 2000, and with a negative savings rate in the US, the Fed must prop up consumer assets (housing, and stocks), or consumer sentiment, and spending (2/3rds of US GDP) are going to collapse further.

I think that Congress, the Treasury, the Fed, and the CFTC are going to do what ever they need to do to bring oil prices down. And once they near $100, I think Bernanke will cut, and continue to cut rates down to a 1% Fed Funds rate, as long as oil stays near $100.

Here’s an interesting chart.

Most people feel Oil is in a bubble. But, this chart shows that it’s really just now catching up with gold!

The long term trend line for Gold is still very bullish, but that first chart above for the HUI Gold Bugs Index has me worried, because in my opinion, gold stocks must lead the metal, if gold is going to new highs.

What’s scary is that this corrective phase in gold and gold stocks could get really ugly, with gold correcting all the way back down to the $630 range – and STILL be in a long term bull trend!

While most believers in gold are long term investors and not traders. It is very difficult to take a correction from $1,000 down into the $600’s and still hold on to one’s gold.

I think that gold is a “hold” right now, and only with minimum core positions. I want to see the gold stocks lead the metal. And I want to see the HUI break out of it’s cascading downward trendline shown in my first chart, before I would move gold back to a “buy.”

Hold core positions strongly. If you’re a trader – you may want to study this chart from internet trading guru SliderOnTheBlack. Here is a link to an incredible chart on his Silicon Investor Forum Board that shows the HUI gold bugs index consolidation and breakout patterns for this cycle.

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=23923456

We may just be experiencing another consolidation phase in gold stocks, and the HUI may very well be a spring that is getting tightly compressed, just prior to it’s next major breakout. And I believe that the fuse that is going to launch gold is Mr. Ben Bernanke, because I do NOT think that he’s done cutting rates.

Given the choice between inflation, and a housing collapse pushing the US into a very severe recession, I have no doubt that Bernanke is going to choose inflation.

Here’s another great chart. This one is called – “Ben Bernanke’s Report Card”

And guess who his teacher is?

Gold!

Another great chart in this post.

 http://www.sliderontheblack.com/gold-silver-stocks/trichet-weber-trump-bernankes-bluff-and-the-market-calls/

Hang tough gold bugs. I think that the US stock market, housing market, jobs/unemployment, retail sales, auto sales, and the banking/credit crisis are going to get worse – and Mr. Bernanke is finally going to do what he proclaimed he would do if he ever faced a deflationary crisis – drop money from helicopters!

Good Luck all, hold tight and wait for the breakout shown on my first chart above, because it’s coming soon!

Michael Cerulean

Ben Bernanke (a.k.a. Edward Scissorhands) Bogeymen and Gold.

On Tuesday January 22nd, with  global markets tanking and DOW futures set to open down 500 plus points, Ben Bernanke once again blinked, caving in to an unknown “bogeyman” that turned out to be Jerome Kerviel, a junior level trader at French bank, Societe General.

Bernanke delivered an emergency stop-gap rate cut of .75 basis points, but the markets weren’t happy with that, and Ben Bernanke doing his finest impression of Edward Scissorhands – caved in once again, and gave the markets another .50 basis points at the Fed’s regularly scheduled meeting last Wednesday.

So much for standing alongside U.S. Treasury Secretary Hank Paulsen just months ago and talking tough about the U.S.’s “strong dollar” policy. And so much for talking tough about fighting topline inflation.

Inflation be damned when there’s Wall Street bankers to be bailed out!

All the market has to do is call, and Edward Scissorhands will cause rates to fall.

So what does gold think about our new Fed Chariman, Mr. Bernanke?

Well, they say a picture is often worth a thousands words, and this one is no exception.        

   

So why would Bernanke cut rates 125 basis points over the span of just 7 trading days, with Oil climbing towards $100 and Gold towards $1,000?

 First of all, because the collapse of the housing bubble and subprime mortgage paper is only just the beginning of  the derivatives meltdown that is spreading like the ebola virus through global markets.

Swiss banking giant UBS stunned markets last week with it’s third round of subprime writedowns – that now total a staggering $18.4 billion dollars.

And now the bond insurers are in meltdown, needing an estimated $200 Billion Dollars of capital infusions just for the industry to maintain their AAA credit rating. Barclay’s just issued a report on the bond insurance crisis, stating that over banks hold over $800 billion in bonds and would incur losses on the ratings downgrades that would require additional capital infusions of $143 billion dollars.

 By the time this recapitalization of U.S. banks is done, OPEC and Asian souvereign wealth funds will control the U.S. banking system.

 This is not the same as when the Japanese were buying up trophy property and gold courses in the 1980’s. We have just transfered control and influence over our financial system (and fiscal policy) to foreigners.

This is an unprecedented and historic transfer of wealth.

Wall Street has extracted obscene pay levels and bonuses while gutting the infrastructure of the U.S. financial system that is now being sold off piece-meal to our creditors.

And do not for a minute – buy into these temporary relief rallies in the U.S. market, because the credit contagion is not over. Quie the contrary – as it’s just getting started.

Lying dead ahead is the securitized credit card, and auto loan paper to worry about, just as the U.S. economy stands poised to rollover into a deep recesion. And then there is the next shoe to drop — commercial real estate.

 This recession is occuring during a housing collapse and when the U.S. consumer with his “0” savings rate – has nothing to fall back upon – except a pile of debt. And banks now battered by mountains of worthless subprime paper, will find rising deliquencies in auto and credit card loans and a potential collapse of yet another bubble in commercial real estate.

Bernanke by slashing rates and injecting liquidity, is  placing a huge bet that a slowing U.S. economy will ease inflation pressures,  and that oil and commodity prices will ease.

But, given the proposed $150 billion dollar U.S.  stimulus package that’s a cinch to pass both houses – I’d suggest that traders take a look at what gold did off the last stimulus package proposed after the Gulf Coast Hurricanes of 2005:

Now I know gold traders expected more of a rally off of Bernanke’s double rate cuts. But, you have to acknowledge that much of the recent move to new all time highs in both gold and gold stocks, along with oil’s run to $100 dollars – was in expectation of these cuts.

I believe that gold will build a brief and solid base here and is set to explode through triple digits as Bernanke will undoubtedly deliver yet another cut that the market is now pricing in.

This past Friday, traders bid up base metal companies like BHP and RTP, who have greatly lagged the gold plays into Bernanke’s rate cuts. I believe that gold and gold stocks will build a solid base over the next few weeks, and then will explode to new highs as the Bush stimulus package becomes reality, and as Edward Scissorhands is called on once again to cut rates and appease market angst. So hold on tight and get ready to enjoy an incredible ride.