The Gold Dips Are Saying That The "Correction" Is Almost Over
The gold dips are saying that the "correction" is almost over and are saying or implying that investors/traders should buy the dip, which is what they always say. Beware of weak minded undisciplined minds or scam artists. Gold is very likely in a 2-3 year Wave 2 Cyclical Bear Market, in which it'll fall to $450-500. The economic bust, triggered by the residential real estate bust/poor lending practices credit debacle, is very deflationary.
The inflationary real estate/easy mortgage money boom from 2002 until early 2006 is what kept the US and world's economy in reasonably good shape after the stock market/economic bubble burst in March 2000 and a recession occurred in 2001. The Fed's massive liquidity surge to prevent year 2000 software related economic problems/weakness fueled that bubble and made things much worse.
The huge problem for gold and silver now is, where does the next inflationary boom/economic upcycle come from? It won't be real estate/easy credit/money, which is obviously in a huge multi year bust/bear market. Also, stocks worldwide have been in a Cyclical Bear Market since the middle to end of last year.
The Fed is nearly powerless now to inflate the US economy as discussed below. I don't see what will get us out of the huge deflationary mess any time soon. Some gold writers keep harping about how rapid money supply growth will cause gold to reach $1500+ in the next few years. Forgetaboutit!
The crashing velocity (circulation) of money, see http://www.bullandbearwise.com/VelocityChart.asp, is more than offsetting rapid M3 money supply growth, which means that the Fed's efforts to inflate the US economy are like using a pea shooter against an Elephant.
Velocity of money is defined as GDP divided by M3, so, assuming M3 is growing at roughly +15%+/year, it's not enough to offset the crashing decline in the circulation/velocity of money, brought on by the real estate bust, unraveling of credit/debt instruments, stock market Bear Market, etc.
The crashing velocity (circulation) of money chart at http://www.bullandbearwise.com/VelocityChart.asp, which means that rapid (depending on which measure one looks at) money supply growth is having less and less of a stimulative/inflationary effect on the US economy, which has created a very deflationary environment. Basically, the Fed is nearly powerless now to stimulate the US economy, especially since rates are so low now. They obviously can't do much more rate cutting.
The unraveling of the (abused) credit/debt instruments (CDO's, securitizations, etc) is causing the velocity (circulation) of money to crash at probably/very likely an even greater rate in recent months, which is a very deflationary/bearish situation for gold/silver. The Fed's ability to inflate the US economy out of the current huge deflationary mess is very limited.
My previous 18 month $500-550 cycle low target range for gold's Wave 2 Cyclical Bear Market is probably too optimistic. Probably 2-3 years and $450-500 is more realistic, given the extremely deflationary environment.
I seem to be the only gold writer who gets the concept of a Cyclical Bear Market occurring in a Secular Bull Market, let alone anticipating one now. Gold and silver had two Cyclical Bear Markets in the previous Secular Bull Market that peaked in 1980, corresponding to Elliott Wave 2 and 4 downcycles, see http://tradethecycles.blogspot.com/2008/03/gold-and-silvers-two-cyclical-bear.html.
.......http://www.JoeFROCKS.com/ .
NEM XAU HUI
The inflationary real estate/easy mortgage money boom from 2002 until early 2006 is what kept the US and world's economy in reasonably good shape after the stock market/economic bubble burst in March 2000 and a recession occurred in 2001. The Fed's massive liquidity surge to prevent year 2000 software related economic problems/weakness fueled that bubble and made things much worse.
The huge problem for gold and silver now is, where does the next inflationary boom/economic upcycle come from? It won't be real estate/easy credit/money, which is obviously in a huge multi year bust/bear market. Also, stocks worldwide have been in a Cyclical Bear Market since the middle to end of last year.
The Fed is nearly powerless now to inflate the US economy as discussed below. I don't see what will get us out of the huge deflationary mess any time soon. Some gold writers keep harping about how rapid money supply growth will cause gold to reach $1500+ in the next few years. Forgetaboutit!
The crashing velocity (circulation) of money, see http://www.bullandbearwise.com/VelocityChart.asp, is more than offsetting rapid M3 money supply growth, which means that the Fed's efforts to inflate the US economy are like using a pea shooter against an Elephant.
Velocity of money is defined as GDP divided by M3, so, assuming M3 is growing at roughly +15%+/year, it's not enough to offset the crashing decline in the circulation/velocity of money, brought on by the real estate bust, unraveling of credit/debt instruments, stock market Bear Market, etc.
The crashing velocity (circulation) of money chart at http://www.bullandbearwise.com/VelocityChart.asp, which means that rapid (depending on which measure one looks at) money supply growth is having less and less of a stimulative/inflationary effect on the US economy, which has created a very deflationary environment. Basically, the Fed is nearly powerless now to stimulate the US economy, especially since rates are so low now. They obviously can't do much more rate cutting.
The unraveling of the (abused) credit/debt instruments (CDO's, securitizations, etc) is causing the velocity (circulation) of money to crash at probably/very likely an even greater rate in recent months, which is a very deflationary/bearish situation for gold/silver. The Fed's ability to inflate the US economy out of the current huge deflationary mess is very limited.
My previous 18 month $500-550 cycle low target range for gold's Wave 2 Cyclical Bear Market is probably too optimistic. Probably 2-3 years and $450-500 is more realistic, given the extremely deflationary environment.
I seem to be the only gold writer who gets the concept of a Cyclical Bear Market occurring in a Secular Bull Market, let alone anticipating one now. Gold and silver had two Cyclical Bear Markets in the previous Secular Bull Market that peaked in 1980, corresponding to Elliott Wave 2 and 4 downcycles, see http://tradethecycles.blogspot.com/2008/03/gold-and-silvers-two-cyclical-bear.html.
.......http://www.JoeFROCKS.com/ .
NEM XAU HUI
Labels: Gold, Gold Stocks, HUI, NEM, Silver, Silver Stocks, SPX, XAU
posted by Joe Ferrazzano at
7:27 AM
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