March Gold Report: Mister Market's Magnum Opus

By Steve Betts       Mar 8 2010 3:04PM www.thestockmarketbarometer.com

Mister Market’s Magnum Opus

On Friday we had an employment report that exceeded expectations even though the economy lost another 36,000 jobs thanks to some suspect mathematics. The overall unemployment rate held steady at 9.7% although

the January figures were revised lower by 5,000 additional losses. Net of the temporary census related spike the month of February would has lost 51,000 jobs and from peak to trough 8,425,000 people have lost their jobs. The February U.6 unemployment level rose to 16.8% from 16.5% in January while the SGS-Alternative Unemployment Measure hit 21.6%, up from 21.2% in January.

With respect to unemployment many point to the improved profits of companies and say that things are improving. There are two things you need to consider when listening to this argument: profits are improving but only after expectations were lower by 90% and these profits are the results of cost cutting as a way of compensating for reduced revenues. Although difficult to prove I would estimate that many companies have now cut costs down to the bone. Aside from that they are trying to compete in a world market that is choking from an excess of production. Any improvement in employment will start first and foremost with small businesses and they are presently reducing and not even considering hiring. If the reports I read are to be believed, small businesses are preparing for a wave of tax increases they see coming down the pike.

Given the present situation the Fed is trying desperately to create inflation by opening the monetary spigot wide and thereby weaken the dollar. Unfortunately the problem is that the public isn’t going along with the program, and neither are the banks that instead chose to take their free taxpayer money and deposit it with the Fed for a reasonable interest rate. Americans want to save, deleverage, and pay down debt. The problem arises when you have a country like the US where consumption is 73% of GDP, you’ll see GDP eventually collapse. The coming collapse is reflected in the money multiplier, the amount of money the banking system generates with each dollar of reserves, which began to fall through the floor more than a year ago and is still falling as you can see in the following chart:

This chart clearly demonstrates that you can print money until the cows come home, but if no one wants it the result is the same as nothing. Finally, this chart is the best argument going for deflation and the last thing the Fed wants to see.

All of this weighs on the markets depending on the moment of course. All markets are discounting mechanisms but each one discounts at a different rate. Perhaps the most sensitive of all the markets is the gold market and I believe that is due to the fact that gold represents a store of wealth and it is the only real money in existence. Everything else that passes for money in today’s world can be created out of thin air, but that isn’t the case with gold. Its supply is finite and it has existed as money for more than three thousand years. Most fiat currencies have a shelf life of fifty years under the best of circumstances. Right now gold is on the verge of making a significant breakout to the upside as it tries to close above strong resistance at 1,136.7, and actually managed to do so on Wednesday closing at 1,140.10. The spot gold closed out the week at 1,134.30 and every time sellers tried to push the price down during the week, buyers jumped right in to push it back up.

As you can see in the chart above, gold had a minor upside breakout almost two weeks ago and now appears to be staging a major breakout to the upside. Assuming Wednesday’s close above 1,136.70 wasn’t a false break, and there is no indication that is the case, we should see gold move higher this week. There will be further resistance at 1,148.70 and 1,158.20, and then it will be a clean shot all the way up to the 1,219.20 resistance that turned back the last rally. Besides we can see that RSI, MACD, and the histogram are all headed higher, while the price is now firmly above both the 50-dma as well as the 200-dma. Finally, we can see that the Point

& Figure chart sports the same 1,300.00 bullish price target that we saw in last week’s report and remains extremely positive.

Gold is not the only thing that is looking better, both silver and the mining stocks are looking up as well. With respect to gold’s poor cousin silver and the gold stocks we can see continued improvement. Silver in particular is on the mend as you can see below, but still lags gold:

We can see that RSI, MACD, and the histogram have all turned up, but silver has yet to break out to the upside. In order for that to occur we’ll need to see the spot price close above 18.30 and that is almost a dollar above Friday’s close at 17.35. On the other hand, silver now appears to be firmly above what was good resistance at 16.45 and now becomes good support. As long as the spot silver price remains above 16.45 the white metal will remain bullish, but in order to say that I am really bullish silver, I want to see a close above strong resistance at 19.20. Below I have posted the relevant Fibonacci support/resistance levels for both spot gold and silver:

Now let’s focus on the US dollar and it is worth noting that the greenback has had three significant intraday rallies over the last eight sessions and yet

all three session ended the day in negative territory. The US Dollar Index on Friday closed out the week on a negative note, falling .04 to go out at 80.46. This is right on the neckline I have mentioned so many times, but well below the intraday high of 80.89. From a supply standpoint nothing has changed as the US government remains obligated to finance its obligations with the printing press, meaning that there will be an always increasing source of greenbacks. It also guarantees that this is nothing more than a reaction and, sooner or later, the dollar must resume its decade

long run toward oblivion. All this reaction is doing is putting more money into the pockets of the eventual short sellers.

The US Dollar Index began this reaction at 74.23 at seems to at least temporarily stalled at 81.32 which happens to be very good resistance. The fact that it has fallen back below the neckline, combined with three failed spikes to the upside, is a warning that although it could go higher, the top is nearing in not already there. Then there is the extremely bearish price target of 63.00 in the Point & Figure chart that has existed for months and is a warning that reality will rule over the long run. Never lose sight of the fact that all fiat currencies are not money, in reality they are debt since they represent a promise to pay backed by nothing. History teaches us that all fiat currencies end the same way, worthless, and the dollar is now headed down that road. The only real question is how long it will take it to get there. Right now we have good support at 79.62 and should this fail it will add considerable weight to the argument that a top is in and accelerate gold’s rise. Meanwhile, we will just have to watch.

In conclusion, I want to leave you with the following clip from Saturday’s newspapers:

NEW YORK, Mar 5, 2010 (IPS) - Civil liberties advocates and U.S. constitutional law scholars lost no time in condemning proposed legislation introduced in the Senate Thursday by Senators John McCain and Joseph Lieberman that would hand the government the power to indefinitely detain any/all terrorism suspects without charge and to conduct trials through military commissions only.

Laura W. Murphy, director of the ACLU Washington Legislative Office, said the bill was "a direct attack on the Constitution."

Chip Pitts, president of the Bill of Rights Defence Committee (BORDC), told IPS, "This bill's warped understanding of international law and its mistaken predicate still blur actual wars - such as those in Afghanistan and Iraq today - with the politically appealing yet misleading and overbroad chimera of an endless and geographically unlimited 'global war on terror'."

Prof. Frances Boyle of the University of Illinois law school, told IPS that the current controversy had its roots in the administration of President George W. Bush, who created a universe of "legal nihilism where human beings - including U.S. citizens - can be disappeared, detained incommunicado, denied access to attorneys and regular courts, tried by kangaroo courts, executed, tortured, assassinated and subjected to numerous other manifestations of state terrorism."

"This category of 'unlawful enemy combatants' negates almost the entirety of the post-World War II regime for the International Protection of Human Rights established by the U.N. Charter in 1945 and most of the major international human rights treaties," he noted. 

This is your future and the only thing left to do is broaden the definition of what is a terrorist and then you’ll have to figure out a way to stay out of jail. There is an old adage that grew out of the second World War and it goes something like this: They came for my neighbor the Jew and I did nothing. Then they came for my neighbor the gypsy and I did nothing. Then they came for my neighbor the black man and I did nothing. Finally they came for me, and there was no one left to do anything… That’s where you are headed unless people start to take a stand. All the more reason to buy gold!

The is compiled by www.shadowstats.com.

Steve Betts
Stock Market Barometer SA
March 07, 2010

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Steve Betts has been involved in the futures market now for over twenty years.