Tuesday, September 15, 2015

Gold Trend 16 Sep 2015


Term ~ Bearish- Need a monthly close above 1800 to confirm the bull market final phase underway. Need a monthly close above 1560 to neutralize the trend.
Medium Term ~ Bearish- Need a monthly close above 1255 to remove bearish trend.
Intermediate Term ~ bearish– Need close above 1148 for higher TREND.
Short Term ~bearish– Support is 1072-1082 and at 1095.  The short term trend is again bearish.


Initial Resistance 1107-1114  2nd tier 1122-1128
Support 1095-1099 2nd tier 1072-1082

The Fed’s decision is the main topic of conversation with Retail Sales tomorrow only gaining a mention.
There is some talk that as we approach month end and the potential U.S. govt. shut down that this could be a bigger event than is currently being portrayed! So, with stocks already trading on soggy ground, any unexpected news this week could see even further weakness in stocks.
With all the talk of lower growth and concerns over whether the Fed should or should not raise rates in the global slowdown, oil prices continues to decline and so does the spread. TWI settled at $44 and the spread around $3 yesterday. Gold did trade weaker early in the day but recovered to almost unchanged on the day.  Gold will most likely meander near the 1100 area until the Fed Meeting ends.
And that is the biggest story in the financial world right now…
On Wednesday and Thursday, the Federal Reserve will meet to discuss monetary policy. Many investors and economists expect the Fed to raise its key interest rate for the first time in nearly a decade.
During the financial crisis, the U.S. government took extraordinary measures to stave off financial collapse. Its defining act during this time was to drop its key interest rate to effectively zero.
It was an extreme act...one that the Fed had never done before in modern history.
Today, we’re almost seven years removed from the financial crisis…but the Fed still hasn’t reversed this radical policy. Its key rate is still effectively zero.
That’s because everyone & everything is so debt burdened and labor is so cheap that the majority can only afford food, clothing and shelter and that’s even a stretch.  This does not grow an economy.  Only non-discretionary spending does and the majority are too broke to do so.
When interest rates are effectively zero, borrowing money is extremely cheap.  In the past that was enough to get the economy going again, but not anymore.  This is why we are at the end of the debt cycle and the only remedy to all of this is going to be a debt default.
And it’s not just the USA ---- China total debt has nearly quadrupled, rising from $7 trillion in 2007 to $28 trillion by mid-2014.  As you can see by the chart below, the real downtrend that began in China at the 2008 crash continues to go down as the global economic slowdown continues.  The worse it gets, the faster the debt default will arrive.
 
This is how Rome collapsed into a deflationary depression and drove the world into the dark ages that lasted 400 years.  
Thankfully the flow of information is literally millions of times faster today and thus the coming dark ages will most likely only last 40 months.
To get an idea of how fast and how much information flows consider this.
From the dawn of civilization to the year 1999 a vast amount of data and information was created.  That same amount today is created EVERY 48 HOURS.
By making enormous amounts of credit available the Fed has stoked the economy, stocks, and the housing market. There are record highs in real estate, stocks, bonds, but the reality is that it is money with nowhere to go.
And the danger of Margin debt, the value of stocks bought with borrowed money, is at an all-time high. It’s 28% higher than its last peak just before the 2008 financial crisis.
  • Stocks have nearly tripled from their 2009 lows. The current bull market in U.S. stocks is 79 months old and counting. It’s now the third-longest bull market since World War II.
These record highs aren’t the result of a healthy economy. They’re a fantasy created by zero interest rates that make it extremely cheap to borrow money.
But now the Fed wants to raise rates because they don’t want to enter another recession at zero rates.  The rest of the globe has mostly turned down and the high dollar and lower demand warn that the US will not be excluded.
So will it tank commodities and gold?
It might for a few days, or even a few weeks but the reality is that commodities have ALREADY crashed.   Just look at the chart below.  Yes prices continue to go up but ITS NOT BECAUSE OF RAW commodities.  Its because of increased regulation by Government which is increasing the cost of doing business and thus it gets passed on to consumers.  Don’t get me wrong, corporate profits are at records also in many sectors and thus some of the increases are coming from business.  For the consumer, taxes, fees, excise, services, interest on the debt, and more and more tax laws are literally crippling most of the population. THIS IS WHY the price increases WE SEE are not inflationary.  In fact, they are DEFLATIONARY because money is getting sucked up by governments and that means that the populous has less and less to spend.  Let’s not get caught up on semantics.  WE AGREE PRICES keep going up, and if you want to call that inflation, then be my guest.  But it is not commodity inflation and that’s the difference.  
LOOK --- commodities overall are LOWER THAN THEY WERE IN 1982 --- a full 33 years ago and when the Dow Jones was under 1000.  If rates were not at zero and if the banks hadn’t been bailed out - the debt crisis would already be over, and the global economy would start a massive boom.   
 
It is rare that gold rallies all by itself.  The great gold bear market from 1980 to 1999 was the same for commodities for the most part.  And the Bull run in gold from 2000 to 2011 only lasted until 2008 for commodities (we did get a blip back to 2012). And so my friends, the great re-flation all expected has failed!!!  The debt is too big and it must be defaulted on.
What Next?
The global nations SOVEREIGN DEBT is going to default.   It’s already underway. Look at the headline below: Wait until Europe implodes.  
Brazil’s Credit Rating Cut to Junk Bond Status !
If we look at the fall of Rome, the first asset class to decline was real estate, as you cannot take it with you when you leave town. Thus, the population of Rome collapsed from 1 million to 15,000 by the Middle Ages. People had no choice and just walked away, unable to pay the taxes demanded.
Taxes are the great destroyer. You are an economic slave if you simply cannot retire without having to pay taxes. Taxes reduce economic growth and lower productivity for they suck money out of the economy.
One more chart on Deflation in  Europe….Switzerland.

Gold Short Term
Our last update discussed the potential to rally back to 1115-1122 before resuming the downtrend and Thursday’s price high was 1116.  Odds favor we’re going to test the 1095-1102 area and potentially 1072-1082 next.   
As far as resistance, we should see 1115-1125 as upside resistance.  Any close below 1072 will favor a move to the 1035-1040 area and potentially 1000.  It takes a weekly close back above 1122 to take pressure off the downside.




M Samer Al Reifae
Official HiWayFX Representative in Romania 
http://lordoftruth.blogspot.com/
samer@hiwayfx.com
samer@hiwayfxglobal.com
+40 734 277 757

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