We’re finally getting some good longer term bullish momentum on gold, which had been basing for the last few years. A long-spanning base after a correction is good for the long-term health of a bull market.

I’d like to share with you a chart I recently annotated with technical analysis, in the hopes it can help us to understand what’s going on in this fascinating market.

View the full interactive chart yourself here!

Here we have the longer-term chart, showing gold’s run-up to the $1,900 range and the subsequent correction to $1050. I’ve started by drawing the following:

• longer-term wedge around correction formation (Green Lines)
• Fibonacci retracement levels. (color filled levels)
• Resistance levels (red lines underneath old bottoms – support becomes resistance)

When we zoom in, we can see gold breaking out of the long-term green wedge, bouncing along the top of the wedge and then breaking out to form the channel we have today. It truly is amazing to see how strongly markets respond to trend lines!

When we continue to zoom in, we can see bullish flags forming stair steps as the channel matures. Each of these stair steps appears to settle on a different level of the long-term Fibonacci’s.

Further into the deep dive, we we reach more towards the present, we can see just how strong the reactions are off the old bottoms which have become overhead resistance. The old resistance levels drew it up like a magnet then repelled it. Yet it continues to test it for the time being.

At the final level of zoom, we can see up-close the reaction off the the $1,534 area which dumped all the way to about $1486!

Gold is looking very bullish and while it may correct in the near term, it’s looking like gold will perform very well overall this year. We may very well see a return to the $1,900 range in the near future.

Hard assets are one of the keys to protecting your finances from the corruption of paper money and ensuring some measure of stability, even as long-term values of paper assets dwindle due to debasement and mismanagement.

Let’s start by reviewing the period between April 2006 to January 2010.  This is when several levels of long-term importance were established.  Given the high at around $9 and the low at around $1.50, the fibonacci levels now influencing the share price are established.  Additionally, an up-trend was established, as indicated by the trend line from the dips in October 2008 and September 2009; this up-trend has remained in tact and serves as long-term support.

Here is a long-term chart for October 2006 to August 2011 showing the long-term up-trend with trend support at $5 and various reactions around key fibinacci support levels at 61.2% and 78.6%.

Here is the long-term chart for September 2008 to August 2011 showing the long-term up-trend with long-term trend support at $5.

Medium-term chart for October 2010 to August 2011, indicating a short-term range trade between long-term fibonacci levels 60.8% and 78.6% descending wedge with trend support at $5.

Short-term chart for March 2011 to August 2011, indicating a descending wedge formation nearing completion.

UPDATE: 9/2/2011

It looks like we have a short-term down-trend-line breakout on the 1-year chart in TRX.

TRX 9/2/2011 – 1 Year Chart – Tanzanian Royalty Exploration Corporation

Gold benefits from: out of control sovereign debt, nanny states, media mind control, war, over-the-counter derivatives, unfunded liabilities, trillion dollar deficits, accounting fraud, artificially low interest rates, quantitative easing, loss of confidence in governments and paper assets. Gold benefits from these things because it allows imbalances to get out of control in a major way.

In just 5 years the gold market has bid up the price by $1000. It is likely that, in the next 10 years, the gold price will rise to at least $15,000.

Oh, and did I mention that nothing meaningful or effective has been done to address those issues listed above, which help to create a bull market for gold. That’s why these kinds of great movements of civilizations can last for a decade or more; because of the unwillingness of societies to solve their problems until its too late.

Gold is Not in a Bubble

Gold is mistakenly thought of as being in a “bubble”; however, gold has a history of being a currency of last resort when confidence-based systems fail. So when you have vast sums of “wealth” worldwide tied up in confidence systems, such as the US-Dollar and the US reputation is subsequently crushed, what you see in gold is actually a deflation of a world-wide bubble of confidence in paper assets.

If you consider the trillions and trillions of dollars, still tied up in questionable confidence-based paper assets, why should $1600 be the ceiling for gold? The US and other major debtor nations never stop raising their debt ceilings and never address the underlying problems, so why would gold stop reflecting these problems anytime soon?

What I believe you will see, over the long-run, is that the next 10 years will look like the last 10 years; but sharper to the up-side and more violent in its volatility as things become increasingly more unstable.

Gold went from around $250 – $1600 during this 10 year period (a 560% increase); it will likely go from $1650 – $15000 during the next 10 year period (an 800% increase).

Why Gold May Eventually Reach $15,000

Jim Sinclair is well known for his prediction of the rise in gold to nearly $900 in the 1980’s. The formula Mr. Sinclair used was roughly: the price gold would have to reach, in order to make the gold held by the United States equal to the amount owed to foreign creditors, on the international balance sheet of the US.

In the 1980’s that “balanced” value was $900. Today the “balanced” value would be $15,000+.

Jim Sinclair | Jim Sinclair’s Mine Set

Assumption:

Because gold is held by many central banks, once as a reserve currency but now as an inventory currency, it functions as a swing asset to balance the International Balance sheet of the US.

Central banks are sellers of dollars but still hold, by default, large dollar inventories.

China has hedged its dollar position 50% through commitments to long term dollar commercial agreements, pay in, mineral, and energy deals internationally. That is an act of pure genius.

We can assume other central banks still hold 90% of their reported dollar positions, on average unhedged by commercial obligation positions.

In crisis times, the US dollar price of gold ALWAYS seeks to balance the International Balance Sheet of the USA.

Therefore:

Take 90% of international US dollar debt less China and then add 50% of the US debt owned by China. Then divide that number by the ounces supposed to be owned by the US Treasury. The result is where gold wants to go.

In 1974 this gave me $900 gold. Now you do your homework, and submit your analysis to me. Do this, and I will give you Angels going to that price by a little known technique of Jesse Livermore that only works on gold after it has broken to a new high above all resistance.

Little by little I am passing on all that I have learned from Jesse through Bert to those that read every day in thanks for your support of me and mine.

Jim

When you evaluate recent data, with the above formula, you get the following:

source: Jim Sinclair’s Mine Set

Using the methodology you specified in your article today, I get a target price for gold of: $15,600.

Most current TIC report: http://www.ustreas.gov/tic/mfh.txt

Total Foreign Holdings of Treasury Securities: $4,479.2 Billion
-Less : China – Mainland (1,144.9)
-Plus: 50% of China – Mainland 572.5

Adjusted Foreign Holdings of Treasury Securities $3,906.8 Billion

Number of Fine Troy Ounces held in Custody by the US Mint for the US Treasury: http://www.usmint.gov/downloads/about/annual_report/2010AnnualReport.pdf

Note to Financial Statements 6, “Custodial Gold and Silver Bullion Reserves”, page 59
Statutory value @ $42.2222 per FTO $10,574,053,000
Number of FTO 250,438,229

Valuation of Gold required to equal Adjusted Foreign Holdings of Treasury Securities
Adj Fgn Holdings $3,906,800,000,000
Number of FTO Gold at US Mint 250,438,229

Gold price Valuation $15,600

The Option to Protect Yourself is Still Available

So all of those people who complain about having missed their chance to protect themselves from what is to come are full of shit. Even if you can only spare a hundred or so dollars at a time to get a 1/10 ounce gold coin, or buy a few shares of a gold mine each month, you can benefit greatly by protecting yourself from the coming rout of inflation.

One interesting fact, is historically quality shares in gold mines have held a 3x leverage to the price of gold. This means that if gold goes to $15,000, the likely return on the share price would be at least 2400%. Junior gold miners can have an even higher level of leverage, given that their share prices tend to stay suppressed and then eventually explode when the fundamentals take over as gold rises.

Gold will be there for you to use when the value of everything else is called into question. It does not require anyone to perform on their obligations, as all paper assets do. Given that we are living in a vast sea of empty promises, is it any wonder that people are choosing gold and other precious metals to protect themselves?

Gijsbert Groenewegen | Groenewegen Report
Posted Jul 1, 2011

Increasing credit risk will cause much higher interest rates across the borders

The Belgian/French bank Dexia, with a ¤4.3bn or $6bn+ exposure (according to S&P’s Corp) to government debts in Greece, has back stopped (guaranteed) $17bn in municipal bonds in the US according to an article in the WSJ. As a result of the problems in Greece interest rates of municipality bonds in small towns in the United States used to finance municipal facilities like schools, bridges, ice rinks etc are being pushed up. S&P warned last month of a possible downgrade of Dexia’s investment- grade credit ratings. It looks indeed like Lehman revisited when one of the victims of the CDO crisis in the US was a small town in Norway which had bought “triple A” CDO s. And don’t forget the exposure of AIG to the housing market through the Credit Default Swaps (CDSs) that were never going to be called because of the triple A status of the CDOs, and how it almost bankrupted Goldman and others.

While other investors are stepping in to buy those bonds, they are demanding sharply higher yields as compensation for the increased risk following a possible downgrade of Dexia’s credit rating. As a result, borrowing costs for some municipalities are now the steepest since the financial crisis. Some cost of borrowing are tripling and quadrupling in a matter of weeks.

Dexia is obliged to buy as much as $17 billion in municipal bonds if investors withdraw during the remarketing or rollover process. Some $400 million has already been taken back though in those cases, allowing Dexia to increase the interest rate paid by the municipalities whilst at the same time it can demand an accelerated pay back schedule. Some municipalities are trying to replace Dexia with other banks though the refinancing is likely to lead to much higher interest rates in some cases from 3% to 12% which increase borrowing costs by tenth of thousands of dollars which in turn leads to very high fees for the related facilities.

With the QE2 ending on June 30 (the Fed has bought 85% of all treasury issuances this year!!) and higher credit risks higher interest rates could bring down the markets. If we break above the 4.80% level on the 30-y Treasury bond we will break out of the downtrend since 1981 and could see much higher interest rates with all its obvious consequences for the financial markets and economies.
Read the rest of this entry »

Martin Armstrong’s history has shown his mastery at truly understanding the laws of economics. He has predicted many of the pivotal economic events over the past few decades and has developed a highly sophisticated PI-cycle forecasting system, capable of cutting through the bullshit; becoming more aware of what is really going on in the world of economics.

On July 31, 2010 Armstrong published a newsletter issue titled Staring Into the Abyss in which he detailed his latest predictions for our future.  I have transcribed this newsletter, from its type-written form, so it will be searchable and more useful to the community.

Staring into the Abyss

Original PDF Version

by Martin A. Armstrong

When all is said and done, no matter how we spin the story, we are in the final stages of the collapse of Western Society as we know it. By that I do not mean the sky will fall and people will be running through the streets naked fighting over 2 week old bread. That did not even happen with the fall of Rome, nor with Communism in China and Russia. It is possible that our political ruling class become so desperate that they take the tyranny path to extort every dime from the people hoping to hold on to fleeting moments of past glories. When it is all said and done, we will ask how was this citadel of the earthly powers of man fallen, and laying motionless and prostrate on the ground before all the great empires that have expired before it. The answer will be the same. Debt and fiscal mismanagement. Our greatest problem has been our arrogance and presumption that we have conquered history and the laws of practical economics do not apply.

When empires die, the clash between private and public assets swings into hyperactive mode. Those who see the Dow crumble and fall to 1400 because that is what happened in 1929, fail to ever understand that such an event took place because of deflation that was created by the fact that the dollar rose to extreme levels when everyone else was defaulting in 1931. This is why Roosevelt confiscated gold and devalued the dollar by raising gold from $20 to $35. Money was still something tangible. Today, we are looking at a massive sovereign debt default on a worldwide level.

Under a situation from the European view in 1931, the only thing to survive was tangible assets. That is not only gold, but shares in corporations with tangible value. velocity is always the key for as it declines due to people hoarding money you get deflation. When people are afraid the money will become worthless (paper or debased coinage) they spend it faster before it depreciates and that creates hyperinflation at the other extreme. It all depends on where the confidence resides – with government or within the private sector. We are headed into the later.

I have been working at full speed to get this book complete. I have passed the 300 page mark and I am deeply in debt to those assisting me from outside to get me the reference material I need to ensure this is more than just an opinion, but also authoritative.

Adam Smith in his Wealth of Nations wrote in his final volume about Public Debt and what he asked was why people had ever considered lending money to government was safe or that their debt was somehow quality. I have been working on this issue in great detail. Smith stated that never had any government ever paid off its debt and that was in 1776. He was correct. I am assembling all the defaults that are a subject that no one seems to want to talk about.

Yet, there are stark and monumental conclusions that emerge from such a long list of defaults. Society does not end as the doomsday crowd portray. This seems to be just their desire or opinion. Many seem to wish disaster upon the world for they feel cheated and did not become rich with the crowd. But those sorts of claims are truly the exception. The fall of Rome ended in disaster as people fled cities and the population of Rome itself fell from 1 million to just 30,000. That was what the Romans called suburbium and why we still today call moving out of the city to the suburbs. The flight took place because of the collapse of the Rule of Law and unprecedented taxation that set in motion a migration that eventually lead to feudalism. Read the rest of this entry »

source: jsmineset.com

Jim,

Armstrong sees the Gold bull market lasting until roughly 2016 (17.2 years starting in 1999). Is it at this point that you see the USDX bottoming at .5200?

Is it at that point when you see the Federal Reserve Gold Certificate put in place? According to cyclical analysis it would come at the low point business wise of the 17.2 cycle.

How long do you think this world monetary system will take to be implemented?

I guess once again the US will lead the process.

Do you think China (or India) will take a major role in it?

Will it be done under the IMF umbrella?

After the Federal Reserve Gold Certificate is in place, do you believe that the world´s economy can enjoy some period of stability (with the exception of geopolitical considerations)?

Best regards,
CIGA Christopher

Christopher,

I see the USDX bottoming between .4600 and .5200, yes. I have learned not to argue with Armstrong on cycle timing. Gold should have a temporary high point between January 14th and June 25th, 2011.
Implementation is not a process, it is a surprise.

The US will not necessarily lead the process. By then the IMF will be the Western World Central Bank, if not in name, certainly in function.

China and India will play a major role by demand via back financial channels.

It will likely be done under the IMF umbrella as part of a Super Sovereign Currency.

After the Federal Reserve Gold Certificate is in place the world’s economy should be able to enjoy a period of stability for a considerable amount of time, but with a total rearrangement of positions of national economic powers moving towards Asia and do not forget Jakaya Kikwete and the common market of sub Sahara African countries of merit and leadership. They are there.

Regards,
Jim

As I write to you this evening, the very real prospect of hyper-inflation, a catastrophic currency event, is staring down the vast world of US dollar-denominated paper promissory notes. Gold is behaving like a bright comet in the sky, grabbing the attention of the keen observer and giving them an edge over others who are too distracted to look up.

The confidence model is rapidly crumbling, after many years of neglect; the US dollar bubble is finally bursting in an awesome way. If there were genuine integrity, then surely such a model would do; but the lack of sufficient moral fortitude in the hearts of men, makes it virtually impossible to have a confidence based economy for very long; because the confidence is merely an illusion and the model can only be sustained as long as the illusion persists.

On the daily chart, we see panic buying (and short covering) driving the price of gold to well above $1200 dollars. Major central banks, such as the Indian central bank, have become large-scale buyers of Gold.

It looks like my original medium-term target of $1379 is going to be upon us relatively soon. Our next target may soon be followed by a touch of the inflation-adjusted high of $1650, followed by a period of consolidation.

Gold Daily Chart: December 21, 2008 - December 2, 2009

The picture becomes clearer if we look at the inflation-adjusted monthly chart, showing the gold price action clear back to 1970. Considering official inflation statistics, we can see that gold has yet to move past its previous high, despite a vast expansion in monetary aggregates, which has occurred during the past several decades.

Gold Monthly: 1970 - 2009: $1650 Price Objective

Nobody can say for sure what will happen with the short-term fluctuations. But longer-term it is quite clear that the price of gold will move into the $5,000 range, as the reality of the need for hard assets sets in. It doesn’t take but a few billion dollars worth of gold purchases to create a significant increase in the gold price. Given all of the trillions of dollars already in circulation and the trillions planned for bailouts; the target of $5,000 will likely turn out to be a conservative target, once the dust has all cleared.

A golden comet now lights up the sky; an omen of what is in store for our future.  Gold is up just over 50% during the last 1-year period.  Given the buying strength we are seeing lately, especially from central banks, we will likely see gold in the $1600 range quite soon.

Of course, there will be road-bumps along the way; but the general course will take us to $1650 and then into the $3000-5000 range.  Where Gold goes beyond there depends on the monitary policies of the United States and what kind of thinking takes hold as all of this inflation begins to hit hard where it hurts.

The beautiful thing about gold, is the fact that it gives us all a clear omen, which allows the wise and observant among us, a chance to prepare for difficult times ahead.  This golden comet will become ever more brilliant with the passage of time.  Perhaps most of us will soon realize what is occurring and what they must do to deal with the situation.  This situation isn’t going to go away on it’s own and nobody is going to solve the problems  it creates for us in our stead.

Gold Swiss Stair Formation Following Wedge Breakout

The price of gold has cleared the former all-time high, reaching into the $1040 (USD) range for the first time in the history of the yellow metal.  The chart below illustrates how gold formed and broke through a bullish inverted head & shoulders formation, broke through the top of a consolidation wedge, and broke through a wedge in the MACD indicator.

With an RSI reading of 70, gold is one hot commodity.  This should start ringing some alarm bells at major money centers around the world.  It is becoming ever-more apparent, that we are experiencing a serious rout of inflation which could very well turn into a devastating wave of hyper-inflation in due time.

Gold Breakout Chart: October 7, 2009