Gold/Platinum Ratio And The Coming Depression

During the gold bull market of the 1970s, the Gold/Platinum ratio was in a significant uptrend. It went from about 0.2 to 1.4 over a 12-year period. That is a seven-fold increase. At the start of the current gold bull market (2001), the Gold/Platinum ratio was just a bit higher than 0.4. If the ratio was to emulate its performance during the last gold bull market, it could reach 2.8 (that is gold being 2.8 times the value of platinum).

Similar conditions to that of the 70s, which propelled gold and other commodities higher during the 70s, are present now. However, this time, due to the current higher debt levels relative to GDP, compared to that of the 70s, conditions are more in favour of gold than commodities like platinum (that are more reliant on economic activity).

In the chart below, you can see that debt levels relative to GDP were much lower than it was during the Great Depression, as well as what it is currently.

US Debt to GDP ratio

 

What this is telling me, is that we are going to have conditions that are more like the Great Depression, for the remaining part of this gold bull market. The economic decline, which will mainly come as a result of the debt bubble bursting, will negatively affect a commodity like platinum, when compared with gold.

Although commodities, like platinum, will outperform most asset classes over the next years, they will still depreciate significantly as compared to gold (and silver).

Gold/Platinum Ratio suggests much higher gold prices are coming

There is an interesting pattern developing on the Gold/Platinum Ratio. This pattern is similar to a pattern on the silver chart. Below, is a graphic which features the Gold/Platinum Ratio chart (top) as well as the silver chart (bottom) (charts courtesy of stockcharts.com):

 

gold platinum ratio similar to silver chart

The graphic is self-explanatory, and indicates that the Gold/Platinum Ratio is in a position similar to where silver was at the end of January 2011. If the ratio was to continue to follow the silver pattern, then we could have gold being 1.7 times the value of platinum in this year. This is consistent with my expectation of a significantly higher “real’ gold price (relative to stocks and most commodities).

Note, that it is more probable that an increase in the Gold/Platinum Ratio would mean higher nominal gold prices, instead of lower gold prices. This is due to the fact that the recent decline in the ratio corresponds more with the correction in the gold price, since September of last year.

For more of this kind of analysis to help you navigate the financial markets, subscribe to my premium service .

Warm regards and God bless,

Hubert

http://hubertmoolman.wordpress.com/

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved.”

Gold Stocks Forecast – Why Gold Stocks And Why Now – Must Read!

Gold Stocks look set to rise significantly over the coming months. The current economic conditions are ideal for a gold stocks rally. This video deals with the similarity between current economic conditions and that during the Great Depression, and why these conditions should fuel a gold miner rally. It also covers technical analysis of the HUI and JSE Gold Index. See my Gold Mining Special Report for more detailed and usable information. The video follows below:

How To Choose Gold Stocks During This Rally

The current economic conditions are, in substance, very similar to that of the Great Depression. I have recently highlighted some of these similarities in a video presentation . The pattern that is being followed, suggests that the next big event, will be an acceleration of the increase in the price of gold, as well as a significant rally in gold stocks, despite economic decline.

During the Great Depression, there was a significant decline in economic activity. This economic decline was a key driver of a higher real price of gold. That is, that the price of gold increased significantly compared to that of other commodities. This created favourable conditions for gold mines, and boosted their profits significantly.

The current debt-crisis should continue to put pressure on economic activity world-wide. Future production and consumption are being held ransom, by the huge debt obligations (whether debts get settled or defaulted on). During such conditions, the monetary demand for gold increases while the demand for commodities is badly affected.

Despite pressure on the demand for other commodities, their price should still increase (due to monetary inflation); it is just that the price of gold should increase faster. This is essentially why the real price of gold increases.

Gold appears ready to make the $2000 level its new home. Below, is a gold chart, which I featured in my 6 October gold update to my premium subscribers:

The drop in price, at the end of September, was just a re-test of the upward sloping resistance line. According to my fractal analysis, the crossing of this line starts a new phase in the gold bull market, where prices are expected to trade in a more bullish channel. This period is similar to that of August/September 1979 to January 1980. More detail of this comparison with the gold chart of the 1970s, can be found in my Gold Fractal Report. The current debt-crisis should continue to boost gold over the next couple of years.

In order to achieve maximum benefit from the expected rally in gold stocks, it is important to choose the right type of gold stocks.

Despite the likelihood that most gold stocks will rise during the next couple of months and more, some, for example, perform better when the going is good and vice versa. In my previous gold stocks article, I presented the following chart (from finance.yahoo.com):

It illustrates how the South African gold stocks underperformed the HUI significantly, since 2001. Those who would have invested in the South African gold stocks in 2001, would have missed out on the big gains made by the non-South African HUI stocks. This is another example of how some stocks perform better or worse, depending on the conditions.

My current research, however, favours South African (SA) gold stocks over other gold stocks, for this next rally. The current and coming conditions are an ideal set-up for these stocks. Again, it is important to ask which South African gold stocks. My analysis (fundamental and fractal analysis) of the economic conditions, as well as the expected levels of the ZAR gold price and energy cost, which affects SA gold mines, helps me to choose the ideal ZAR gold stocks for a particular time.

Currently, I favour the ones that do well when the going is good. Below, is a chart (from finance.yahoo.com) that compares the price of Anglogold (AU) with that of DRDGold (DROOY):

DRDGold, is a good example of a gold stock that performs well when the going is good for SA gold stocks in general. On the chart, I have highlighted (with yellow) the last period of ideal conditions for SA gold mines; during which, DRDgold significantly outperformed Anglogold. Since then (about May 2002), conditions have not been that great for the SA gold mines, therefore, Anglogold has mostly outperformed DRDgold. It appears we are currently entering a period where DRDgold is likely to outperform Anglogold.

The HUI is set to spike, and break out at the all-time high level soon. Below is a long-term chart (from finance.yahoo.com) of the HUI:

The 500 area has now been successfully tested, and HUI looks set to rally over the next 4 months (at least). We could see the 800 level reached as a minimum.

I have done detailed Fractal Analysis on the HUI, XAU and the GDX, in my Gold Mining Special Report. The report also highlights why the current conditions are ideal for a gold stocks rally. The report is $50. I believe the report offers great value, and trust that you will find it useful and interesting. I offer a money back guarantee, should you not be satisfied with the report.

Please visit my site for more information or to subscribe to my free or premium service. I have also recently started doing free video updates.

Warm regards and God bless,

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Similarities Between Current Crisis And Great Depression

My latest video update: Great Depression vs Now

 

For more of this kind of analysis to help you navigate the financial markets, subscribe to my premium service .

Warm regards and God bless,

Hubert

Silver and Gold, Different Steps But Same Dance

It is well established that there is a high correlation between how the price of gold and silver trades. Thanks to this relationship between gold and silver, one is able to use historical trading data of the one good, in order to project what may happen to the price of the other.

Awhile back, I wrote about this in my newsletter:

“Do not listen to those who call silver a bubble! It is very likely that, believing them, you will miss out on the greatest silver rally in recent times. Now, I cannot tell you for sure that silver or gold is going to rally from here – nobody can. What I do tell you is that all the signs that I look at are indicating that silver and gold will rally significantly from around this area.

Silver compared to gold

Let’s compare silver’s attack of its 1980 all-time high to that of gold. I believe this to be a justified comparison due to the fact that silver and gold’s prices have such a high correlation; but despite that they have a high correlation, they sometimes reach similar milestones at different times. Let me explain by way of the following chart:

Chart generated at commoditycharts.com

The green is silver and the black is gold. I have marked a similar peak for silver and gold as 1 and another as 2. Notice how at one time gold and silver pass their similar peaks at the same time, and at another time they pass it separately. But even on the occasion that they passed their peaks at different times, the manner in which the peaks were passed were still very similar.

I have also indicated where gold bottomed but silver did not. Silver instead bottomed at about 1993. Again, despite the fact that silver and gold bottomed at different times, their manner or pattern of bottoming was still very similar.

So, there is not just a similarity in how gold and silver trade at the same time period, but also how they trade at similar milestones, despite the fact that those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone. In this case (milestone of reaching the 1980 peak), gold is undoubtedly the leading indicator, so it could help us to project what silver might do around this milestone.

I have previously made my view clear regarding where I think silver is in this bull market. I have noted that silver has formed a cup — in a similar manner as gold did — when it reached the $50 mark. I consider the pullback to the $32 area (about 1/3 retracement of depth of cup) as normal; therefore, I consider the probability of silver going lower than the $32 level as highly unlikely.

Let us see if gold’s behaviour, when reaching its (relative) 1980 high in 2007, can help us to predict what silver will do going forward.

In the chart above, you can see that gold made a triangle-type pattern just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern. From the flag pattern, price shot upward to the $1000 level. It is also worthy to note that point 4 of that flag pattern represents about the halfway point from point 3 to the eventual top ($1000).

Above, you can see that silver also made a big triangle-type pattern before it reached the 1980 peak. When it came out of the triangle, it rallied very strongly to the 1980 peak. At the peak it fell down to the $32 area. Is it currently forming a flag or similar pattern, just like gold did? I certainly believe so. I believe if price goes through the $42 level, it will confirm that silver is going to go back to $50 and soon blast through it, just like gold did through its 1980 peak. A fall below point 5, and all bets are off. However, I believe this possibility to be unlikely.

If we assume that silver does go through the $50 level, what target can we expect? If we use gold’s performance to establish a target for silver, it would appear that $80 would be a minimum. I think it will be much more.”

Currently, silver appears to be at the end of a flag-type pattern, just like gold’s at the end of 2007 (see above); so, it appears the correlation as explained above is still on track. Silver is about to take the lead in this precious metals bull market.

For  more detailed analysis on silver, see my Silver Fractal Analysis Report.

Warm regards and God Bless,

Hubert

Visit my Youtube Channel for my video updates on gold and silver

Turning Point By Hubert Moolman

I received an email from a good friend of mine, today. His comment, per the email, is in response to a prediction by Gann Global Financial, that 12 May 2011, was the 60-year anniversary of the commodity top, and that we might be at a turning point of what will be a 1 ½ year decline in overall commodities.

Below, is his email comment:

Hubert,

I don’t see how a failing dollar can allow for this prediction,

but it sure as hell seems like the markets are expecting it.

Initials.

I think his comment aptly summarises the peculiarity of the situation we find ourselves in, in today’s markets.

My reply (with additional comments added for this publication) is below:

Very, interesting. I agree we are at a big long-term turning point. I also agree that commodities have put in a long term high, but a high measured in what? Measured in dollar fiat or gold real money. My view is that commodities will decline significantly as measured in gold. Silver is more difficult, since it is part money and part classic commodity. However, the time we are going in now, should make its commodity role insignificant, and it will behave just like money, and follow gold. So, I would say that silver might have peaked in pure commodity terms, but as a currency it will peak when gold does.

So, commodities might have peaked (in real terms), but that means real money, is only just beginning its parabolic move. Fundamentally, gold and silver are real money and not pure commodities. We are in a time, where things will be exposed for what they really are. Fiat money and its related debt instruments will be exposed as worthless pieces of paper, whereas gold and silver will be exposed as the best value preservers.

Paper assets and other debt driven assets including stocks, have also peaked, as far back as 1999, and might soon start its panic drop, taking it to its lows. I think the K-wave analysts are right , when saying that we are in the Winter part of the K-wave. I believe this decline will last until at least 2020. I think so, due to a fractal calculation I did for gold.

The problem with establishing targets for the lows in commodities and stocks, is the fact that we are dealing with fiat money, which is an inconsistent measure. The 1965 dollar is, for example, is a completely different dollar to the current one. So the Dow, for example, should technically drop to $1000, but one is inclined to think that it might be impossible in terms of the current worthless dollar. I expect a huge drop in the Dow over the next couple of years, but whether it will be to $6000 or to $1000 remains to be seen. I believe both are possibilities. Remember, I think, the Dollar is closer to a long-term bottom, than a top, when measured against other currencies. Below is a chart (compliments of Yahoo Finance) I did for the Dow. I have indicated how two patterns (fractals) could be similar. The Dow might be searching for that point 5, before it could make a huge decline over the next 18 months or so. That point 5 might still be at 13100 or even at the all time high or higher, but we just have to wait and see. I have also indicated another possibility for the Dow, which suggest we might have a smaller correction (to about 9 -10 K), before we get to point 5 and the big correction.

Gold

In my opinion, gold and silver is looking extremely bullish at this point. Below is a gold chart which indicates a glimpse of my fractal work:

Gold should soon attack the upper boundary of the channel indicated. That means it should pass      $1600 very soon.  Based on the fractal work, it should eventually (after much volatility) go through the upper channel, and then really take-off from there.

Silver has just recently signaled and confirmed its intention to go to $100 and beyond over the next couple of years. By just about reaching the $50 dollar area, it completed a giant cup in similar manner to gold, when it touched its 1980 high. It is very normal to have a retraction after the cup is formed. It is normal for these retractions to retract about a third of the cup’s depth. For silver this can be anywhere close to that $30 to $34 dollar area, which means that should the cup be valid, the bottom for silver could be in. If not, it should not be much lower.

Warm regards and God bless–

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog and website for more of my work, as well as my free and premium service.

http://hgmandassociates.com/

You can email any comments to hubert@hgmandassociates.co.za

Gold Update

Below is my 16 March 2011 gold update, to give you an idea of my premium subscriber service. My gold updates are $10 per update.

If you are interested or would like to know more, you can contact me via email. I have just issued an update on gold and silver, today.

Warm regards

Hubert

hubert@hgmandassociates.co.za

Gold Update

16 March 2011

I trust that you are all well?

This is just a quick update on the gold market. The gold price has risen nicely since my last update.  Price movement has been consistent with the fractal predictions as per the 27 January 2011 update.

The purpose of this update is to highlight a possible interim bottom, as well as to forecast what is expected over the next +/- 30 trading days.

See the chart below:

The chart is really self-explanatory. The chart features a follow-up of the fractal presented in the 27 Jan 2011 update. I have marked points a, b and c to show the similarity of the two fractals. Also notice that point c on the first fractal was on day 33, from the bottom (at point b). It is interesting that the suggested point c on the second fractal is also on day 33. This is why I feel so strong that yesterday (day 33) was probably the bottom. If it goes lower, it should not be much lower, as well as only be a quick drop.

I expect gold to really start rallying tomorrow, and  should be at or close to the $1600 level, by at least the next 30 trading days. I also expect the gold miners to outperform bullion.

May God bless you.

Thanks and warm regards,

Hubert

Rand Gold Price vs JSE Gold Index by Hubert Moolman

Below is a chart that compares the Rand gold price to the JSE miners (JSE Gold Index):

The blue(ish) chart is the Rand gold price and the black one is the JSE Gold Index. I have indicated similar “fractal” positions, which indicate that we are at a point in time where both charts should rise significantly. The other important point to note is the fact that the JSE Gold Index should catch-up with the Rand gold price over the next 18 months or so, just like it did from late 2001 to middle 2002.

Warm regards

Hubert Moolman

http://hgmandassociates.com

The South African Gold Run

Just a follow-up on my rand gold price forecast. My forecast is progressing rather nicely. The price is making all the right technical moves.

Below is a 5 yr chart (from gold price.org) for the SA rand gold price:

Price is making its way up towards the target line, which is currently at about the R 12000 level. The upward move should start to accelerate from here.

Below is a closer look at the SA rand gold price chart (2yr):

 

I have indicated what I perceive to be a cup and handle formation. Read more about this formation here. This is a very bullish formation, and confirms the longer term forecast, dealt with in the previous chart. The target for this pattern is about the R 12 300 area. From here, price could move fast to about the R 10 700 area, have a break and a pullback, until it continues the march to the plus R 12 000 level.

It is an exciting time to be a gold investor, since returns should come big and fast. It is even more exciting to be in gold stocks, since they should come even bigger and faster.

Find more information about my free and premium service. I share my research on the gold, silver and general markets, via this free and premium service. Please check it out? You might just find it very useful.

Warm regards

Hubert  Moolman

Gold/Platinum Ratio And Economic Weakness… by Hubert Moolman

Most people are mainly concerned with what is going on right now and are less concerned with what happened yesterday, last week or last year. The further in the past an event or development, the less are we concerned about (or aware of) it, and the less is our understanding of it. This appears to be our nature, and it causes many to miss important “big picture” developments.

Here, I would like to discuss one such development and at the same time highlight the outlook for economic conditions over the next few years.

Platinum has been a star performer since the beginning of this century. From about the year 2000 to 2008 it went from just under $400 to a high of $2200. That is an incredible rally, and possibly unrivaled during that period by any other metal or investment class. What is discussed here for platinum holds true for many other assets, even fiat money, but in different aspects, and to various degrees.

Since about the turn of the century, platinum has become the prestige metal. Even credit card companies got into the act by replacing gold cards with platinum cards as their premier credit cards. This, together with platinum’s subsequent rise, ensured that the world became almost platinum crazy.

Even here in South Africa, where we have such an exciting gold history, it became evident that platinum was considered the “new” gold. It appeared that gold took the backseat and platinum enjoyed a new elevated status.

A lot of this fascination with platinum was due to it again becoming more valuable than gold. This platinum mania was indeed justified due to its stellar price performance, especially versus gold. However, it is this very fascination and mania that prevents many from seeing what has been developing over the last 40 years or more, and is now about to conclude (over the remainder of gold’s bull market). Many will be surprised at the impressive gold miner rallies, straight ahead, which will come despite weak general markets.

To understand this development, it is important to understand what the outlook is for the world economy over the next decade. I refer you to my view of the world economy for the next several years.

It is even more important to understand the underlying fundamental cause of this development, since most other factors, like the state of the world economy, are merely symptoms of the “wrong.” This and other articles on my website should help you understand the underlying cause of most of our economic problems.

For most of the last century we have had a corrupt monetary system. This corrupt debt-based monetary system has been suppressing the price of gold for at least the last 80 years. Fiat money and fractional reserve banking are main features of this system, which is the chief underlying cause of most of our economic problems.

This system is now in its 11^th hour, and so are all those trends that have come about due to its existence. One such trend is: platinum consistently getting more valuable than gold. There are many more, such as gold and gold mining shares as a percentage of global assets decreasing significantly since at least 1981, having plummeted from 26% of global (investment) assets in 1981 to just 0.8% in 2009, according to Sprott Asset Management.

It is important to note that there will always be such trends, such as increase or decrease between gold and other asset classes; however, under a proper monetary system they will not be as out of balance to the extreme that they are under a debt-based monetary system.

Below is a long-term gold/platinum ratio chart.

 

chart comes from sharelynx.com

During the gold bull market of the 1970s, it is clear that this ratio was in a significant uptrend. It went from about 0.2 to 1.4 over a 12 year period. That is a seven-fold increase. I have said it before, the same conditions that propelled gold and other commodities higher during the 70s are present now.

These factors are pushing gold higher now and will continue to do so for many years to come. I certainly expect the gold/platinum ratio to trend higher, just as it did in the 70s. As you can see on the chart, the trend for this ratio has begun moving higher in 2008, and like it did in the 70s, it will accelerate as we move along in this bull market.

The great debt bubble of the last century peaked in 1999, when the Dow/gold ratio peaked. This was the tipping point, which signaled the end of the prosperity that was built by this debt. This was soon confirmed, when gold bottomed, and started an uptrend that continues to accelerate. Likewise, in the middle of the 60s, the Dow/gold ratio peaked, whereafter the link of the dollar to gold was removed and gold started its upward march in the 70s.

We are on a downward economic activity trend, and this should accelerate and continue until debt levels are acceptable for a new economic boom. I believe this will take at least 10 years.

Despite the fact that commodities, like platinum, will outperform most asset classes over the next years, I believe that they will still depreciate significantly as compared to gold (and silver). This is basically what happened during the 70s and is also what happened during the great depression. I have written about  the similarities of the great depression, the 70s and today.

Below is a chart that shows the cyclical downturn(s) of industrial production in the US over the last 50 years.

 

You will notice that during the two parts (70 to 75 and then 76 to 80) of the gold bull market, industrial production turned  down significantly. Also, note that the downturn occurred towards the end of those gold rallies and, in the case of the second one, continued until after the end of the gold rally.

Back to the long-term gold/platinum ratio chart

On the chart, you will see a 25-year down-trend resistance line, which was broken in 2008. In textbook fashion, the ratio has moved up quickly since then, whereafter it has returned to test the breakout area. A quick move to 1 is expected very soon, and it would go a long way in confirming that the trend in this ratio is unfolding very much like the one of the 70s and is likely to continue throughout this decade. 

I believe that the ratio will reach the 1.4 level faster than many would believe (if they believe at all) and that it will go on to reach levels unimaginable for many, because they are unable to comprehend the long-term developments. I just wonder whether banks will revert back to gold credit cards as their premier card. Actually, I wonder if banks will still be around.

Warm regards and God bless–

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog and website for more of my work, as well as my free and premium service.

http://hgmandassociates.com/

You can email any comments to hubert@hgmandassociates.co.za

Dollar Gold, Rand Gold, DOW, JSE Gold and HUI – by Hubert Moolman

Let’s start with a big picture view. Below is a long term Dow/gold ratio chart. As you can see on the chart, it has just been one-way traffic the last ten years, with the ratio moving down from almost 45 to about 8.16. It seems that the next temporary stop might be between the 4 and 6 level. I have previously written how the 10 Dow/gold ratio level has been a pivot point back all the way to 1930.

This number has acted like a “golden ratio” in that things really start to happen before or after the Dow/gold ratio breaches 10, in either direction. In the past it was the level from where either the gold price or the Dow increased spectacularly while the other went nowhere to down.

 Chart generated on the stockcharts.com website

As you can see on the chart, in 2009 the ratio went through the 10 level (going down), touching 7, from where it went back to test the 10 level. Since April 2010, it has resumed the downward move and appears ready to accelerate its fall.

So, in my opinion conditions will continue to favour gold, relative to the Dow.

What will be the effect of conditions on gold, going forward?

Higher—much higher—prices. That will be the major effect on the gold price, going forward. From a shorter term perspective, things are much like they were in 2007. This can be seen from the following chart:

 chart generated on the fxstreet.com website

More information and analysis of this chart is available to subscribers to my premium service.

From a longer term perspective (see my Long Term Gold Fractal Analysis), conditions are much more like the 70s, when gold was continuously making all time highs. The similarities to the 70s are likely to continue throughout this decade, with conditions propelling gold higher on a parabolic path, whereas the world economy and the Dow in particular will be going nowhere. The world’s great debt bubble will continue deflating, and until it has appropriately deflated there can be no recovery. Along with gold and silver, much higher prices should eventually be expected for commodities, whereas paper and all things inflated by the great debt bubble of the last century should lose significant value relative to gold, silver and commodities.

What will be the effect of conditions on the Dow, going forward?

As I have said, I expect the world economy to go nowhere over the next decade. It can only recover when we are at the end of this huge debt crisis, which could take another 10 years or more. A peak in the gold price will likely be a good signal that the end of the world debt crisis is only a few years away. I believe we are still far from a peak in the gold price, however, which means we’re even further from having conditions suitable for a growing world economy and a Dow worth investing in.

I wrote previously: “Debt levels have become a huge burden and will strangle the world economy for at least the next 10 years. The debt will have to be settled eventually, either voluntarily (unlikely) or by force (death of all fiat denominated debt).  All future production will be severely reduced by the debt obligation and the effects will be a world economy in chaos and possibly with life threatening phenomena like starvation being the order of the day.

That is just how it works when you have huge debt – you will have less of your future income/production available due to the debt obligation that has to be met every month.”

From a shorter term perspective, the 11000 level could prove to be a barrier to the Dow, and it could fall to the 9000 level or below.

The Rand Gold Price

Below is a chart of the South African rand gold price.

 chart generated on the goldprice.org website

I have indicated a possible symmetrical triangle. In textbook fashion, the price broke out of the triangle, advanced for a few weeks, and has returned to a support at nearly the same level where it broke out. It is now at a point where it could spike significantly higher. This is a great signal for the SA gold miners, as well as possible evidence that the HUI breakout will have “legs”. For more analysis on JSE gold miners and the HUI index, please visit my website (premium service).

Conclusion

I believe gold and silver are the assets to own throughout the next several years. They might be the most functional assets with which to protect one’s wealth during the coming storm. I encourage you to look after yourself and your loved ones, and please obtain the most functional assets to protect your wealth.

Warm regards and God bless

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog (http://blogs.fin24.com/hubertmooolman) for older but informative articles.

My premium service is $10 per article.It covers various topics like the dollar gold price, silver price, rand gold price, HUI, JSE gold miners and Dow individually Please email me for more information.

You can email any comments to hubert@hgmandassociates.co.za

Gold’s Rise And The Dow’s Fate by Hubert Moolman

24 June 2010

In a previous article called “Gold, Dow And The South African Rand” (dated 24 May 2010), I stated: “we will probably have more of these scary drops in the gold price as we continue into this volatile phase of the gold bull market. The good news for gold bugs is that we will also have some huge up days, and the general trend will be very much up.”  If you look at the gold chart, you will notice that despite the volatility in the gold price since then, the trend is definitely up. When these scary drops happen, many people start panicking and eventually get “shaken off” this great bull market.

It is important to keep the big picture in mind. When one only focuses on the day to day movements of the gold price, one will be one of those who will lose out. At this point, where gold is going parabolic, you could sell all, and a week later the gold price could be $150 higher (or even more). At this stage of the gold bull, a sharp drop in price is an ideal opportunity to add to long-term positions; it is not a time to panic and sell one’s core holdings. Believe me, while gold is going higher in this bull market, there will be many sharp (daily or weekly) drops.

What is the big picture for gold?

The chart above is a long-term gold chart (thanks to goldprice.org). This chart is the big picture for gold, as far as I am concerned. If you look at the chart, like I do, then it should tell you that the gold price is going to explode upwards very soon. It should also tell you why looking at the big picture is so important, and why focussing on gold’s day to day movement might cost you a fortune. For more information about this gold chart and its analysis, you can purchase my Long Term Gold Fractal Analysis Report (email me for details).

What is the short-term gold picture?

I have marked the two patterns that I feel are similar. I have marked the patterns by highlighting 5 points on each. If the second pattern resolves in a similar manner to the first, then the gold price should hit point 5 on the upper resistance (trend) line indicated on the chart. For these fractals (patterns) to really be similar, there should be a measurable relationship between the two patterns, measurable in terms of time as well as price movement. So, for the second pattern to resolve like the first and still be a valid fractal of the first, it has a certain amount of time to do it, and a certain price movement to cover.

I can tell you that time has been moving, whereas price has not been moving as fast as should be expected (based on the time movement). What does this mean? If these two patterns are actually fractals, then price has to catch up with time, and that should mean strong rallies (shorter time periods) could be coming up. As I am writing this, gold is up $20 the last couple of hours. It is going to be interesting.

Is the big picture in gold, as shown above, consistent with what is going on in the world economy today and with what is expected going forward? Consider the following:

• Debt levels world-wide are at historically high levels
• These debts are holding back the world’s economy, and will continue to do so for a significant number of years. (see here for more on this)
• These debt levels are probably going to bring down the current world monetary system.
• All fiat currencies are depreciating, as measured against gold, and this will increase as more countries struggle to meet their debt obligations
• Tangible assets like gold and silver are under-valued as compared to intangible assets like equities and bonds. This is illustrated by the Dow/gold ratio. (see here for more on this)

When one takes into account the points above, then it is hard not to agree that the big picture in gold, illustrated above, is probably accurate.

If the world’s debt levels are at all-time high levels and are likely to hold back the world’s economy, then this should affect the economics of listed companies and the real values of companies listed on the great stock exchanges of the world.

This does not bode well for Dow and other listed stocks. They will very likely lose real value (as measured in terms of gold, silver and other commodities) over the next couple of years and beyond.

Nominal value (the value as listed on the exchanges in terms of fiat currency), is an altogether different matter. This matter is often referred to under the inflation vs. deflation debate. It makes things easier when one distinguishes between nominal and real values, when trying to understand this inflation/deflation debate, or where the stock markets are going over the next couple of years. One could still have higher nominal values for general stocks, notwithstanding bad economic conditions. Will we have higher or lower nominal values for general stocks over the next couple of years and beyond?

For more on this and gold commentary, you can subscribe to my free newsletter at http://hgmandassociates.com.

There are also some great signals that I like to use when forecasting where the stock market is likely to go in the future. One such signal or proxy is the value of the South African rand compared to other currencies. The South African rand has been a fairly reliable measure or proxy for risk aversion. When the general markets take a hit and everyone is running for safety, the Rand usually gets hit hard.

Below are two South African rand charts that I have been tracking. I have done some proprietary fractal analysis, which I would like to share with you.

The first is a 5 year US dollar/SA rand chart (generated on fxstreet.com). In a previous article, I have used this chart and more to show why I think the Dow has topped for now. On this chart, I have indicated two black lines as a possible trading range. I have also indicated two possible fractals. I have marked 4 points on each fractal pattern to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top line of the trading range and make its way towards the 9 price level. This will likely mean that the Dow will visit the 9000 level. This appears to be consistent with fractal analysis I have done on the Dow.

The second is a 5 year Canadian dollar/SA rand (generated on fxstreet.com). Again, I have applied my proprietary fractal analysis to his chart. I really like this chart, since it clearly illustrates (in textbook fashion) how effective fractal analysis can be. This chart gives a clear signal when fractal analysis is applied. It is probably due to the fact that both South Africa and Canada are resource based economies (just a guess).

Again, I have indicated two possible fractals. I have marked 6 points on each fractal to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top black line, and make its way towards the 8.5 price level. This will likely mean that the Dow will break down. The similarity of the sections indicated by the circles gives me added confidence that the second pattern will resolve like the first.

My other recent articles you will find at  http://blogs.24.com/hubertmooolman , since I only recently started posting here.

  ***

If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read informative sites such as this one. You can subscribe to my newsletter at http://hgmandassociates.com/. My newsletter is free and I send it out whenever I feel I have relevant information to share. I do gratefully accept donations, though, so that I can continue to research and write. Send me an email for details. 

May God bless you.

Hubert Moolman

You can email any comments to hubert@hgmandassociates.co.za

How to Benefit from the Greatest Transfer of Wealth – Must Read

by Hubert Moolman

 

Originally published on 16 February 2009

 

 During the 7 years of famine in Egypt, in the time of Joseph, one of the greatest transfers of wealth in the history of this world took place. The Pharaoh of Egypt obtained great wealth in the amount of land and people who became his servants. “And Joseph bought all the land of Egypt for Pharaoh: for the Egyptians sold every man his field, because the famine prevailed over them: so the land became Pharaoh’s” –Gen 47:20 

Not only did he buy every man’s field but also every man as a servant. With what did he buy every man and his field? With bread – “buy us and our land for bread, and we and our land will be servants unto Pharaoh” –Gen 47:19 

I believe that we have reached a time where the greatest wealth transfer in our lifetime as well as possibly in the history of this world is about to happen. Some people ask: “why the gloom and doom?” What they do not understand is the fact that this great transfer of wealth or collapse of the world’s monetary system (which they call gloom and doom) is inevitable due to past events. 

Some of these people go on the say: “what about the poor people?” and they want to make you feel that you do not care when you are warning of the coming collapse. What they do not understand – in addition to the fact that these events (which they call gloom and doom) is inevitable due to past events  and not because you want it – is the fact that they do not have to suffer this supposed gloom and doom. 

Anyone who makes a point of seeking the truth, educating himself, obtaining knowledge about the issues that face us, will not suffer, and in many cases will actually benefit from such events. The ones that will suffer are those who refuse to educate themselves by seeking and obtaining the required knowledge. “My people are destroyed for lack of knowledge” – Hosea 4:6 

There are so many people that are economically illiterate and they are not who many might think they are. They can be rich or poor, young or old, doctors or unschooled, financial advisors or whatever. 

Many people want to hang on to a system (world monetary system) that really brings gloom and doom. They get worked up when someone warns of the flaws of the current monetary system and what gloom and doom it already brings as well as the worse to come as result of the flawed system. They will do and say whatever to protect the flawed system, whether they are major benefactors of the flawed system or not. 

They continue to believe the lie, because it is “politically correct” or “socially acceptable” and they want to keep the so called peace – protecting evil in order to do good. 

Many people still follow or believe their leaders despite all the problems they find themselves in which, in most cases, is directly as a result of the actions of those leader. They deny (don’t want see) the truth and rather seek familiarity. 

The Pharaoh in the time of Joseph was definitely not like such. No, this man was very wise. He did seek truth, not familiarity. When Joseph explained to the Pharaoh what his dream meant, the Pharaoh believed him despite the fact that he did not even know him. 

How was the Pharaoh able to distinguish truth from error? Simple – he looked at the track record of the man. Joseph has had success interpreting dreams and this was witnessed to Pharaoh – “and I have heard say of thee, that thou canst understand a dream to interpret it” Gen 41:15 

Also, when Joseph explained the meaning of the dream, he also offered some advice as to what to do about it. Again, Pharaoh did not go back to familiarity, he did not follow his own advisors, but he again went to a man with a track record of truth and success with work. Remember Joseph was working for Potiphar, an officer of Pharaoh, and eventually became overseer over Pothiphar’s house due to his success. 

Back to Today 

We have a huge problem today in that debt levels worldwide are extremely high and even worse, it is incalculable. Now, it is imperative to understand that debt cannot be paid with debt. And when I say debt, I mean all debt: government, personal, corporate etc. Instead of reducing the debt it will just increase the amount of debt. Even when payment is made using money (non real paper money) one does not know to what extent the debt is discharged. This is because paper money is a promise to pay (various things from previously gold to future taxes, future production and even nothing) and one does not know to what extent those promises will be met, if at all. This is clearly understood when you understand that paper money is not an honest or consistent measure. You can read my article on “how do you measure wealth” for more on this. 

So actually one is just adding to the debt by creating more paper money to pay debt. It might not be so apparent but the debt will still be somewhere in the system. 

The debt incurred is the past events that will lead (and is already starting to do so) to the events that will translate into this great transfer of wealth. The coming world monetary system collapse is inevitable because the debt is heavy and it is real. 

Debt can only be properly settled with real assets, this is inescapable.  So if you borrow a car from someone, you are indebted to that person. You can settle that debt only by returning the car. The only real alternative to paying with that car is paying with what we call money (real money) which is itself a real asset. Like I explained in previous articles, real money is a capital claim on assets not a debt claim like paper money. To fully appreciate this one has to understand the function of money as well as what properties money should have.  Various commentators as well as I have written about the function and properties of real money. 

So it follows naturally that if debt is huge and it has to be paid by specific real asset or real money which is itself a real asset, real assets acceptable as full payment of debt would be in huge demand when debt is being paid off the proper way. However, I am not seeing the big debtors of this world paying their debt in specific real assets or real money. No, they are rather paying their debt with more debt (newly created money and other credit instruments). When they do this, the paper prices of real assets (more generally) eventually rise. 

To keep things simple, it would be acceptable to say that paying debt with real assets is deflationary whereas paying debts with debt is inflationary. Now you can see why governments are so scared of deflation. They don’t want to pay debts the proper way. 

I hope that it is now also clear why it is high inflation and hyperinflation that one should expect going forward. To expect the contrary is to bet that the US and others will actually start paying their debt with real assets like the kind that you have to dig deep into the bowels of the earth for. 

However it is not to say that certain assets cannot deflate significantly going forward. 

So, having specific real assets that are acceptable as full payment of debt is how you will prepare yourself for this coming great transfer of wealth.  This is because they eventually win both ways. It is really as simple as that. The Pharaoh simply accumulated food because he knew a big famine was coming, and throughout that famine he was not only protected but he gained enormously. Nobody knew how big the famine was going to be and therefore how much food had to be stored.  That is why Joseph collected as much food as possible. 

Savings is what saved Egypt and what will save you and I. A previous article of mine called “The truth about our money” will give you more insights about the importance of a store of wealth and how it is relevant to protect us from the coming events. 

Some real assets will be of course better than others. Food for example is the only thing that will get rid of hunger or water of thirst. It is important that you have the relevant goods or services when it is required. Since it is not possible to store everything that you might need in the future, it is essential that you have an ability to obtain the required goods and services when required, and this is why you have to have the best store of wealth. The best store of wealth is quite simply gold and silver and therefore they are a must have. And of course they are also assets that are acceptable as full payment of debt. 

Which real assets to accumulate, when and how to accumulate them are the big questions. I have given you some tips with regard to this now. However, this is where your quest for truth becomes very important. You have got to educate yourself; you have to get the designation EL (economically literate) behind your name. By reading sites like these (you are probably reading from one of the great informative sites where my work is published), where many knowledgeable writers share their knowledge, you are already making a great start. I hope to cover the importance of knowledge-sharing in a future newsletter. 

You have to be as wise as the Pharaoh. You have to distinguish truth from error. Do not be afraid to separate yourself from familiarity when it is flawed with lies or error. When choosing leaders or seeking advice, look at people’s track record. Where and how have they led people before? Do they have any success? Like I said Joseph had had success and therefore the Pharaoh trusted his advice. 

I would like to close by quoting the President of America, Barack Obama: 

“we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you” 

I would like to use his quote to send a warning to him and all world leaders out there, for if they are lying to us or plan to lie to us about money and the economy: 

“we say to you now that the spirit of truth is stronger than you and any lie and cannot be broken; you and any lies cannot outlast the truth, and the truth will defeat you and any lie; therefore do not lie to us” 

 If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read such informative sites as this one. If you would like to subscribe to my newsletter please send me an email. My newsletter is free and I send it out whenever I have something to “say”.  I do accept donations though, so that I can continue to research and write; email me for how. 

To read more of my work you can read the rest of my blog: http://blogs.24.com/hubertmooolman 

You can also find my articles at www.oreconsulting.co.za 

May God bless you. 

Hubert Moolman EL (Economically Literate) 

You can email any comments to hubert@hgmandassociates.co.za 

THE GREAT COMMODITY PENDULUM OF THE 21ST CENTURY by Howard Katz

(Will gold go to $3500?)

            Those of us in the older generation remember the 1970s.  It was a wonderful time (for gold bugs).  Gold went up.  Almost all commodities went up.  Bonds went down.  Stocks went down.  By 1980, most of the top mutual funds were gold funds.  All of the establishment gurus lost their shirts.  By 1981, they were believers in Dr. Doom.  The (non-gold) mutual funds went to 12% cash.

             If we wish to understand the 1970s (and subsequent American economic history), we must ask ourselves, what was the cause?  Why did gold and oil advance so powerfully?  Why did (consumer) prices go up faster than the money supply?  Why did interest rates get into the mid-teens?  (The prime rate in 1981 was reported as 20%; however, this was a false figure as the banks were trying to exaggerate.  The actual high is best given by the T-bill rate, which hit 16% in May 1981.)

             In the 1960s, Milton Friedman and his compatriot Anna Schwartz released a study which covered a century of American history.  It showed that, when the money supply increased by 3%-4% per year (about equal to population growth at that time), the price level was stable.  When the money supply increased by more than that, there followed, about 2 years later, a corresponding increase in prices.  For example, if the money supply increased by 10%, then prices might increase by 6%-7%.

             But in the 1970s, this theory, which had worked for a hundred years, went badly off.  Toward the end of the decade, prices were rising at a double digit rate even though the money supply had never increased by more than 9% in a single year.  In the 1980s and ‘90s, it was the reverse.  Ronald Reagan came close to doubling the U.S. money supply during his Administration, but prices remained fairly tame.  It seemed to be the best of all worlds, and Greenspan was called a miracle man by the media.

             These strange events can be explained by the great commodity pendulum.  If you look at nominal commodity prices from 1963-1971, you can see that they were flat.  But this was the period when Keynesian economics became dominant in U.S. policy.  The tax cut of 1963 was the start of this period, and through most of the 1960s the money supply grew by faster and faster rates.  Thus the stability of commodity prices during this time meant that they were falling in real terms and were becoming unnaturally undervalued.

             It should be noted that commodities show great long term stability of prices.  One can research the price of wheat back into the early 19^th century and find that in contractions wheat would hit a low of 50¢/bu.  This low of 50¢ occurred again and again through the 19^th century.  And in the Great Depression the low established for wheat in the early 1930s was 50¢/bu.

             But commodities are inelastic in price.  For a commodity’s price to rise there (usually) has to be a reduction in supply.  This means that commodity producers have to go out of business.  And commodity producers tend to hang on for a long time before they throw in the towel.  Commodity prices are thus sluggish and take a long time to respond to the forces of supply and demand.  Therefore, as the ‘60s progressed, the Fed issued more money, consumer prices rose, but nominal commodity prices remained the same.  As noted, commodity prices thus became undervalued in real terms.  Wheat at $1.40 in 1971 was the equivalent of 35¢ in 1932 dollars, its lowest price in U.S. history thus far.  With commodity prices so undervalued, when Richard Nixon abolished the slender tie which remained to the gold standard on Aug. 15, 1971, it was the signal for a massive rise in prices.  Commodity prices exploded to the upside.  Crude oil multiplied by a factor of 20; gold multiplied by a factor of 25.  These were the commodities which attracted the most attention, but virtually all commodities participated and made sustained price advances in the period 1971-1980.

 

             These advances in commodity prices fed through to consumer prices.  So consumer prices advanced for two reasons.  First, the Fed (no longer restrained by the Bretton Woods system) was increasing the money supply; second, commodity prices were catching up for their sluggish behavior in the ‘60s.  They were exploding to the upside, and they were increasing the prices of all consumer goods for which they served as raw materials.  This is why the consumer price index started outpacing money supply growth in the final years of the decade.

            I call this period (1971-1980, BC on the chart) the first upswing of the commodity pendulum.  The Kennedy tax cut of 1963 started commodities swinging back and forth like a giant pendulum: first undervalued (points B and D), then overvalued (point C), then undervalued again, etc.  In the down periods (AB and CD), commodity prices are declining; consequently consumer prices are relatively tame.  The Fed feels free to ease credit and print money.  Bonds go up, and stocks follow them up.  In the up periods (BC and DE), commodity prices are rising rapidly; this feeds through to consumer prices; the Fed finds that a little bit of monetary stimulation causes a substantial rise in prices.  So the Fed tightens.  Bonds go down, and stocks follow them down.

            The bullish stock market years of the ‘80s and ‘90s were made possible by the fact that by 1980 (point C) commodities were overvalued.  This caused an increase in supply and set commodity prices (both nominal and real) on a downward slope.  This moderated consumer prices, and the Fed was free to ease credit and create money.  This was the second downswing of the commodity pendulum.

            By 1999 (point D), commodity prices were again undervalued.  But this time it was much worse.  Greenspan, by his repeated easings, forced commodity prices below their levels of 1971.  Wheat at $2.50/bu in 1999 was 15¢/bu in 1932 dollars.  Today at $4.80 it is 30¢/bu in 1932 dollars, well below its Great Depression lows and even below its 1971 lows.

            In short people, these are the 1970s.  The double bottom in the CRB index in 1999-2001 is equivalent to the 1971 bottom.  The 2000 peak in the stock averages corresponds to the 1966 peak, and the coming peak in the DJI (in the next few months) is the early 1973 peak.  Gold and oil are once again leading the pack, but before this move of the pendulum is over every commodity will have its day.

            The first upswing of the commodity pendulum (BC) lasted 9 years.  But the downswing which preceded this second upswing was much more extreme.  So the second upswing will probably last, order of magnitude, 15-20 years.  And speaking conservatively it can easily carry to CRB 1200.  (This is the actual CRB, dating back to 1956 and being called the CCI by some people.  It should not be confused with the RJ-CRB newly invented by the modern Commodity Research Bureau.)

            Once you realize that gold is in a 15-20 year up move very similar to its move of the ‘70s, it becomes possible to calculate reasonable price objectives.  We know that gold hit a peak in 1980 of $875/oz.  (This is often stated in the literature today as $850/oz., but $850 was the high on Jan. 18.  If you research the New York Times for Jan. 22, 1980, you will find an interday high of $875, Jan. contract, NYCX reported for Jan. 21.)

            Consumer prices doubled from 1980 to 1999.  It is conservative to project that they will double again on this second upswing of the commodity pendulum (as they did in the first).  That will mean a 4-fold increase in real prices from 1980 to the end of this second upswing (point E).  So for gold to hit $875 in 1980 dollars once again (as a peak price), it will have to reach $3500 in nominal terms.

            Pretty this will be.

If you need a new manager for your money, then I suggest you subscribe to the One-handed Economist.  (We don’t actually manage money.  We simply give our best recommendations on what to do and leave the final decision to you.)  You may visit our website, www.thegoldspeculator.com and pay via the Pay Pal button ($300/year), or you may send a check for $290 ($10 cash discount) to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.

Howard S. Katz was one of the early gold bugs of the late ‘60s and ‘70s, turning bullish on gold in 1965.  His favorite gold stock, Lake Shore Mines, went from $3/share to $39/share over the course of the seventies (sold at $31).  Katz turned increasingly skeptical about gold as it mounted its final rise in 1979, and he called the top after the close on Jan. 21, 1980 (with gold at $825.50/oz.).  Katz traded gold in and out during the ‘80s and ‘90s and once again turned long term bullish in Dec. 2002.  His thoughts on commodities, stocks, bonds and real estate are available in a letter entitled The One-handed Economist and published every two weeks giving specific advice on trades in stocks and futures.  This letter is available (both electronic and paper copy) for $300/year with a 3-month trial for $100.  Send to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.  (Include both electronic and mailing address.)