BANK OF JAPAN SET TO UNLEASE MASSIVE COST-PUSH INFLATION, PROPEL GOLD WELL NORTH OF $2,000

Image: Jonny O'Callaghan

Money managers are calling this week’s BOJ meeting, the most important one in many years. Key market players expect Governor Kuroda to imitate Ben Bernanke’s actions, and begin buying longer maturity bonds, and more of them, with electronically printed yen.

Kuroda has said he will do “whatever it takes” to get the Japanese inflation rate up to 2%. Cost push inflation (CPI) will likely be the horrific consequence of doing “whatever it takes”. Japan is the 3rd largest economy in the world, far larger than Germany, which is number 4. CPI could devastate Japanese savers. Worse, because Japan is such a large economy, CPI could spread around the world, and I think it will.
The only good news about CPI is that it could push the gold price well above $2000, and push your gold stocks to new highs.

1. All financial eyes should be focused on the BOJ (Bank of Japan) right now. Money managers are calling this week’s BOJ meeting, the most important one in many years.

2. It’s likely to be a key factor in determining the next big move for the price of gold.

3. Key market players expect Governor Kuroda to imitate Ben Bernanke’s actions, and begin buying longer maturity bonds, and more of them, with electronically printed yen.

4. If Kuroda disappoints the market, the yen could rally, and the Nikkei could tumble. If the yen rallied against the dollar, gold might rally too, simply because it trades mainly in dollars.

5. On the other hand, if the market believes Kuroda’s actions are a great first step in reversing Japanese deflation, gold could also rally. In the big picture, Kuroda seems to be creating a “win win” situation for gold.

6. The man formerly known as “Mr. Yen”, Eisuke Sakakibara, former vice finance minister of Japan, thinks Kuroda will fail to reverse deflation.

7. I don’t believe Kuroda will fail, but I believe most money managers are drastically underestimating the amount of money printing that is needed to get the job done.

8. Kuroda has said he will do “whatever it takes” to get the Japanese inflation rate up to 2%. Cost push inflation (CPI) will likely be the horrific consequence of doing “whatever it takes”.

9. Japan is the 3rd largest economy in the world, far larger than Germany, which is number 4. CPI could devastate Japanese savers. Worse, because Japan is such a large economy, CPI could spread around the world, and I think it will.

10. The only good news about CPI is that it could push the gold price well above $2000, and push your gold stocks to new highs. Right now, I don’t think you need any more good news than that!

11. Until CPI becomes a dominant theme in the eyes of professional money managers, a rising T-bond price will continue to be bullish for gold. Quantitative easing, and the resulting expansion of the Fed’s balance sheet, is the main driver of gold market liquidity flows.

12. You are looking at the daily chart of the T-bond. The good news, for gold market investors, is that there is an upside breakout attempt in play, today. Note the key HSR (horizontal support & resistance) in the 145 area.

13. Having said that, please note the position of my “stokeillator” (14,7,7 Stochastics series), at the bottom of the chart. The red lead line has risen to about 90. A crossover sell signal seems imminent, but I’m hoping that any sell-off creates the right shoulder of a bullish double-headed inverse h&s pattern.

14. It’s very common, technically speaking, for the price of an asset to rise a bit above a key HSR line, before overbought oscillators “work” to pull it back down, and that may be the case here with the T-bond.

15. The technical set-up of this bond chart is similar to that of gold. That’s the daily gold chart, and you can see that a crossover sell signal for my stokeillator is clearly in play.

16. It’s difficult for gold to rally strongly, when technical oscillators are overbought and flashing sell signals. A light sell-off now, or a sideways “drift”, could be just what is needed to begin a much larger rally of $200-$300 an ounce. I think that is exactly what is in the cards now, for gold.

17. Note the important HSR at about $1620. If the T-bond can surge above 145, gold should burst above $1620.

18. For a closer look at the gold price. That’s the hourly gold chart. Note the rough rectangular pattern, defined by the two black trend lines. The target is about $1575.

19. Oscillators are like the tides of the ocean, or a person’s breathing pattern. Fighting the natural tendency of gold to rise and fall in a small way, as oscillators move up and down, is not a good idea.

20. The situation in the Korean peninsula is potentially a big driver of higher gold prices, but that too, seems to be in sync with my stokeillator; tensions are building, but North Korea has not physically moved any significant number of troops, and that’s needed to raise the tension level. A major rise in tensions seems imminent, but it’s not quite here yet.

21. Gold stocks may need a little more “rest time”, too. Double-click to enlarge. You are viewing the BMO Junior Golds Index ETF daily chart. Note the “waterfall” action of the technical indicators.

22. That’s not a giant sell signal. It’s simply the cycle of “gold stocks life”.

23. While you wait for cost push inflation to become a dominant theme in markets around the world, gold stocks will rise and fall in a small way, like the tide comes in and goes out. A tidal wave of price is coming, but investors need to wait for it, with patience. If you are bored, from waiting for “the big one”, you may want to check out my intraday gold trading service.

24. GDXJ has a similar look to the BMO ETF. Double-click to enlarge. This is the daily chart. Volume declined during the recent rally, and now most technical indicators are rolling over, suggesting a little weakness is possible. Oscillators don’t create tidal waves, though. Fundamentals do. The fundamentals will create a tidal wave for gold, and these technical oscillators & indicators are telling you that the price of gold needs to breathe, in and out, like a person does. Let the gold price breathe naturally, and you’ll find the price action much less stressful!

Source: http://silverdoctors.com/bank-of-japan-set-to-unlease-massive-cost-push-inflation-propel-gold-well-north-of-2000/

Reading The Dow v. Gold Ratio

Stock Market_6

We drew upon analyst Russell Napier’s 2006 book Anatomy of the Bear in preparing our 2011 report on whether the bear market was nearing an end. Not exactly beach reading… but he does a masterly job pinpointing the factors at play at those moments when secular bear markets end… and secular bulls begin.

The bear market cycles identified by Napier don’t line up in lock step with our “fearsome foursome” chart, but after the crash of 1929, they line up almost perfectly. The inflection points Napier describes — when bear turns to bull — are in 1921, 1932, 1949 and 1982. And based on those previous market cycles, Napier’s book projected the next turn would come in 2014 — next year. (Which lines up with the 14½-year average for secular bear markets.)

But oh, what a wild ride we’d be in for between now and then. In a November 2012 presentation, Napier did not project a date… but he did say for the market to reach valuation levels equal to those earlier turning points, the S&P 500 index — currently above 1,500 — would crash to 450.

We beg to differ. Aside from the recurring pattern of lows smack in the middle of a secular bear — i.e., 1974 — we’ll cite Napier’s most compelling evidence. It’s the q ratio, or “Tobin’s q.”

This number is the brainchild of Nobel laureate James Tobin: Take the total market value of a company, then divide it by the replacement value of its assets (in other words, how much you’d pay to build the company from scratch).

You can apply the q ratio to a company or the entire stock market. Here’s our 2011 chart, updated to the present courtesy of Doug Short at Advisor Perspectives:

In every previous bear market cycle, the q ratio hit roughly 0.30 at each of Napier’s bear market turning points. Napier is convinced the next turning point will coincide with a similar reading.

We’re struck by the stratospheric reading the q ratio reached at the end of the 1982-2000 bull market — far, far higher than previous tops during the 20th century. We think it’s no accident. We think it’s the consequence of Alan Greenspan’s tenure at the Fed and his habit of loosening the monetary spigots at even the faintest hint of a crisis…

  • The 1987 crash
  • Saddam Hussein’s invasion of Kuwait in 1990
  • The 1991 recession
  • The 1994 “Tequila crisis,” when Mexico devalued the peso
  • The 1997 Asian crisis
  • Russia’s default in 1998
  • The Y2K scare in 1999

Couple that with all the money printing Greenspan and Ben Bernanke have done since 2000… and we suggest the q ratio might be moving up in a new long-term channel.

So what does that mean for the Dow, and gold and the ratio?

As we’ve written, we think the bottom is in. The level of 6,547 set four years ago this month will never be revisited. Beyond that, it becomes much harder to say. And once again, the Fed is to blame: Mr. Ritholtz says the Fed’s policies since the Panic of 2008 are a “wild card.”

Zero interest rate policy and quantitative easing “make it difficult to think of most gains as completely organic,” he says. “It also has made any comparisons to prior secular bull markets more challenging, as it introduces another variable.

“Under ordinary end-of-secular-bear market conditions,” he goes on, “I would like to see P/E ratios even lower and stocks even more hated/ignored. The Fed has disrupted those metrics, and that makes seeing the end of the secular bear all the more challenging.

“If you want a more specific forecast date for when I think it will end, my best guess is sometime between next Tuesday and 2017.”

We’ll stick our necks out a bit more in light of the Dow’s performance during previous secular bears, even as we acknowledge Barry’s caveat that we have “a decidedly small sample set” from the past century.

We reprise a chart of the bears and the bulls we published yesterday. In each of the last two secular bears, the Dow has a ceiling. We’re bumping up against the ceiling right now.

Look for a 20-25% downdraft sometime between next Tuesday and 2017. We have every expectation that the boomers who got sucked into stocks in the late ’90s… and again around 2004-05… only to get kicked in the teeth both times… and who are only now re-entering the market… will get kicked one last time.

That will knock the Dow to below 11,000… which at a 2:1 Dow-gold ratio, means gold jumps to $5,500.

Source: http://dailyreckoning.com/reading-the-dow-v-gold-ratio-part-ii/

Bernanke Announces Return To Gold Standard

For years, investors and analysts have heavily criticized the actions of Federal Reserve Chairman Ben Bernanke. Bernanke has earned himself a slew of nicknames for his money printing, with the most popular being “Helicopter Ben.” After studying the Great Depression for many years, Bernanke felt that the reason the U.S. slipped into such a rough patch was because of the lack of money supply in the economy. This is one of the main reasons that he has maintained his quantitative easing programs that have involved exorbitant money printing.

But after pumping trillions into the system, Bernanke seems to have found himself cornered. National debt is at an all time high, and the Chairman has decided that a bold and abrupt change is needed if the U.S. wants to continue on the path to prosperity. Late yesterday, Bernanke made the shocking announcement of the return to the gold standard, which was abandoned decades ago. “The safest way for the economy to proceed is through a new system that holds more accountability for the U.S. dollar and its value in the global markets,” Bernanke said in his statement.

The Gold Standard

In something of a mea culpa moment, the Chairman admitted that while his increased money supply has done well to prop up markets for the time being, it is not a sustainable solution. The reversion to the gold standard, he hopes, will allow the economy to march forward in a more stable manner. “The flexibility of a fiat currency has guided the U.S. through the toughest era since the Great Depression, but the time has come for a change,” said Bernanke.

Ben Bernanke

The move comes after a wave of fears sparked by the Cyrpus banking scare. At a time when investors have little to no confidence in their local bank, the Chairman wanted to ensure that savings and investments will always be safe on American soil, hopefully giving citizens peace of mind to continue to trust local financial entities [see also 50 Ways To Invest In Gold].

One important thing to note is that the timeline for the return will be relatively drawn out and smooth. The Fed mandates that by 2015 all currency must be backed by at least 30% of its value in gold. That figure will increase to 50% by 2017 and to 100% by 2020. The move brings up a number of big questions, like whether or not the Fed will audit For Knox or other institutions that conspiracy theorists have been attacking for years. For now, we will have to wait for more specifics, but investors can already begin preparing.

Prepping for a Gold Standard

With a hard seven-year timeline, investors can already begin allocating to gold as this move will surely spark interest in the commodity. Some may choose to utilize stocks and ETFs, but physical bullion will likely be the most popular, as this will likely spark fears of a gold confiscation in order for the Fed to have enough bullion to justify the move. While a confiscation is extremely unlikely, there are those who still fear such a move.

The final question that remains to be seen is what happens in 2014 when Bernanke’s term ends. The Chairman has already hinted that another term is likely not in the books for him, so what will happen when someone else takes the reigns?

Source: http://commodityhq.com/2013/bernanke-announces-return-to-gold-standard/