What’s With Gold And The Dow Jones In Late September?

But we live in a world drowning in unserviceable debt. That includes companies trading in the stock market, as seen in last March’s spikes in yields for corporate bonds. That the current market decline might compete with the 89% decline for the 1929-32 market crash is a real possibility considering the debt loading of American business.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 671\Chart #5   Great Dep & Ours DJ BEV.gif

I see a lot of disappointment with the gold bulls about gold’s current correction, as was also the case for corrections #1-3 below. This is just how markets work; they go up and they go down.

At the tops of big bull markets, the points where big bear markets begin, retail investors believe they’re bullet proof, seeing only the possibility of ever more all-time highs. It’s a mistake they’ll ultimately regret.

Early in bull markets, at any market reversal investors begin focusing on the former bear market lows instead of the gains from them. So, normal bull market corrections tend to shake out weak and timid bulls before they move on again.

Markets are cruel things; they show no mercy to the gullibly bullish in bear markets or the fearful in bull markets.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 671\Chart #6   Gold BEV 2015-20.gif

Why am I so sure that the future for the stock market is one of deflating market values while the upside potential for gold, silver and the mining shares remains enormous? I’ll tell you if you promise to keep it to yourself.

I get inside information directly from the idiots savants at the FOMC; they’re planning on a Not QE-5 in the chart below the next time the stock and bond markets begin deflating that will put their last Not QE-4 to shame. My source tells me they spend hours a day practicing placing zeros after a 1 on their work stations, and the idiot that can enter $1,000,000,000,000 and hits their Enter key first wins a cookie.

Hey, this is how “monetary policy” is executed in the 21st century, and one of these days everyone will regret what these people have done with our money. That also goes for holders of precious metals assets. One day they may discover they’re richer than they thought possible, but can’t enjoy it in a world that has been reduced to grinding poverty for what we see below.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 671\Chart #7   Wk Cng Fed Hold 10Wk MA.gif

Lenin knew this.

"The way to crush the businessmen is to grind them between the millstones of taxation and inflation."

- V.I.Lenin

As did John Maynard Keynes

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

- Lord John Maynard Keynes

So, why did gold and silver see a selling panic last Monday in the chart below? The bad guys are still in charge of “monetary policy”, and obviously they can still cause a selling panic in the paper futures markets.  But the days are numbered where they can continue doing so. 

After last week, they still failed to force gold to correct 10% from its last all-time high of August. But even should they drive gold down into a 20% correction in the weeks to come, it doesn’t change anything in a world where the FOMC can “inject” $2.69 trillion dollars of “liquidity” into the financial system since the end of last year.

As September turns into October 2020, I wait for the day when both gold and silver advance more than 10% in a single day as financial asset valuations deflate and bond yields soar.

I know I’ve said this before, but this day is coming.  It’s best to have your positions in gold and silver before it does.

Here’s gold and its step sum going back to 1998.  Since then gold has gone up significantly.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 671\Chart #9   Gold & SS 98-20.gif

Or has it?

Looking at the expansion of the Federal Reserve’s balance sheet in the table below, since January 1998 it has increased by a factor of 13.52 while the price of both gold and especially silver have lagged far behind. To my way of thinking, this fact makes gold, silver and precious metals mining companies compelling bargains at today’s prices.

In the Dow Jones’ step sum chart below, since it’s high of its advance on September 2nd the Dow Jones price plot (Blue Plot / Market Reality) has decoupled from its step sum plot (Red Plot / Market Expectations).  We have the makings of a step-sum bear box below.  But I don’t take such de-couplings seriously unless they continue for at least eight weeks, with twelve or sixteen weeks even better.

The best way to understand a bear box is to understand the reality of a price decline is being denied by the bulls; in this case the bulls could be the idiot savants at the FOMC.  

Should a bear box develop in the coming months, the safe bet is to bet on the reality of the market decline, not the bullish expectations of the bulls. Unless this box continues to early November, it’s too early to think about that, but I’m keeping my eyes on this developing box.

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Disclosure: None.

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