Happy New Year, friends!
First, a retrospective. Screwtape was forged out of the fullest heat and fire of the gold and silver mania of 2010-2011. I call it a mania now, though I didn't at the time. And that, to me, was the most important lesson of 2013. See, back in the day, it seemed more reasonable (to me, anyway) to interpret the then-ballooning prices of all hard assets as fundamentals-based. 2013 disproved that interpretation. Don't get me wrong: in all likelihood, the unrelenting, world-historical forces of Sociopathy and Folly that drove the world economy to the brink in 2008 simply took a breather in 2013, licking their chops and gathering strength for another foray at the global hippopotamus this year (or this decade, or next decade). Still, the fact that such a pause and major reversal could occur tells us that the price action of 2010-2011 was primarily speculative mania.
With that important lesson in mind, I believe price charts have become more important than any fundamentals-based arguments (e.g. of the "1001 reasons the dollar is doomed" variety you see on Zero Hedge once a week). My goal being to make money in 2014, my resolution is to avoid letting the bone-crushing stupidity of the American population, the knee-weakening asininity of the mind-bogglingly corrupt politicians, and the eye-watering chutzpah the Wall Street scumbags influence my investment decisions (especially short- and intermediate- term decisions).
A final point about 2013. For those wondering if or when the gold market will resume its long term bull trajectory, I say that the action of Q4 has been as ominous as the bloodbath that began Q1. I say this, because regarding the April crash, a violent washout and capitulation was certainly due after 12 years of price increases, and probably even healthy. So we saw the historical drop in April, and then the other shoe fell in June, giving the charts at least the potential to form a text book reversal (I've been arguing against that interpretation, but it was certainly a possibility). See the inset in the chart below to get an idea of what that might've looked like: I simply reversed the price action of the past 3 months. However, the actual grind downwards has no appearance of forming a bottom. None of the long "hammer" candlesticks, for example, that signify a capitulation. Not even a lot of volatility. And of course, a new daily (and weekly, and monthly) closing low.
And so in short,
though gold may have a relief rally, I believe it will break below its hugely important, never-been-broken, weekly-closing-price trend lines on the linear and log weekly charts [green and blue, respectively, on charts below], and that's a bad sign.
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| Linear, weekly closing prices |
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| Log, weekly prices |
Given that even the most optimistic interpreters of the past few years' price action must concede that gold is undergoing a major correction, it makes much more sense to me that the 50% Fib line of the entire post-2000 bull market will be hit before a capitulation occurs. Looking at the log weekly chart above, and the monthly chart below (as well as the daily chart, not shown), that level appears to be the $1050 level, so I expect a bottom in the monthly, weekly, and daily closing prices somewhere between $1000 and $1075, for another 10-20% drop.
