It's All About The Dollar
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Thursday, October 14th, 2010.
That's right folks, it's all about the dollar ($) in the financial markets these days, and the $ is all about its accelerating debasement at the hands of the Fed. This of course must be rubber stamped by the politicians to be considered 'legal', however it should be understood there's nothing legal about this as the destruction of the $ via fiat declaration is fundamentally unconstitutional. Fiat currencies all fail in the end due to corruption and deceit, and the $ will be no exception, first loosing it's purchasing power, now well underway, and then its status as the world's reserve currency, now coming into focus, which will collapse the US into a banana republic.
So, for these reasons the $ is falling. And with foreclosuregate now on deck to provide justification, acceleration in the $'s debasement rate can be justified by the plutocrats, meaning the $'s future is fait accompli. This is of course why gold and silver keep pushing higher, as alternate currencies and a store of wealth. The timing associated with all this is always a wildcard, however as per our excitement the other day, it appears our system remains in tact, with gold continuing to tick higher along with the open interest put / call ratio for GLD into expiry tomorrow. The thinking here is the squeeze will expire with ETF and precious metal share index options tomorrow, which are at elevated levels enabling the squeeze, and then prices will correct beginning next week.
Of course it's also possible gold could keep on trucking next week as well, which would be post ETF and precious metal share index (and the shares) options expiry this Friday. This is possible because speculators are gaming a QE2 announcement on November 3rd, which is looking very much like a 'buy the rumor sell the news' set-up if you ever saw one. What's more, this would also be a perfect sell point for a November high off a May low, which is a common trading pattern for the sector. For this reason then, I would consider such an outcome the outside date for an intermediate degree high within the secular bull.
And while such a top might not last long all things considered, if the Republicans / Tea Partiers change the political landscape in just a few short weeks from now, then thoughts of austerity might be entertained as well, which could send the equity complex reeling, including precious metals. In terms of volatility, if the chart of the CBOE Volatility Index (VIX) featured below is any indication, it's oversold condition will need to be worked off at some point, putting options expiry tomorrow in view considering open interest put / call ratios for both the VIX and VXX were low and falling. (See Figure 1)
The good part about the Republicans regaining control of the government again however is it will be easier for Ron Paul to audit the Fed and the US gold reserve, assuming one still exists. In fact, it might be this that sparks the next rally after we have a little correction possibly running into December. And if it's not this that sparks the next phase of the rally in precious metals, don't worry, the threat of a systemic meltdown because of the foreclosure halt will do it, no matter who is in power. Why? Because no matter what the Republicans or Tea Partiers say, the money to bail out the banks and keep the economy's wheels greased will need to be printed, and it will be you can count on that.
This is of course why the $ has been falling. And you should know that past a bounce off shorter-term support indicated below, long-term the $ is poised for collapse not only from a fundamental perspective (discussed above), but also technically. The chart below tells the story. I cannot remember seeing a more bearish chart pattern, with indicators poised to plunge, in quite some time. So again, past a technical bounce off of support possibly beginning as early as today or tomorrow, the $ appears doomed, with an ultimate Fibonacci resonance and head & shoulders pattern target of approximately 30, believe it or not. (See Figure 2)
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Good investing all.