"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, May 1, 2014

The Gold Cult

Cult  -

1.) a religious group which promotes worship of a human leader and devotion of one's life to a specific purpose.
2.)  A misplaced or excessive admiration for a particular person or thing

Cult of Personality -

1.) Intense devotion to a particular person.

Writing this short treatise brings me no particular pleasure but rather sadness. Sadness that some whom I count as friends have become trapped in this prison and cannot see it.

I have chosen in the past, and do so now again, to describe a certain portion ( I want to be clear that I am not lumping all under the same heading ) of the pro-gold or honest money camp as being cultish in nature. The similarities between their comments, writings and blind adherence to an inanimate object and those trapped in a religious cult are striking.

Having had some personal experience in dealing with people trapped in religious cults, it is not hard for me to see the same symptoms in those who have been swallowed up by the cult of gold. The most obvious of such symptoms is the inability to see reality as it is. Statements of fact, logic, sound reason, empirical evidence - all are easily dismissed by those snared in the cult if such things happen to contradict the centrally held tenets. Those who speak against the cult are viewed as unenlightened or uninformed at best, and inimical to truth and therefore enemies at worst.

Generally speaking, a cult also has either a charismatic leader/(s) whose authority is beyond questioning. Those who would challenge the statements of such leader are immediately ostracized if such a challenge arises from within the cult, or ridiculed and held in contempt, if the challenger is outside of the cult.

These leaders more often than not, claim to possess an esoteric knowledge, a sort of key to the mysteries of the universe, which lesser gifted humans are not capable of receiving. They tend to reinforce this as often as possible so as to lend further credibility to themselves among their followers. This special insight into things either divine, or in the case of gold, economic in nature, is claimed so as to strike a sort of awe bordering on the realm of reverence.

Free thinking is discouraged if not outright forbidden as the members are expected to fall into line behind the prescribed belief system.

As you note these characteristics, ask yourself if this is not what we are seeing in some segments of the hard asset community?

Let's be brutally honest here - both gold and silver have been in bear markets for some time now. Silver, three years ago this month, had an epic collapse in price from just below the $50 mark to near $33 in a single week. It never recovered that level, moving up to near $44 before imploding. Gold peaked at over $1900 in August 2011 and while it managed to recover to near $1800 three months later, it has not been able to clear that level again, even after making two tries at it, the first in February 2012, and the last in September 2012.

Both metals have been trending lower since that time having managed to bounce slightly but still remaining well off their peak levels set over two years ago.

An open-minded, serious and conscientious investor/trader looking to maximize his or her return on monies, would have taken notice of this some time ago and acted accordingly. Common sense/prudence dictates that investors put money to work in those areas where they can capture the maximum amount of returns, risk factors considered.

In spite of this, for more than two years, we have been regaled with one outlandish claim after another for both gold and silver. In gold, we have had theory after theory, breathlessly advanced as to why the price of the metal is going to soar "any day now". Among these were backwardation claims, negative GOFO, JP Morgan cornering gold on the long side, Comex defaults, China buying that raided the gold ETF, etc, etc.,etc. In EVERY SINGLE CASE, those who proposed these theories and those who subscribed to them, were left holding the bag looking like dupes at best and like charlatans/hucksters at worst.

Yet for some bizarre reason, many of those people who follow the "advice", prognostications and predictions of these "experts" continue to dote on their every word, every interview and every speech in spite of the fact that many are losing their life's savings by so doing. How else to understand this phenomenon except to deal with it as a cult.

One would think that the severity of the financial losses that they have endured would have awakened them to the reality of what is taking place. In some cases, fortunately, it has. But tragically, in far too many instances, those who are trapped in the gold cult just dig in further, awaiting the inevitable rocketshot to the moon during which they all hope to become rich.

It reminds me of many evangelical prophecy hucksters each claiming to have a special revelation that Jesus was coming any day now. Some, like the famous book " "88 Reasons that Jesus is coming in '88" ( that was 1988) could not have been more wrong. Yet that did nothing to dissuade them from coming out with the next prediction. All they had to do was admit that they have miscalculated somewhat but this next prediction would be spot on.

I personally know of two families, who sold their homes, cancelled their life insurance policies, etc,. while they waited for the heavenly rapture to take place. Needless to say, their lives were wrecked as a result. That however did nothing to impact those "prophets" who issued their predictions - life went on as usual for them, if not better as they reaped the profits from their books which they of course promoted to these poor, but sincere victims. Some of them are still out there plying their deception even now.

I find it remarkable that men, whom God has given a sound mind to and the ability to think, reflect, ponder, analyze, interpret, etc. can be so gullible and continue to allow themselves to be taken advantage of and serve as willing dupes to those who do not have their best interests at heart. The willingness of human beings to allow self-inflicted pain to continue coming their way is an astonishing thing to behold.

Let me just close this by saying, if you are an advocate of honest money, good for you. I like to think that I am. But do not allow your convictions on these matters to cloud your judgment as an investor/trader. Recognize that until the vast majority of investors see things in the same manner as you do, yours is going to be a lonely, lonely habitation. Cast aside subjectivity and let your own senses and sound judgment be a guide to you. Be objective, especially in regards to market action but even more specifically, in regards to a shiny yellow piece of metal.

Gold is an element. Yes, it is rare but it is an element. It is not a god, nor are those who preach it divine or privy to any sort of esoteric knowledge. Judge their predictions and if found to be false, reject them. Gold is an asset class; nothing more, nothing less. Remember that.

Here is hoping that some who read this come to their senses and escape the snares of so many charlatans and wrong-headed prophets. Think for yourself!

Gold Flirting with Dangerous Chart Support

Gold has once again fallen into a support region on the charts which continues to gain in importance as it is being tested yet again. The more it is tested, the greater the chance of it breaking for each test begins with the top side of the range moving lower, first from near $1400, then from just above $1320 and most recently from slightly above the $1300 level. Resistance is moving lower and lower but thus far the $1280 level has held.

Bulls have their backs up against the proverbial wall therefore as we head into tomorrow's big payrolls number report. Any strong number is going to break their backs. If the number comes in weak, they will have dodged a bullet yet once more.

Were it not for this report due out tomorrow, I do not believe $1280 would have held today. Bears are reluctant to press it further due to the volatile nature of these recent jobs reports. They do not want to take the chance of getting blindsided by another miserable number. Bulls however are in serious trouble if the number is strong as that will remove yet another leg of support under their already wobbly stool.

Out of all the economic data releases that regularly hit the market, these payroll reports are the most important and most illuminating. Ultimately the health of the economy depends more on the number of people working that anything else in my view. Given the Fed's rather optimistic reading of the economy in the FOMC statement yesterday ( remember, they blamed the weather for the poor showing ), anything that confirms an improvement on the labor front will be viewed as confirmation that the QE program is on track to be phased out entirely before this year is out.

In looking at the chart, note that gold has not yet had a CLOSE below $1280 since February. It has closed right at that level or just barely above it, but has always managed to bounce higher. A good part of this has been due to geopolitical concerns involving the Ukranian situation. While that factor remains in play, it seems to be fading from traders' minds as the turmoil looks to remain localized in that region ( for now ). That makes tomorrow's report all the more critical to gold's fortunes moving ahead.

Let's see what we will get.

Grains are weaker again today as those weather forecasts look much more conducive to planting prospects this weekend and into next week. Also, soybean export sales were terrible as the high prices appear to be doing their work at rationing demand. Funds are big longs in both the corn and beans so this will bear watching. Thus far they have been buying dips and keeping prices supported but if their computers shift into sell mode, watch out. Again, this has not yet happened however as the pattern of late has been for them to come charging back in just ahead of the closing bell. We'll see if that is the case today or not.

New crop December corn seems to have run into a temporary wall just shy of the $5.20 level. New crop November beans have done the same near $12.50.

Currencies are rather subdued today  - again, I suspect this is due to the upcoming payrolls report tomorrow. No one wants to get too aggressive ahead of it.

Some good news, at least for consumers and some businesses, gasoline prices have fallen back below the $3.00 level wholesale. They have lost almost $0.20 over the last week. We should see a bit of relief showing up the pump shortly as a result.