Tuesday, October 28, 2008

Gold Bottom?

Looking at the chart below, note the seriously oversold condition of the paper Gold market. I believe we are currently at or very near the bottom and a nice upturn is quite likely in the not too distant future.

Keep an eye on the black MACD line towards bottom right of the chart - note its recent flattening out. Now watch the very likely upturn (positive divergence) in the days ahead.


FOFOA said...


I agree with your assessment. But let me add this... Don't be too surprised if it doesn't bottom 'til it hits zero. There is an almost infinite supply of paper gold. Through fractional reserve gold lending and naked short selling, the supply side of the COMEX overpowers the demand side. And Jim Willie notes that a large buyer purchased "off market" in Canada at $1,075 per ounce. If this is going on, then it means that the big money is going where delivery is assured:

"In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros."

And when infinite supply meets zero demand, the price will freefall to zero.

A.E. Fekete says to watch the basis. Because at the same time as this happens, infinite demand will meet zero supply in the physical market:

"That will be the most dramatic event in the entire history of money, an event that I have, tongue in cheek, called "The Last Contango in Washington". The basis will give you an early warning signal...

...the basis is a pristine market signal that never lies. It can be neither manipulated nor falsified because it shows the divergence between paper gold and real gold. It is a seizmographic signal that picks up rumblings in the bowels of the earth half way around the globe, foretelling the coming of earthquake. The basis will tell you well in advance when all the offers to sell real gold or silver are about to be withdrawn in all the markets of the world. Once that happens, infinite demand will confront zero supply. Don't say it can't happen here. It has happened locally in France in 1796, in Germany in 1923, in China in 1947, to mention but three episodes. This time it will happen globally."

Guess what the basis is showing right now. You can read more about basis theory here.


Randy said...

excellent perspective Fofoa. thanks for sharing