S&P500 And Gold Extremes and Reversals

Michael Lombardi has written many good articles about gold, the economy and the stock market.

A few quotes from his articles:

“…central banks will be the major drivers of gold bullion prices going forward. Countries like China and Russia will need more of the yellow metal, because they simply do not have enough in their reserves compared to the United States, France, Germany, or Italy.”

“The stock market looks like it’s in big trouble. This shouldn’t be a surprise to my readers; I have predicting this event for months.
“So far in 2014, and we are only three weeks into it, the Dow Jones Industrial Average has shed 709 points (4.3%). But I think the explosions for 2014 are just getting started.”

“Why can’t Germany get its gold back? Do Western central banks really have any gold left in their reserves or have they sold it all? And why is China, now the world’s second-largest economy, buying so much gold? These are questions that lead me to one conclusion: gold prices should be a lot higher than they are today.”

He has looked at the gold market and the stock market and commented on issues that are important for understanding our complicated financial world. He thinks it is time for reversals in both the gold and stock markets.

I agree with Michael Lombardi. The following are my comments – based on logic, my analysis, best estimates, and an unfortunate lack of central bank transparency and valid data on the gold in storage.

• The U.S. stock market has been moving higher for a long time – largely driven by the Fed’s easy money policy, zero interest rate policy, Quantitative Easing, and lots of hype. An important high probably occurred in December. Look out below! There is potentially a long way to fall.
• Germany can’t get its gold back because that gold has been sold and is no longer available to the NY Fed. Implications are ominous!
• The NY Fed is unable or unwilling to “go into the market” and repurchase an equivalent quantity of gold and ship it to Germany. (The serial numbers on any new bars would not match those deposited at the Fed decades ago.)
• Similarly, much or all of the remaining gold from other countries deposited at the NY Fed has probably been sold to “manage” gold prices in the global gold market.
• Much of the United States government gold supposedly held at the NY Fed and at Fort Knox is probably also “missing.”
• The U.S. government and the Fed are unlikely to admit any of the above.
• Much of the gold that was previously vaulted in London, New York, and Fort Knox has been shipped to Switzerland, recast into 1 kilo bars, and shipped to China, India, Russia and the Middle East, where it is appreciated as real wealth. Do not expect that gold to return to the western countries.
• Gold owned by Iraq and Libya was taken during their invasion and conquest. Where did it go?
• Most of the above commentary regarding gold is, in my opinion, reasonable and logical, but essentially impossible to prove. In 50 years the public might be told the truth – long after it hardly matters.
• Gold and silver probably made important double bottoms in December, along with a major high in the S&P. Look for big rallies in gold and silver and a rough year for the S&P.

The implications are important. In very simple terms we can view the world and invest based on option A or option B -- Option A: (Mainstream media view as I interpret it)

• Our politicians and bankers are, of course, taking care of themselves at the expense of the people and are occasionally speaking the truth.
• The gold is still in the vaults, there are good reasons for refusing to return Germany’s gold and those reasons MUST stay hidden. There is also no NEED for a physical audit of gold held at Fort Knox or the NY Fed. (Move along folks… nothing to see here.)
• The Fed must do what it does in secret – for valid but unstated reasons.
• Quantitative Easing may not be ideal but it has been NECESSARY for the viability of banks and the economy. The stock market may experience a correction, but there is little cause for worry or concern.
• It is time to watch the news and another episode of reality TV.
• Take a pill and sleep well.

Option B: (Alternate media view as I interpret it)

• Most of the United States and German government gold is gone, never to return.
• China and Russia are amassing a huge quantity of gold to support their financial presence and strength in the world.
• A world-wide monetary system reset is coming this decade.
• The reset will benefit those countries that actually have gold.
• The Fed is doing what is good for the banks and the politicians and is largely disinterested in the people of the world.
• Quantitative Easing will eventually result in 1970s style consumer price inflation (or worse).
• Gold will be priced (during this decade) in excess of $5,000 per ounce and will become part of a new international reserve currency after the dollar has been replaced.
• Buy gold and silver in anticipation of the inevitable financial reset, weakening dollar, and the rising prices for gold and silver.
• Skip the pill, think, and educate yourself.

GE Christenson
aka Deviant Investor