Zeroxzero said it best last night:
Reading the apocalyptic tone in many of the comments today — the imminent demise of Japan, the imminent demise of France, the inevitable implosion of China, the Demolition Derby of Euro, Yen, Dollar and Swissie, and the collapse of gold — all viewed against the fiery background of a Middle East abandoned to war because we don't need its oil anymore, a Brazil, Australia, Latam & Africa whose commodities are now worthless, and an Asia and India whose cheap labor has become superfluous — I have been given the sense that we are now riding the Fifth Wave up the Limpopo with Yellow Jack.
Yellow Jack is another word for Yellow Fever, a horrible mosquito-delivered disease that had been known to wipe out entire crews of ships traveling along the Limpopo river in Africa. It's great imagery for the doomsday scenarios that are suddenly being painted by the MSM to panic the sheeple into making as many poor investing decisions as possible while the market undergoes a minor correction.
Indeed gold collapsed overnight – all the way to $1,222.90 and this morning we took our first long on the gold futures in ages (/YG) at the $1,230 line as this is just beyond ridiculous at this point and we already caught a nice $5 pop for a $166 per contract gain and that lets us take a quick profit and reload for the next test of $1,230 – we can play this game all day if they want!
As I noted to our Members, GS, DB, SC, SocGen and UBS have all come out with notes lowering their gold forecasts this week – which seems a bit much for coincidence but this is the kind of collusion that is routinely ignored by regulators so, rather than complain about it – we just bet along with the crooks and load up on gold while the sheeple are stampeding out of it.
Well, not so much gold as that may still fall to $1,100 or even $1,000 in a proper panic but gold MINERS are getting very cheap, like ABX (which we have in our Income Portfolio), which has fallen to $15.50, which is the lowest it's been since 2002 – when gold was $450 an ounce! ABX's market cap is now under $16Bn, which is interesting as they have 140M ounces of proven reserves. Even if you value that gold at an extracted $100 an ounce, that's still $14Bn! Also, NEM made a PROFIT $4.5Bn in 2011 and gold started that year at $1,309 and ABX made a profit of $3,630 in 2010, when gold bottomed out at $1,155 in July.
NEM is suffering a similar collapse, down to $27.50 pre-market but still way above the 2002 lows so not as much fun to play but HMY is $3.35 and that's LOWER than it was when gold was $450 an ounce. Poor NAK doesn't even sell their gold yet but they are down to $1.90 a share and make a great speculative play (an old favorite of ours before they shot up to $20 and got silly) and let's not forget silver, which is being trounced along with gold and sending AGQ down to $15.55.
As you can see from this Zeal Chart, $1,222 is right at that 12.2-year average low (red line) and that has only been brought down by the recent massive panic from $1,350. So we're playing for a recovery to about $1,350 and then we'll go back to not caring about gold but this is too much fun to miss out on and already we got our re-entry at $1,230 on /YG Futures – and this time we have a $5 cushion to play with so we can trail our stop $2.50 and go for it!
AGQ is a crazy silver ultra fund and usually we avoid it like the plague (or Yellow Fever) but this is where it bottomed out in 2009 and then it went to $180 in 2011 so kind of fun since we can sell the 2015 $10 puts for $2 and that pays for the Jan $19 calls at $1.70 with .30 to spare, so not bad for a small poke at this level (silver $18.50). Unlike gold, silver actually has some industrial use that should keep it from total collapse.
Keep in mind, I'm no gold bug. In fact, just this past fall we were playing GLL (ultta-short gold) when it was in the $50s (now $100+) and we even had a Member quit because I was too much of a gold bear back when it was $1.850 and I refused to let anyone play it to $2,000 and called the whole thing a big scam at that time as well. That's because gold has no real value – it's not much better than BitCoins in that regard but it is a 10,000-year tested means of exchange in human civilization and that's the one we do live in so it should be taken as seriously as any other silly currency people choose to use to exchange goods and services for pieces of paper or shiny bits of metal.
It's the laborers that are idiots for being fooled into accepting worthless script and shiny bits of metal in exchange for a day's work – not the people who trade them. That's the papers, I mean. At the moment, it's not legal to trade the laborers – you still have to pretend to pay them a living wage but you can tie them up with contracts that make it impossible for them to run away and work for someone else if they realize their labor is being undervalued so it's almost as good as chaining them.
Anyway, I already got into the inequities of Capitalism this week so we'll just leave it at the fact that nothing has changed as of Wednesday morning so far. Of course the effect of not paying workers a living range has Mortgage Applications off another 3% this week and that's a streak that's been going on since mid-April. Housing is a big part of this economy and, if we don't pay the workers who live here enough money to buy houses – then the economy suffers. My children understand this concept – why doesn't Corporate America or the Government?
The slowdown in housing and consumer spending had knocked our Q1 GDP down to 1.8% from 2.4% as personal consumption (70% of our GDP) fell from 3.4% to 2.6% while the GDP was being revised. Real non-residentail fixed investment (factories and stuff) flatlined in Q1 from up 13.2% last Q and residential property slacked off as well. In short, the velocity of money is still near zero and the economy can't get anything going, no matter how much cash the Fed pumps into it if that's the case. That should goose TLT back to 110 at least (we're long) – just in time for the 5-year note auction today.
Now, is a lower GDP the kind of bad news that's good news because it keeps the Fed in play? Gold is already at $1,245 for a lovely $498 per contract gain on our second bounce off $1,230 and now we'll play for a break over the $1,250 line (unless we get a test of $1,240 first) but the Egg McMuffins are paid for and we can begin our trading day.
In fact, I think we deserve croissants this morning!
