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Gold Technicals Portend Impending Breakout
Similar chart patterns in seven major currencies signal potential for resumption of secular bull market

by Peter Grant

“As a market technician by trade for many years, when I see a protracted series of lower highs and higher lows, I think I start to salivate a little.”

Link

Pete, the author of that article is not only a member of China’s Central Committee, he is the general manager of the China National Gold Group Corporation, China’s largest gold producer and the driving force behind its state controlled mining and refinery operations. In other words, this individual is in a position to articulate China’s attitudes and policy toward gold, and that is what he does in this article. The translation is rough in parts but the meaning comes through loud and clear.

He makes several important revelations in the article, and perhaps when I have more time I will review them in more detail. Most striking though are the differences between the way Chinese authorities view gold as opposed to the view of most Western policy-makers. For example, he refers to gold as “the cornerstone of global strategic resources.” As such, he says, China needs to accumulate it as a national reserve — as part of national strategic policy. He points out that the U.S. gold reserve represents 70% of total currency reserves while China’s gold represents only 1.6%. For years, we have heard that China is converting its domestic production to reserves, but that speculation has been no more than an educated guess. The author confirms it as China’s strategy — to my knowledge the first time the strategy has been publicly confirmed by a Chinese authority. He talks about gold in national terms — about the making of China into a “gold power.”

He also expands upon and confirms China’s strategy to encourage private ownership of the metal by Chinese citizens. As such, China joins Japan as a country that tacitly encourages gold ownership for its citizenry. He refers to gold accumulators as “golden people” and talks about guiding “people to a rational investment, a reasonable consumer.” He mentions China Gold stores that “strengthen the brand promotion measures effectively to achieve the gold in China, possession of wealth to the people, the Gold strategic goal.” “Practice,” he says, “has proved that private gold reserves is an effective complement to national reserves, is very important for maintaining the country’s financial security.” Can you imagine an American or European economic policy-maker telling the citizenry to purchase gold as a “favorable opportunity” and characterizing private gold ownership as essential to “the country’s financial security?”

Here is the link to the Qiu Shi article.

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In about two weeks, the all new third edition of my book, “The ABC of Gold Investing: How to Protect and Build Your Wealth With Gold,” will be published by Addicus Books. Though this book contains some of the same elements that have made it a standard reference in the past for the beginning gold investor, it also explores some of what I consider to be the most important developments for gold going forward. Chief among them is gold’s graduation to a national asset along the lines described in this Qiu Shi article and what it might mean to the gold market of the future.

I believe gold’s ascendance to a “wealth reserve tool” in both public and private portfolios as the singlemost important contributor to gold’s future investment dynamics. In fact one of the concluding chapters of the new book is titled “Wealth Insurance” and it touches upon many of the same themes the author of this article raises. It is fundamentally important for the private owner of wealth to realize that he or she should own gold for the very same reasons that China owns it. Golden people! I couldn’t think of a better appellation. Just as the author of this article suggests gold for China as a means to enhancing its “ability to deal with complex situations,” so it should be acquired by the individual to allay the complicated economic scenarios likely to unfold in the years to come.

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It just so happens that we launched our August Buyers Group a short while ago. Something worth looking into in light of the revelations in the Qiu Shi article linked immediately above.

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If you have an interest in a signed copy of the new book, drop me a line at

[email protected]

and we will start a list of “golden people” to contact when the first shipment of books arrives.

Best, MK

“In a recent paper titled, The Dark Side of Trading, Emory University accounting professor Ilia D. Dichev argues that while some high-frequency trading can be beneficial, the scope of high-frequency activity in the market today — which accounts for up to 70% of all trades by some estimates — has drowned out the input from more traditional investors who partake in good-old-fashioned ‘fundamental’ analysis of companies, i.e. the analysis of financial statements and business plans.”

Christopher Roberts, Time Business
“High Frequency Trading: Wall Street’s Doomsday Machine?”

USAGOLD comment: Recall MK’s “Extraodinary Popular Delusions and the Madness of Machines”

“What is it about the month of August? Why should we still persist in regarding it as a quiet time—with Congress in recess, business slowed down, and people on holiday—when so many world-historical events take place in this month? You can ignore the Ides of March, but history shows that it’s in the dog days of August that great events take place.”

Andrew Roberts, Wall Street Journal (8/8/12)
“It’s August: Prepare for Cataclysm”

“The cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ‘stocks for the long run’ or any run have mellowed as well. I ‘tweeted’ last month that the souring attitude might be a generational thing: ‘Boomers can’t take risk. Gen X and Y believe in Facebook but not its stock. Gen Z has no money.’”

And. . . .

“Unfair though it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades. Financial repression, QEs of all sorts and sizes, and even negative nominal interest rates now experienced in Switzerland and five other Euroland countries may dominate the timescape. The cult of equity may be dying, but the cult of inflation may only have just begun.”

Bill Gross, Pimco

“Gold appears to be enjoying increasing popularity again. There would appear to be brisk buying interest on the market below [$1600]…which should provide the price with a safety net.”

Commerzbank’s Commodities Daily

“2008 wasn’t the real crash. The real crash is coming.”

Peter Schiff

It’s Friday. And if its Friday, the FDIC announces another bank failure.

In this case the 40th bank failure this year. At that rate about six per month. (But who’s counting?)

Waukegan Savings Bank of Waukegan, Illinois. . . . . .

Link

South Korea has added 56 tonnes to its reserves since June of last year. Lee Jung, who heads up the Bank of Korea’s reserve investments division, told Financial Times that the purchases are “part of our long-term strategy and not because of short-term conditions in international financial markets.”

It’s the reference to a “long-term strategy” that makes Lee Jung’s comments intriguing. BoK’s gold reserves are just under one per cent of its total reserves leaving a good deal of headroom for future activity in the gold market.

It is worth keeping in mind that most of the buying among central banks globally is for reasons similar to the one Jung gives above. There is a rumor in the gold market that there are major buyers under $1550. The smart official sector buyer would do well to get ahead of that buying which is what BoK appears to have done. Since this secular gold bull market began in 2001, long term accumulators, to their advantage, have generally viewed consolidations as buying opportunities.