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THE DOLLAR TRICK/ Sinclair (Jim Sinclair)

I agree with most of what Jim Sinclair says:

1. Technicals are formidable and determine what traders who have no strong opinion about gold will do with large sums of money.

2. Ultimately [time indeterminate] fundamentals trump all else, but time does allow for macroeconomic shifts that might alter the fundamentals and the final outcome.

3. I believe that the gold market is subject to manipulation not only big time like all markets, but also through government intervention and management - to be expected of a “currency” in competition with the dollar and at minimum comparable to the euro and the yen. The DIVG incorporates the GC, in fact, so it’s hard to argue that gold is not part of the equation, since the DIVG is another way to express the DX mathematically. And the history of gold argues for its being of prime concern to central banks. As previously noted, if one looked at charts unlabeled of euro, yen and gold versus the dollar, one would have a rough time figuring out which was which. If one does the same with other precious metals, there is no comparison - they’re easy to spot.

4. “The game being played by a fund or group of funds working in concert is to force the gold price lower in order to break down the chart formation - especially the longer term Up Trend lines and MACD.”

There is no question in my mind that he is correct in general terms, which is why I have been posting about the uptrend lines for daily and weekly GC and DIVG. I have no doubt, also, that these lines and other measures technically WILL be broken this time, which is why I have been inquiring about what happens to a genuine bull market based on fundamentals when all the charts show breakdowns. I haven’t been able to state the question as clearly before, having failed to put in the words “genuine bull markets based on fundamentals,” but there you have it. What does happen?

See the gold charts referenced below:

Weekly gold contract [MACD already turning negative]:

http://tinyurl.com/2r7ho

Monthly gold chart with technicals turning negative like MACD and stochastics:

http://tinyurl.com/275zd

5. “The major challenge here is to launch a bull market for the dollar, which will require a reversal of the triple deficits without any policy shift and no further terrorist activities. Without a bull dollar, the manipulators of the charts will lose. Then bankruptcy can explode out of a vertical up move in a situation. Governments can debase money as the currencies run up in a bull market then flat lines.”

I agree entirely with Jim about this scenario, which I posted yesterday afternoon. I think that the G7 plan is to run the dollar up in a measured way either to ~100 or ~104. If successful, or if there is overshoot, even ~108 could be a further target, despite the improbability of such a thing from a fundamental point of view. It would constitute then a ~61.8% retracement from the high of ~122 to a low of ~85, or a difference of 37 points, If the process dragged on through the Election and into early 2005, you would see the GC around 334, or perhaps as low as 324. I sincerely believe that to be the plan, provided the other markets like the bond and the S&P can buy it as a good thing. What it does also is to drag foreign money into our assets, which get a boost from a rising dollar.

I don’t understand yet Jim’s comment in the final two sentences above, except to think that the FED can continue to pump dollars into the economy and that ultimately the end-game will be later but even more catastrophic.

See my post from yesterday repeated below re: the strong dollar trick.

Steven Freedman
05/08/2004 01:00 PM

Reply:Think Again about rate increase

Thanks for your comments, everyone. I wanted to add a couple more thoughts before trotting off.

If the FOMC is NOT having an emergency meeting this weekend by phone, they should be.

My guess is that the G7 decided between Boca Raton and Washington meetings, to use the springboard of the dollar rally that everyone anticipated to carry the dollar surprisingly higher. I think that the pattern of its rise looks suspiciously controlled and slow-paced [to give time for adjustment and to fool speculators?], and that the ultimate target is either parity around Labor Day or ~10400 around election time. The crushing of commodity speculation was a prime aim, plus the apparently incorrect assumption that the bond market would react gradually to the BOJ withdrawal and raise rates smoothly at the long end.

Instead what is developing is a more twitchy and appropriately severe bond reaction in the face of increasing signs of synchronous price inflation and growing economies worldwide, abetted by the unwinding of leverage, the need to shift out of Treasuries due to the convexity of mortgage debt, the probable backing off of some interest rate derivative plays by the more prudent players, and a stock and bond market that cannot withstand the stronger dollar much longer. If the asset markdown continues, the likelihood of a crash in equities mounts. That won't save gold or other non-oil commodities from a treacherous fall prompted by cascading liquidation to meet panicked participants’ margin requirements. All but the bravest should be heading to some sort of cash. If they head toward dollars, the crisis will accelerate.

The Fed has played a supremely dangerous card, in my view, while appearing to avoid being the prime mover. If they continue as they have, they will start airing words immediately that the bond market has overdone its reaction [What’s new? Greenspan and Bernanke are waist high in propaganda that they term expectations management.]. They will also be buying across the governnment and GSE spectrum themselves if the BOJ won’t do it, using unconventional means early and often if need be to keep the bond from crashing support at 104. I expect the futures to be hustled once again to brake any downward equity momentum and to reverse it.

I don't know if they can again pull it off again, as the structure gets more and more creaky. They have built an artificial edifice on public duplicity and excess credit creation for several years, and more particularly since August 2002; they would like their grand edifice to survive a few more months. However, they may need to reconsider the surprise strong dollar ploy, if I am correct about their overall plan. My thought is that if they do not, gold will be heading to the mid-340's but it will not be the only asset affected, for sure.

As Michael said, Greenspan and Bernanke are not stupid men. But they appear imbued with their own power and the fantasy that they can overcome a great bust that would follow a spectacular boom. Their hubris is astonishing, and as in all tragedy, they do not see what is before them of their own making. What bothers me most is that they apparently think that the world can be fooled by their legerdemain and secret power. They should know better. What’s a very sorry spectacle is to see both men misread what seems so obvious: Greenspan, for all his talent, cannot see the bubble on his own face. And Bernanke, a former professor and chairman of economics, may experience theories he cherishes called into serious question by real world events in his own era.