ANALYSIS: WHY GOLD AT $750 WILL START A COLLAPSE IN STOCKS…. | The Slog.

Some of you may have read that, as of yesterday afternoon, I have gone to cash inside my SIPP. This isn’t because I have any faith in cash: outside the SIPP, I’m converting cash into non-market assets as fast as my obstructive French bank will allow. Here and there, I’ve bought a few Pounds as the Quid weakened slightly. But mainly at the moment, I’m in sort of stasis mode: regrouping, if you like, ready for whatever it is we all need to be ready for.

Before you dismiss that first paragraph as throat-clearing, I’d like to offer you below an analysis based on previous experience, and the empiricism of gold events at the moment, as to what lies behind this latest round of apparent anti-matter. Empiricism is all one can use in 2014, because the fundamentals have lost all their content – apart from the ‘mental’ bit. Although the guys at the levers continue to insist that all is on the mend, the world is in a slump. The only reason it doesn’t read like a slump is the QE and Zirp handed out in order to slow down the slump and give the banks a 100-1 against shot at sorting themselves out. In a show of gratitude on the Louise Mensch scale of -200, the banks have done nothing to sort themselves out….and opposed or evaded every control put on their actions by the authorities…people chiefly recognisable by the fact that they have no authority at all.

The mismatch between that slump and stock market levels around the globe is now so canyon-like, I decided yesterday that enough was enough. The main factors influencing my decision were:

* The US continues to tail off QE, it hasn’t worked anywhere, the BoJ purchasing situation is like charting new waters on a flat Earth, and the ECB is dragging its feet on new asset-purchases because the bank is split right down the middle about what to do. The former Bernanke tool-kit has been turned upside down and every spanner examined. It is empty. There are no tools left. Tools are in an ongoing non-existence situation going forward.

* We’ve already had a small correction based on not much in the way of bad news, and trust me – it took more to control it than most of you yet realise.

* The attempts to hide reality are in turn running out of road: in the UK, the US, the EU and Japan, even the Wisdom of Crowds is now being tested….deficits refuse to reduce, liquidity refuses to arrive, housing refuses to recover, stress tests continue to be wholly unconvincing, and economies refuse to kickstart.

* The Russian Central Bank has, as of yesterday, officially given up trying to underpin the Ruble with old copies of Izvestia. Russia now faces hyperinflation, and the only means of dealing with that will be interest rate rises in one form or another – official and otherwise. Whatever balm Brussels gives out, a Russia that can’t pay its debts cannot fail to effect eastern and central EU economies. I have said this all along: nobody can control a Zirp interest world forever, whatever the clown in Ten Downing Street thinks. Globalism is a trading system of massive interpendence, and interest rates have an epidemiology of their own that is underestimated.

* The Swiss have geared sales up at their end to ensure the flight to safety doesn’t mean the rapid deflation of everything including the Alps. The Bond markets sit at historically low yields because anything is better than death…even nothing…so a flight to safety there continues. With the glitz bricks stampede now finished, property beyond the top 1% offers an equally avalanche-threatened means of escape. There is thus, logically my dear Watson, only one place left to go….Gold….(or other precious metals, depending on events)

So here’s my Page One analysis on Gold. Take a quick look at this table plotting Gold’s fall in the last twelve months:

Forget the daily picture at the top (it’s actually yesterday) because in my view full daily movements don’t count for much. Look at one year onwards in there: generally steady, and then having lost 12.5% over six months, it drops 5% in one month. An acceleration in price destruction of around 150%.

Like I said, this is basic Dumbo’s Guide stuff. A weak and wobbly rally for the first half of the latest 30-day period is followed by a drop of $200 in 17 days.

But the dump before this latest fall was $200 over 103 days. An increase in price reduction rate of around 600%. Now look more closely at The 100 Days:

These show technical rallies in more detail: more specifically, rallies are becoming shorter and fall periods longer. I circle the last five days to show that a new rate of acceleration of destruction is under way.

Whatever (or more likely, whoever) is behind this counter-intuitive fall in gold’s notional value – and it is only notional, because you can bet your bum that the real stuff out there is worth what someone will sell it you for – is a long way from the finishing line….assuming there is going to be one.

There isn’t a competent professional anywhere in the West that hasn’t seen this taking place. As I write, the price is zig-zagging up and down between 1142-1146 like a seismograph langlaufing down Vezuvius, but that could mean anything and nothing. I got out of all equities and commodities yesterday because I drew one simple conclusion:

All other  things being equal, the real start of Crash2 depends on how long it takes for gold to reach a technical no-brainer buy level

At the current rate of increase in acceleration of gold’s price-fall, you would expect it – after a small rally at some point – to be under $1000 by mid/late November. But falls don’t follow scientific rules…especially when they’re being manipulated with a goal in mind.

The saga I see unfolding here is perhaps akin to watching a sick patient getting increasingly ill: a slow decline on a daily basis is barely noticeable. Come back after a fortnight, and you will see a marked difference. For those directionalising gold’s plunge, the game is to keep everyone unsure about gold’s next move for the longest possible time.

I expect three stages to this: first, continuing on a weekly basis to make gold look risky; second, balancing between rallies and falls to keep it above the technical signal for as long as possible; and third, banning private purchasing of gold bullion.

But expectations can no longer be great in our escapist-driven, upside-down in-the-mirror darkly 21st century world: the kop-out words in my two-line bold ‘insight’ above are ‘All other  things being equal‘. I don’t expect all other things to be equal: I just feel certain that, once gold hits around $700-800, it’s at a point where two things create a rhetorical question for investment firms: given a choice between a stock market 70% too high, and a gold price in that context at least 70% undervalued, which is the one with the lowest risk and the highest potential return?

I believe that, when the answer to it is obvious, the markets will collapse in a manner never seen before in Bourse history. But I also think it highly likely that any one of (seriously) 20 known or left-field factors could intervene before then to do the same.

So for the time being, an allegedly ring-fenced pension trust bank account is the conservatively radical place to be…for me. This is not advice: you must make your own minds up.

There I go again with more of that non-violent extremism. Right-ho Theresa, issa fair cop, gull: put de cuffs on me an’ Oi’ll come quiet like.

Yesterday at The Slog: Osborne the Jackal goes Target Missing on Ice: The Musical

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