When a Barbaric Relic Goes Parabolic ~ The Risk Averse Alert

Wednesday, October 19, 2011

When a Barbaric Relic Goes Parabolic

While captains of finance and their failing political tools whittle away their final hours pretending yet another round of hyperinflationary bailout will put the hopelessly insolvent trans-Atlantic banking system back on solid footing, let's update the view toward a barbaric relic's measure of "no confidence" in the current state of affairs. There has been a decided change in "the market's" fundamental disposition reflected in spot gold's most recent parabolic rise, one whose reappearance is likely once a consensus deems continuing attempts to sustain the unsustainable an exercise in futility...


Technically speaking, all remains very much positively disposed. Spot gold's relative strength (top panel) and momentum (bottom panel) measured at weekly intervals both continue to suggest the buy-side remains in command.

Yet it is spot gold's parabolic rise in the July-August period that, today, invites closer scrutiny. What was the stock market doing during this same period? Why, it was collapsing. How about the U.S. Treasury market? Why, money was flowing into Treasuries like iron to a magnet.

Thus, with spot gold's forecast advance to a price prospectively 20-30% greater than was reached in August — an advance slated to register negative technical divergences at weekly intervals, much like occurred as the NASDAQ Composite reached its zenith in Y2k — the next leg of the stock market's collapse is thought likely to coincide.

Bear in mind, though, this prospective spot gold - stock market correlation is likely a "first wave" phenomena in the context of the stock market's projected five waves down from July 2011 top. So, during formation of wave 1 of (3) of C upcoming, we're likely to see spot gold top out. Yet once wave 3 of (3) of C develops and further roils the stock market, spot gold likely will be throttled too, along with every other financial asset finding liquid markets in which capital can be raised. This, of course (and probably most emphatically), would include U.S. Treasuries...

Fast Money
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