Gold and rate cuts

[slantedview]

Question for the folks here:

How does gold usually perform immediately following a rate cut? Common sense would think it should shoot up, but this isn't what happened after the last cut.

So, what happens to gold after rate cuts? What will happen to it after the coming rate cut? And most important of all - why?

 

[purepaloma]

The ONLY guy you need to listen to when it comes to Gold is Jim Sinclair. NOBODY knows it better (And he's a Billionaire)

Posted On: Thursday, January 17, 2008, 5:45:00 PM EST

The Panic Starts

Author: Jim Sinclair
www.jsmineset.com



Dear CIGAs,

There is no doubt the Fed and the PPT are meeting right now. A drop of over 300 points on the Dow after the Chairman of the Federal Reserve speaks publicly presages a 1000 point break in the Dow Jones Industrial Average coming quite quickly, if not tomorrow.

Unless the equity markets can be calmed, a panic is about to happen, making the statement "This is it" a horrible reality.



If the equity markets cannot be calmed then:

Recognize this is the Formula happening like everything else much sooner and much bigger in its implications than anticipated.
Gold will rise to $1650 as an almost immediate effect of what will be done to attempt to fend off a total panic starting to take place in general equities, therein threatening to be followed by all credit markets of all kinds.
The funds and hotshot short term traders in gold shares will be killed by the upward explosion of the gold price about to occur.
The PPT and the Fed will step out of gold’s way because gold is one of the tools used in 1930 by Roosevelt and in 2000 by Bush. It will be used again now on the upside.
Gold is the only insurance there is against what all this means because a panic in equities will blow the financial system, already coming apart, to smithereens.
All country funds would shut down on any further investments in "at the wall" financial institutions.
The rollover in credit and default derivatives would exceed the entire foreign debt of the USA.
The rest of the $450 trillion dollar mountain of derivatives would start a disintegration like nothing you have every seen in your lifetime.
Consumer demand would slam shut.
The auto industry might as well go into liquidation this coming Monday, avoiding the June 2008 rush.
The US dollar would burn a hole in the floor going directly to .5200 or lower.
As the dollar disintegrates gold would rocket to and through $1650 in days.
The markets for general equities would all have to institute total trading halts every 100 points on the downside for 30 minutes each.
All commercial call loans would be called.
All debtors one day late on any payment, lacking grace period, would be liquidated. All debtors over one day of the grace period would be liquidated.
It is clearly visible to anyone with eyes or a mind to think that the PPT has lost all semblance of control in the equity markets and will soon in all remaining markets.
The commercial paper credit market which is almost dead will die totally.
Should no emergency action take place soon, you will see an old fashioned panic of the 1929 variety.
Just as emotional fools sell gold and gold shares, be assured that more emotional general equity fools will unload and bring the averages down more than ever in history in one day.
Recognize this is the Formula happening like everything else much sooner and much bigger in its implications than anticipated.
Emergency action will be all splash and theatrics but truthfully the cat is out of the bag. It buys some time but corrects nothing. It makes the Formula 100% correct.
There now must be EMERGENCY ACTION because the Chairman of the Fed has BOMBED OUT PUBLICLY and a PANIC is about to occur. Expect EMERGENCY ACTION in days, not weeks.


If you have not protected yourself, you may only have days to do so now.

 

[mleclerc]

Jim Sinclair

Thanks for the post and mentioning Sinclair here, Purepaloma.

I agree, if you don't know what may happen next, spend some time speedreading this guy.

 

[jonahtrainer]

Question for the folks here:

How does gold usually perform immediately following a rate cut? Common sense would think it should shoot up, but this isn't what happened after the last cut.

So, what happens to gold after rate cuts? What will happen to it after the coming rate cut? And most important of all - why?

Jim Sinclair has some great advice. Remove as much counter-party risk ASAP!

The reason gold has acted counter-intuitively, and the general markets for that matter lately, is because of MASSIVE intervention by government and particularly the PPT. It is so blatant that it is a joke. They usually come in about 2pm (someone graphed all the trading days by time and there was a huge abnormality around 2pm that drives the price down).

Central bank manipulation of the gold market is undeniable and any who do not admit it are either complicit or ignorant. The case has been pretty well cracked by GATA. The problem for the central banks is they will soon be out of gold. The central banks got into this thinking they could sell off 100-200 tons of gold per year for 100 years and instead are losing 1,500-2,000 tons of physical bullion (the Achilles heel of the paper tigers) per year. It is later in the day than anyone has thought.

You see, central banks carry gold in the vault and gold out on loan as the same line item. Effectively they carry cash and accounts receivables as the same thing. This is accounting that would make Enron blush. I think the central banks are nearly out of their gold. In addition, the gold in Fort Knox has most likely already been mobilized and sold into the market.

Russia, China and OPEC are not ignorant of the central bank's weakness and have been taking advantage of it (probably why Fort Knox has been mobilized).

If you really want to do some research on the topic then I'd start here where I've put together some of the basics of the landscape for my clients.

 

[gutteck]

Gold prices don't go up. The dollar goes down.

When the FED said that gold prices will go up, they should have said instead: We are inflating the money supply so rapidly that the dollar will depreciate 20% within the next months.

And even if they wanted to prevent it they can’t. Why? Because if they stop inflating the money supply the country goes into depression immediately.

 

[bj72]

I mentioned to my dh to buy gold...he went "balls out"bought USAGX 2 days ago (without studying much)...& it's falling with the dow now I meant Gold, not gold mining stocks. So, I'm a bit worried now that we are down $14,000+. We have $150,000+ in an USAGX mutual fund, $100,000+ in cash, and $80,000 or so in other IRA funds. DH says that it will do well over time, but not to look as it is a volitle fund. I'm still worried (I'm not fun to gamble with by the way, lol).

We max out our 2 Roths every year and save 10-20% of his pay on top of that, are completely debt free, own 2 new vehicles, and currently rent (realized buying this tour would be bad in CA). We have 3 small children, we are in our mid 30s, and he has 14 yrs in the military. I think we're doing okay, and could ride out a wild ride, but I do think we are headed toward a long depression and since he'd possibly either get out at year 16 or retire at 20 rys during it, I'm trying to figure out how to proceed.

We don't want to necessarily go with an advisor that would think we're nuts for thinking a depression is coming either....

So, what do ya'll think of USAGX as a fund?

Thanks!

 

[4ronpaulinfo]

I mentioned to my dh to buy gold...he went "balls out"bought USAGX 2 days ago (without studying much)...& it's falling with the dow now I meant Gold, not gold mining stocks. So, I'm a bit worried now that we are down $14,000+. We have $150,000+ in an USAGX mutual fund, $100,000+ in cash, and $80,000 or so in other IRA funds. DH says that it will do well over time, but not to look as it is a volitle fund. I'm still worried (I'm not fun to gamble with by the way, lol).

We max out our 2 Roths every year and save 10-20% of his pay on top of that, are completely debt free, own 2 new vehicles, and currently rent (realized buying this tour would be bad in CA). We have 3 small children, we are in our mid 30s, and he has 14 yrs in the military. I think we're doing okay, and could ride out a wild ride, but I do think we are headed toward a long depression and since he'd possibly either get out at year 16 or retire at 20 rys during it, I'm trying to figure out how to proceed.

We don't want to necessarily go with an advisor that would think we're nuts for thinking a depression is coming either....

So, what do ya'll think of USAGX as a fund?

Thanks!

You should do your research BEFORE buying any stock or fund. I rather chose my own gold mining stocks than go with a gold fund. That's just me though. And don't let your emotions make the decisions for you. Now don't overreact, you (or your DH) already purchased on emotions, so don't sell on emotions only.

Personally I wouldn't have purchased that fund (or Gold) at this time. Don't take my word for it but I would think this would come down another dollar or so. If I were you I would just ride it out. Keep long term in mind. But once you are back in the positive you might want to diversify into other precious metals investments (either physical or different funds).

And if you want to buy physical, do not let yourself be talked into leveraging your gold and/or silver. Leverage is a beautiful tool but gold market can be quiet turbulent at times. Yes, you might be angry at whoever tells you not to leverage investments when you look back and say that you could have made X amount of more money. But guess what, many gold and silver account reps don't have a clue what is going on and are just there to sell you the product. It's a sales job after all.


And last but not least, don't take advise on message boards. I'm serious about that one.

 

[4ronpaulinfo]

EDIT: and where did you have your money prior to putting $150k into that fund? If in any other fund, chances are that you would be down some to. (I thought I would point out at least one positive

 

[slantedview]

some interesting talk, but nothing on my original question. what happens (and will happen) to gold immediately after a rate cut, and why?

 

[slantedview]

Thanks for the post and mentioning Sinclair here, Purepaloma.

I agree, if you don't know what may happen next, spend some time speedreading this guy.

i just speed read everything on the front page, which only spanned a few days since the guy posts a lot of content several times a day. Hard to get his overal views from just a few days news reporting.

Would anyone care to summarize Mr. Sinclair's advice and guidelines for what one can do to prepare for what happens next? It would be much appreciated.

 

[bj72]

i just speed read everything on the front page, which only spanned a few days since the guy posts a lot of content several times a day. Hard to get his overal views from just a few days news reporting.

Would anyone care to summarize Mr. Sinclair's advice and guidelines for what one can do to prepare for what happens next? It would be much appreciated.

Slantedview: Sorry, didn't mean to hijack your thread.

LOL, I'm with ya...I'm speed reading everything on that site tonight as well as several other sources. He does post a lot. Did you catch the .pdf graph link at the top and get all the way thru it?

"How does gold usually perform immediately following a rate cut? Common sense would think it should shoot up, but this isn't what happened after the last cut."

So while I'll refrain from my take on Mr Sinclair's view as I'm too new to this, I will say that the mood during the last rate cut was, imo, significantly different than this current one will be. Overall the media didn't discuss the recession word till just recently. Just a week or so ago media and candidates laughed at Ron Paul for mentioning the "R" word seriously. Again, new here, but wonder if that is why it didn't follow common sense....misplaced optimism maybe? Or just not catching on to the overall picture yet. In the past 2 weeks even most of the other candidates have switched their tune. I would love to hear others on it.


4ronpaulinfo: Thanks Actually dh's never been too good about researching our funds, but it hasn't hurt us too much *yet*. I research other things to the hilt, so I am playing catch up now for our finances. I worked in the tech field before and during the boom, then "retired" to stay home with kids right before the bust, then we rode the housing wave and I saw that bubble coming, so we sold just in time. We just had the bulk of our cash in a savings account/money market fund, IRAs sitting in Qualcomm and Time Warner along with a TSP 30 yr fund and some other USAA funds that were doing okay, nothing stellar. I've been thinking about some physical gold for a while while reading up on stuff, so he kinda just jumped on the fund at work seeing it had performed well over time, but went much heavier than I expected. We don't need the cash for anything for several years and are still sitting on a decent chunk of cash, so I guess I just need to take deep breaths. I did tell him if it gets to break even point to sell some and diversify into physical gold too. He was researching that tonight. He sold the Qualcomm and Time Warner recently (we were up overall) and we now have a global fund and Toyota as well I think. Thanks for the tips on leveraging...I'll look that up more. Thanks for the warning and advice too, btw, I don't take message board advice/info as gospel...just pose the question to start getting info and direction to do more research.

BTW, my grandfather started a marine construction company that is still thriving today during the Great Depression...I remember the stories he used to tell about those times and that is what has kinda started opening my eyes to what is going on. If history repeats itself (and it often does), it's not gonna be pretty.

 

[purepaloma]

Typically, when the rates get cut - the dollar goes down and gold goes up.

But the 2nd piece of this is....."Is it already built into the market" - meaning does the entire market already KNOW what is coming........because if so - the market takes this into account leading up to the rate cut.

However, if we get a surprise.........low rates = drastically lower US Dollar.

Please study this formula to fully understand what is going on.

Let’s review the key factors for 2008:

The Formula posted below will take control of the US dollar in 2008, making the Dollar Strategists (whatever that is) who are calling for a bottom in the US dollar in 2008 (for no reason or the wrong reason (recession)) look like glib idiots making public fools of themselves.
Jim’s Formula:
September 1, 2006

First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
The formula economically is inherent in #2 which is lower economic activity equals lower profits.
Lower profits leads to lower Federal Tax revenues.
Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

http://www.jsmineset.com/ARhome.asp...D=-1&cSubCat=&archive=&highstr=formula&UArts=

 

[davver]

It depends on expectation. Last time the Fed cut 25bp, when many expected 50bp.

Part of golds run up is the expectation of future rate cuts. if they don;t materialize it will fall, if greater then expected gold will rise.

 

[slantedview]

It depends on expectation. Last time the Fed cut 25bp, when many expected 50bp.

Part of golds run up is the expectation of future rate cuts. if they don;t materialize it will fall, if greater then expected gold will rise.

i suppose this is a good point.

 

[RobotJaxxon]

Here's my take on it. Keep in mind I'm rather new at this stuff (with NO professional training....well I did take Macroeconomics 101 about 9 years ago)

You've got to look at both the long term and short term value of gold. Long term prices generally rise in our inflationary economy because gold is considered a safe investment, and typical advice suggests around 5% of a portfolio should be in gold or other precious metals. So as more money is put into circulation, more people want to invest it, and so the demand for gold generally rises along with its price.

Short term, however, most investors don't equate interest rate cuts to inflation... if anything they see inflation as a lagging effect way in the future. The purpose for lowering interest rates is to encourage growth, that more companies will borrow money to grow since debt is cheaper. If investors believe a particular sector of the economy is about to grow, they will consider it a wise move to sell more conservative investments to move into that sector. So with investors selling gold, the price will drop a bit. (note that if credit is too cheap, people will move disproportionately into the latest and greatest sectors... can you say Tech Bubble and Real Estate Bubble?)

Lowered interest rates only work if people believe the economy is about to grow. If people feel the economy is about to come to a screeching halt (think 9/11), they'll put they money where they think it will hold its value best... gold. I believe we are heading towards a stagflation situation where people stop believing that lower interest rates are a good incentive for investing and growing, so you get all of the inflation and none of the economic growth (due to dried up investment).

Right now it looks like gold is holding steady... my guess is that some investors are betting the dow is going to go back up, and that there will be coming rate cuts, so some people would see this as a good time to reduce their gold holdings into something that will benefit with the markets going back up. Then there are people that are only seeing inflationary pressures, buying up gold to protect themselves. Maybe its balancing out.

 

[webaform]

I owned USAGX a few years back for awhile as my hedge. Didn't lose anything on it. It's a safe hedge. I think of gold as just a hedge to offset a depression stock dive. I'd plan to hold 3-5 years and rethink. These are long term investments.