The Gold Bug is Set to Bite Back

The Gold Bug is Set to Bite Back
Watch Elliott Wave International’s chief market analyst Steve Hochberg’s 2-part presentation on gold

By Elliott Wave International

Since hitting a record high of $1921.50 per ounce in September 2011, gold prices have erased 30% in value. By the end of day on October 3, 2014, gold prices were circling the drain of a 15-month low.

After such devastation, the global community of gold analysts, advisors and investors finds itself scattered as an anthill colony after being stepped on by a giant bear paw. This recent Forbes article captures the divisiveness among gold watchers:

“‘Survey Participants Split Over Gold Price Direction‘ as a potential decline in the U.S. dollar competes against ‘geopolitical reasons’ for prices to bounce.”

This magnifies an important point, namely:

Mainstream financial analysis uses news events to gauge where prices may be headed. The problem with this strategy is that it does not anticipate trend changes — it only reacts to the changes that have already happened, almost always leaving you one step behind.

Naturally, this reliable unreliability leads to uncertainty among those invested in the market’s trend.

Elliott wave analysis takes a radically different approach. Rather than looking outside the market for clues into future price action, Elliotticians look to the price charts themselves. There, they identify fixed and finite patterns which shape the market’s near- and long-term character.

You can use gold’s 3-year-long sell-off as a prime example. Back in 2010-2011, gold’s bullish “fundamental” picture was allegedly in the bag. The U.S. Federal Reserve just launched its $1-trillion-a-year quantitative easing program, which was widely expected to fuel gold’s inflationary fire. An August 25, 2011 Gallup Poll confirmed:

“Americans Choose Gold as the Best Long-Term Investment.”

Elliott Wave International, however, saw a different outcome for gold on the metal’s price chart: an impending decline. In the September 2011 Elliott Wave Financial Forecast, our analysis included the following chart, which showed gold prices at or near the end of a decade-long, 5-wave advance.

Gold’s wave structure is consistent with a terminating rise. [Elliott waves progress and therefore top out in 5 waves]. As this monthly chart shows, prices exceeded the upper line of the channel formed by the rally from the 1999 low in what Elliott terms a throw-over. A throw-over occurs at the end of a fifth wave, and represents a final burst of buying. The pattern is confirmed as complete once prices close back under the upper line, which currently crosses $1650.”

So, that was then. What about now?

Today, the mainstream is divided between opposing fundamental forces. But at the San Francisco Money Show in August 2014, Elliott Wave International’s chief market analyst Steve Hochberg identified a very compelling reason to form a united front in gold’s future — an Elliott wave triangle pattern.

You can hear the exact point when Steve shared this exciting development to his audience via this clip from his Money Show presentation:

Steve goes on to explain how pinpointing this triangle helps him lay down a forecast for “what gold is going to do from here on out.”

Would you believe that gold prices should “rally” for a year, maybe even two??

Would you also believe you can watch Steve’s entire Money Show presentation on gold (not just the 30-second preview featured here!), FREE?

Well, you absolutely can. For a limited time only, Elliott Wave International is releasing Steve’s Money Show presentation on gold — in two 5-minute long videos.

This very special offer is FREE to all Club EWI members. Simply complete your free Club EWI profile and get instant access to Steve’s presentation >>


This article was syndicated by Elliott Wave International and was originally published under the headline The Gold Bug is Set to Bite Back. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Europe: The ONE Economic Comparison That Must Not Be Named… Was Just Named

Europe: The ONE Economic Comparison That Must Not Be Named… Was Just Named
The Continent is now teetering on the edge of a “Japan-style” deflation. Here’s our take on it.

By Elliott Wave International

It’s happened. The one economic comparison Europe has dreaded more than any other; the name that’s akin to Lord Voldemort for investors has been uttered: “deflation.”

And it’s not just “deflation.” You can still spin that term in a positive light if you get creative enough. Say, for example,

“Falling prices during deflation actually encourage consumers to spend.”

But once you add the following two very distinct words, there’s no way to turn that frown upside down. And those words are “Japan-style” deflation.

Japan has languished in a deflationary cycle pretty much since the late 1990s, its once booming economy reduced to ‘lost decades’ of stagnation. Europe is now teetering on the edge.” (Sept. 19, Associated Press)

Which begs an obvious question: Weren’t Europe’s central banks supposed to prevent this very scenario from happening via their unprecedented, 4-year-long campaign of “money-printing,” bond-buying and interest-rate-slashing?

The answer to that question is… yes. Those actions were indeed supposed to boost inflation.

What’s more, no one can say the European Central Bank didn’t utilize every available tool in their arsenal to try and accomplish that end. The problem is they were fighting a losing battle.

And, we are both happy and sad at the same time to report that from the very beginning, when the first rate cut was loaded into the save-the-economy cannon, we at Elliott Wave International foresaw that Europe’s retreat toward deflation was unavoidable.

Here’s a quick recap of what led us to that conclusion.

– 2011 –

January 2011: The “D” word is way off the mainstream radar. Soaring oil, grain, and commodity prices has fueled widespread fears of runaway inflation. Writes one January 22, 2011 LA Times article:

“Around the world, many countries aren’t confronted with the debilitating forces of deflation, but the opposite — inflation. Annualized inflation in the euro zone rose above the 2% target rate for the first time in more than 2 years.”

February 2011: The European Central Bank unveils its brand-new Long Term Refinancing Operations (LTRO), extending nearly half a trillion euros in 3-year loans to banks at negligible interest rates — to stimulate the economy (and inflation).

July 2011: U.K.’s consumer price index declines, prompting a sigh of relief, not a shudder of fear from the Bank of England, who says “we can now breathe a little easier.”

(VS.)

Our August 2011 European Financial Forecast:

“We maintain our stance, however, that the looming threat is not inflation but deflation. Far from a sense of relief, the Banks’ paramount feelings should soon develop into an unrelenting dread.”

September 2011: U.K.’s consumer price index peaks at 5.2% and officially sets the downtrend in motion.

– 2012 –

January 2012: The Bank of England adds another 50 billion pounds to its asset purchase program, bringing its 3-year campaign of “money-printing” to 325 billion. The European Central Bank is less than 14 years old, yet total assets at the ECB breach 3 trillion.

February/March 2012: U.K. producer price inflation comes in higher than expected, prompting one U.K. economist to say: “PPI: Another wake-up call for apoplithorismosphobes,” the clinical term for those who fear deflation. The economist goes on to recommend that sufferers “seek therapy.” (March 12 Wall Street Journal)

(VS.)

Our July 2012 European Financial Forecast:

“Our models say that inflation rates will keep failing until they’re again measuring the rate of deflation as they last did briefly in 2009.”

August 2012 European Financial Forecast makes the first comparison of Europe to Japan:

“European leaders,” by slashing rates and printing money “seem determined to replicate Japan’s experience. Their efforts will not stop consumer price deflation.”

– 2014 –

May 2014 European Financial Forecast:

“The chart shows that British CPI accelerated lower after falling from a counter-trend peak of 5.2% back in September 2011, with year-over-year price growth just ticks above its late-2009 low.

“More than half of the 28 EU nations either teeter on the brink of deflation or have succumbed to falling prices already.

“The following chart shows that economic stagnation has reached even Germany, Europe’s most robust economy.”

September 2014 European Financial Forecast:

“In a related phenomenon, the press has now jumped on the slew of similarities between Europe’s flagging economy and Japan’s… Clearly, the parallel paths of the two regions have become impossible for the press to ignore.

“The central bank’s latest deflation-fighting contrivance is a €400 billion package of targeted LTRO loans, which are designed to compel banks to lend to ordinary business owners. Also like Japan, the ECB has slashed its main refinancing rate to 0.15% and now charges for banks’ overnight deposits. The result? Shown below, Europe’s largest economy, Germany, just contracted 0.2%; French economic output has ground to a halt; and Italy just entered its third recession since 2008.

The world has finally woken up to the possibility of a Japan-style deflation in Europe — years after the writing was already on the wall.

Now, our newest European Financial Forecast provides you with objective, ahead-of-the-turn analysis of what’s to come.

The best part is, Elliott Wave International’s Investor Open House is still underway.

Meaning: You have until October 1 to get instant free access to the complete latest European Financial Forecast, with its critical insights into the next wave of sea changes in store for the economies across the pond.

Don’t miss out on this amazing opportunity to read EWI’s premier subscriber reports FREE >>


This article was syndicated by Elliott Wave International and was originally published under the headline Europe: The ONE Economic Comparison That Must Not Be Named… Was Just Named. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

If inflation is so low why does it feel like your cost of living is soaring

This is why inflation is “low,” but your cost of living is soaring…

Inflation may be lurking in the aisles of supermarkets.

Even with price pressures tame to non-existent in the industrial world, economist Pippa Malmgren says they’re there if you look.

A former adviser to President George W. Bush, Malmgren is zeroing in on what has come to be known as “shrinkflation” (also know as “value deflation”) — where companies charge consumers the same, or more, for less. That may foreshadow an overall jump in prices, an alarm she has been sounding for a while.

“Shrinking the size of goods is exactly what happened in the 1970s just before inflation proper set in,” she writes in her new book, “Signals: The Breakdown of the Social Contract and the Rise of Geopolitics.”

It also explains why people are so agitated by a higher cost of living, writes Malmgren, who founded London-based DRPM Group, a consulting firm.

Take the Dairy Milk bar produced by Kraft Foods (KRFT) Group Inc.’s Cadbury unit. In 2011, the company lopped two squares of chocolate from the snack, holding the price unchanged. At the time, the company cited rising costs. Last year, it made the corners of the bar more rounded, reducing the weight.

The U.K. consumer group Which? turned up other examples in a study it conducted last year. It found boxes of Nestle SA (NESN)’s Shredded Wheat cereal had shrunk to 470 grams from 525 grams yet still cost $4.45.

Russian Beer

Just last month, Carlsberg A/S, the world’s fourth-largest brewer, said it’s putting less beer in some bottles in its Russian market and making others smaller there in what it called a bid to avoid raising prices.

Companies typically blame the moves on the rising cost of commodities and other ingredients.

“We always aim to offer our consumers great value for money for the brands they love,” Nestle spokesman Len Bennett said in an e-mail. “Occasionally we make changes to the size of our products, driven by a number of factors, including anything from a product reformulation, a change in packaging, or changes to ingredients costs. Resale price is at the sole discretion of the retailer.”

Malmgren is more worried. “There are signals that prices are starting to rise, or that inflation pressures are building,” she writes.

The Never Ending Recession–What’s In Your GDP

“The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity. The popularly followed number in each release is the seasonally adjusted, annualized quarterly growth rate of real (inflation-adjusted) GDP, where the current-dollar number is deflated by the BEA’s estimates of appropriate price changes. It is important to keep in mind that the lower the inflation rate used in the deflation process, the higher will be the resulting inflation-adjusted GDP growth.”John Williams – Shadowstats

GDP is the economic statistic bankers, politicians and media pundits use to convince the masses the economy is growing and their lives are improving. Therefore, it is the statistic most likely to be manipulated, twisted and engineered in order to portray the storyline required by the elite. Two consecutive quarters of negative GDP growth usually marks a recession. Those in power do not like to report recessions, so data “massaging” has been required over the last few decades to generate the required result. Prior to 1991 the government reported the broader GNP, which includes the GDP plus the balance of international flows of interest and dividend payments. Once we became a debtor nation, with massive interest payments to foreigners, reporting GNP became inconvenient. It is not reported because it is approximately $900 billion lower than GDP. The creativity of our leaders knows no bounds. In July of 2013 the government decided they had found a more “accurate” method for measuring GDP and simply retroactively increased GDP by $500 billion – essentially out of thin air. It’s amazing how every “more accurate” accounting adjustment improves the reported data. Economic growth didn’t change, but GDP was boosted by 3 percent. However, this upward adjustment pales in comparison to the decades long under-reporting of inflation baked into the GDP calculation.

GDP is adjusted for inflation. The higher inflation factored into the calculation, the lower reported GDP. The inflation deflator used by the BEA in their GDP calculation is even lower than the already bastardized CPI. According to the BEA, there has only been 32 percent inflation since the year 2000. They have only found 1.4 percent inflation in the last year and only 7.1 percent in the last five years. You’d have to be a zombie from the Walking Deador an Ivy League economist to believe those lies. Anyone living in the real world knows their cost of living has risen at a far greater 70 rate. According to the government, and unquestioningly reported by the compliant co-conspirators in the the corporate media, GDP has grown from $10 trillion in 2000 to $17 trillion today. That  percent growth over the last fourteen years is dramatically overstated, as revealed in the graph below. Using a true rate of inflation exposes the fraud being committed by those in power. The country has been in a never ending recession since 2000.

sgs-gdp

Your normalcy bias is telling you this is impossible. Your government tells you we have only experienced a recession from the third quarter of 2008 through the third quarter of 2009. So despite experiencing two stock market crashes, the greatest housing crash in history, and a worldwide financial system implosion the authorities insist  we’ve had a growing economy 93 percent of the time over the last fourteen years. That mental anguish you are feeling is the dissonance of wanting to believe your government, but knowing they are lying. It is a known fact the government, in conspiracy with Greenspan, Congress and academia, have systematically reduced the reported CPI based on:

  • hedonistic quality adjustments,
  • geometric weighting alterations,
  • substitution modifications,
  • and the creation of incomprehensible owner’s equivalent rent calculations.

Since the 1700s consumer inflation had been estimated by measuring price changes in a fixed-weight basket of goods, effectively measuring the cost of maintaining a constant standard of living. This began to change in the early 1980s with the Greenspan Commission to “save” Social Security and came to a head with the Boskin Commission in 1995.

Simply stated, the Greenspan/Boskin Commissions’ task was to reduce future Social Security payments to senior citizens by reducing the CPI and thereby reducing cost of living adjustments to social security recipients. The tactic provided an “easy way out” for politicians. Politicians would lose votes if they ever had to directly address the unsustainability of Social Security. As a result, they allowed academics to work their magic by understating the CPI and stealing $700 billion from retirees in the ten years ending in 2006. With 10,000 baby boomers per day turning 65 for the next eighteen years, understating CPI will rob them of trillions in payments. This is a cowardly dishonest method of extending the life of Social Security.

If CPI was calculated exactly as it was computed prior to 1983, it would have averaged between 5 percent and 10 percent over the last fourteen years. Even computing it based on the 1990 calculation prior to the Boskin Commission adjustments, would have produced annual inflation of 4 percent to 7 percent. A glance at an inflation chart from 1872 through today reveals the complete and utter failure of the Federal Reserve in achieving their stated mandate of price stability. They have managed to reduce the purchasing power of your dollar by 95 percent over the last 100 years. You may also notice the net deflation from 1872 until 1913, when the American economy was growing rapidly. It is almost as if the Federal Reserve’s true mandate has been to create:

  • inflation,
  • finance wars,
  • perpetuate the proliferation of debt,
  • artificially create booms and busts,
  • enrich their Wall Street owners,
  • and impoverish the masses. Happy Birthday Federal Reserve!

inflation-1872-present-alt-cpi

When you connect the dots you realize the under-reporting of inflation benefits not only the government but corporations as well. If the government was reporting the true rate of inflation, corporations would be forced to pay their workers higher wages, reducing profits, reducing corporate bonuses, and reducing profits.  Reporting a true rate of inflation would force long-term interest rates higher. These higher rates, along with higher COLA increases to government entitlements, would blow a hole in the deficit and force politicians to address our unsustainable economic system.

A Financial Storm Approaches

It is so easy for a country to print money… Said another way, it is so easy for a government to create inflation.

Because it’s so easy, nobody believes that DEFLATION – the opposite of inflation – is possible.

But it is

Financial StormEarlier this week, Republican politicians proposed a bill that would limit the powers of the Federal Reserve.

We are all for limiting the powers of government… But if the Fed’s powers are limited, its ability to print money would be limited… If this happens, persistent deflation could be an outcome – and that could trigger a financial storm that nobody is expecting.

“The most likely path of the Federal Reserve policy in the years ahead is the continuation of massive money printing to fend off deflation,” Jim Rickards writes in his excellent book The Death of Money. However, “the Fed may reach the political limits of printing.”

This is a scary thought for the Fed.

“Deflation is the Federal Reserve’s worst nightmare for many reasons,” Rickards explains. The new bill proposed by the Republicans is an example of the Fed reaching the political limits of money printing.

For one, “Deflation increases the value of government debt, making it harder to repay. If deflation is not reversed, there will be an outright default on the national debt, rather than the less traumatic outcome of default-by-inflation.”

Even worse, deflation “feeds on itself and is nearly impossible for the Fed to reverse.”

If deflation actually takes hold, how can we get out of it?

Rickards explains it: “The only way to break deflation is for the United States to declare, by executive order, that gold’s price is, say, $7,000 per ounce, possibly higher.”
Deflation can be broken when the dollar is devalued against gold, as occurred in 1933 when the United States revalued gold from $20.67 per ounce to $35.00 per ounce… If the United States faces severe deflation again, the antidote of dollar devaluation against gold will be the same, because there is no other solution when printing money fails.”

To be clear, Rickards isn’t actually predicting deflation…

He says we’re in an epic battle between inflation and deflation… where the government desperately wants to create inflation.

Conventional wisdom dictates that the government will succeed in creating inflation. But Rickards’ book describes an eye-opening, credible argument on deflation could actually take hold.

The actions this week by House Republicans suggest that Rickards is right – there is a legitimate risk that the Fed “may reach the political limits of money printing.”

We highly recommend you pick up  The Death of Money… It will open your eyes…