Issue #94
Jim Willie CB, 
“the Golden Jackass”
22 January 2012

Editor Note: The Hat Trick Letter Chart Store Report is not to become a regular monthly feature. From time to time, like every 3 months, a display will be provided that covers the landscape. It will not be comprehensive, but it will be broad. Unlike past charts embedded into the main reports, comments will be brief, appearing in paragraph form. Some trendlines will be shown though and other signals highlighted.


The blooming crisis in Europe has created demand for USDollars, from three sources. The banks have US$-based obligations and need to satisfy them. The derivatives are priced in US$ terms within contracts, like debt insurance. The Euro is too hot to handle, moving to the downside. A critical juncture is here at the 81 to 82 level. Much like the previous battle at 78 to 79, the year-long reversal could set up another surge toward the June 2010 peak at the 88 level. My analysis has been wrong on the strength of the USDollar in the last several months. Given the hidden nature of Quantitative Easing and its successful concealment, the currency trade has benefited the USDollar. After hefty pullbacks like seen last week, a re-evaluation is taking place. Check October 2011 for a previous such assessment, after which it resumed its rise. Although my analysis has been wrong, my belief is that the 82 level will serve as firm resistance. Jim Rogers has a big bet that the Euro currency will rise from here. If so, then the DX index will settle down. My pat line is that the USDollar will rise during the crisis from a death dance of demand. It will continue to rise until it vanishes, rejected globally. The trade settlement angle is powerful toward the rejection.


The tumultuous events last summer took down the Swissy, as their central bank began to enforce a peg to the Euro currency. They met with some success. Two events are worth watching. The central bank head has resigned in an insider "pillow talk" trading gain by his wife. The disruption could result in reduced attention to defend the Swiss Franc currency against an unwanted rise. Such a rise would  harm their export trade, typical of the competing currency wars. The other important item is the technical analysis. The momentum in the downward trend might have run its course, seen in the MACD (moving average convergence divergence) measure. Although the crossover is evident in the 20-week moving average below the 50-week MA, look for some stability and leveling off. Ironically, a Euro exchange rate rise might actually work to lift the Swissy even more.


The Euro might be running out of downside momentum. Too many wild cards are in the deck to make assured confident forecast calls. The breakdown began in earnest in November after the MA crossover shown in the green circle. That coincided with wider crisis spreading to Italy and Spain, both wrecking grounds. The breakdown had more power below the 133.5 level. A serious bounce occurred last week. The stochastix measure is plumbing lower momentum levels. The banks are in deep trouble, swirling down a toilet of insolvency, the lever on the toilet being sovereign debt. Solutions are half-baked showman displays better described as farces. The political leaders are controlled by the powerful bankers, and they do not want liquidations. If a broad rescue plan comes with some recapitalization and some liquidations, the shorts might cover and a big Euro rally could ensue. But too many wild cards. The clear winner will be Gold, not any fiat paper currencies. The empty solutions to date have been more debt and more paper to fix too much debt and too much paper. They cannot learn, since way too committed. Another hidden wild card is grand harsh publicity about US banker criminality.


The Pound currency matches the Euro stride for stride. The hints of an important schism between England and the continent could erupt into something very ugly. Prime Minister Cameron might win a game of pride, but lose a game of isolation.


Ever since the spring 2011 earthquakes and ensuing reconstruction, my forecast has been for a  paradoxical runup in the Yen currency. It happened, an easy call that most analysts had backwards. The diverse financial firms in Tokyo have been forced to redeem US$-based securities in order to pay for the reconstruction. It is not finished. But the upward trend in the Yen might be close to conclusion. Notice the attempt to put a firm top at the 131 level. The uptrend will do battle with that ceiling. If it breaks on the upside, then a very strong runup toward 135 will occur, and attract global attention. That would coincide with a USDollar correction downward. Much domestic pressure will come to keep the Yen exchange rate down, in order to protect their export trade and vast industrial complex. Instead, a consolidation process between 125 and 130 is very likely. It requires an end to raising cash to cover the reconstruction costs. Let's not touch the Fukushima project.


The Australian Dollar is caught up in the Chinese web. Demand for commodities has fallen from the Mainland China. This has occurred during a time of commodity price consolidation, matching the movement of the OZ$. Expect a consolidation period next, as the downtrend works toward more of a flat zone in transition. China will not falter as badly as some expect, thus lifting the OZDollar again. But what will be achieved is stability. The wild card is fiscal deficits, the difficulty to finance them, and bad publicity. The housing market decline on the island continent is fierce and begs for stability. The Anglo disease of housing asset bubble has not fully been played out. Both England and Australia caught the American plague, which extends to heavy military weapon spending and the strain of costs.


The Gold price is in a flux stage. An important upturn occurred in the stochastix measure, noted with the new year and a fresh look, or else new strategies put in place. The gold leasing issue has been discussed in the main reports, as has been the big Dollar Swap Facilities abused by central banks. The consolidation from the powerful runup between June and August last year has been digested. The time for a resumed bull market is here. My analysis has been wrong on the Gold bull resumption in the last couple months. Watch the pennant pattern for resolution. Trend will prevail in my view.


The 1600 level was well defended, even with gusto and enthusiasm. The breakdown from the trendline in mid-December was unfortunate. Repair is underway. Notice the reversal surge to correct damage done under 1600. Also note the 50-day moving average (in blue) which went below the 100dMA three weeks ago. It might go back above the 100dMA very soon, a positive sign. The most positive development technically that could come soon is a move above the pennant upper barrier, like with a surge above 1725 or 1750. All kinds of technical analyst bells would ring loud.


The Silver price defended well the 28 level. My forecast was not for it to go that low. The correlation with perceptions of a Chinese recession and hard landing were evident. Last week, like with gold, a strong surge took place in rebound. The 20-week moving average went below the 50-week MA in mid-December, which must reverse to satisfy the bull. Watch for the positive lift back above the 50wMA in the next several weeks. Extreme shortages of silver are clear. The wild card is the Sprott Silver Trust, whose fund will seek to locate 10 million ounces. The upsurge might have been related to the secondary issuance by Sprott and the knowledge that the silver bullion must be sourced. When the Silver price rebounds above 36 to 37 level, the downtrend line will have been broken in a bullish manner. It will come.


The major crude oil price move in early 2011 was due to the Quantitative Easing disaster engineered by the USFed. It corrected in mid-2011. The clear trend is a gradual upchannel. A struggle is occurring at the 100 to 105 level on West Texas crude oil. The price is at the upper rail to the long-term channel. Price might come down next somewhat. But as the USDollar is more widely rejected, look for the crude oil price to rise much more, and record a breakout. The wild card is for the Saudis to accept non-US$ payments, then all of OPEC. The signposts are all well written for the end to the Petro-Dollar defacto standard. When the revolt is more clear and on financial journals, argued by USGovt officials, the crude oil price will be $120 per barrel, then higher.


The turmoil from the financial crisis on the continent has given Gold a more favorable view as safe haven. The Swiss did not want their currency to serve as sole safe haven. An important pennant pattern is evident, and under test. My expectation is that the Gold price in Euro terms will rise above the pennant barriers in a grand bullish demonstration of power.


Gold in Pound Sterling terms looks very similar to Gold in Euros. Many are the similar forces at work, within banking and political circles. Expect the Gold price to rise above the pennant barrier in a grand display also.


The Gold price in Yen terms is fighting a different battle. The upward march in the Yen currency makes for a strong headwind in their gold price. Look for stability in this chart as their industry is put back on its feet while voluminous USTBond sales taper off. The wild card is the nearby important Chinese Economy and whether it falls further, or its growth comes way down. The Japanese and Chinese are increasingly joined at the hip, evidence made clear with their recent defiant currency swap accord. They will begin much broader trade settlement in the Yen and Yuan currencies. Regard the accord as a major slap in the USGovt face.


Major damage was done to the Silver price and therefore to this ratio, which had been favoring Silver in the last 18 months. Since May 2011, when the COMEX ambushes became more powerful, complete with intense criminal activity, the ratio began to favor Gold again. Simply put, the Gold price held its ground better than Silver did in the last few months. The recent bounce in the Silver price toward 32 bears watching. My belief is that Silver will rebound faster than Gold, and the ratio will resume its downward course again.


The Gold correction since last summer made stocks look better, as the Dollar Death Dance saw a beneficiary in stocks on a relative basis. That is about to change. The ratio has leveled off and found the long-term trend. As the global recession looks more obvious, look for global equity bourses to lose favor. The financial crisis is about to make an important turn toward bank failures. The requisite bank recapitalization initiatives will put great pressure on new money creation, and thus lift Gold relative to Stocks. But stocks might also benefit from a renewed Quantitative Easing program, as valuations rise from debased currency factors. My expectation is for Gold to outperform stocks in the next several months.


When the financial crisis shows its powerful dangerous damaging teeth, the impact is felt on stocks and all things paper-based in securities. The Gold investment has fared much better than mining stocks, exactly my forecast since early 2008. The gold community cannot accept this fact. Too many are the negative factors working against mining stocks. They suffer from naked shorting by finance partners, spread trades by Wall Street and hedge funds, higher costs before production, jurisdiction risk (property seizures by foreign governments), and low COMEX redemption prices for metal sale. My expectation is for the Gold price to continue to fare much better than mining stock valuations.


Gold has held its ground during the global financial crisis, as all things monetary are put to high scrutiny. Basically, the pursuit of safe haven for savings and wealth will prevail over the prospects of the global economy. The crude oil price is mostly an economic play, but it also contains a USDollar hedge component. Look for the Gold price to rise much more than crude oil, but the oil price will also rise as the USDollar endures a sunset and shun.


The Silver play is more than industrial. Its demand contains a monetary component, since Silver bars are used to store wealth, surely in lesser volume than Gold. Therefore the Silver investment tells the safe haven story over and above the Copper demand. Doctor Copper has a PhD in Economics, as demand for electronics, homes, and cars dominates. The trend since year 2010 has been favoring Silver over Copper. That trend should continue.


The GDX is a broad mining stock sector index managed by Goldman Sachs, used to short the entire mining sector with extreme force. It is much more broad an index than the HUI mining stock index, which is led 35% to 40% by the major companies involved in precious metals mining. The story told is that the smaller mining firms are more vulnerable to funding needs, to cost pressures before production phase, and more. But GSax abuses a powerful tool of its own creation and management. They sell the corrupt promotional line about ease of investment with a simple click. Only fools buy the line, along with lazy investors. The smaller mining stocks have fared badly, exactly my forecast since 2008. The trend should continue.


Usually not covered, include sugar since is acting unusually. Unlike wheat and coffee, the sugar price has recorded a surge in reversal that warrants close attention. It could signal a food price increase that causes renewed global problems.


The strength in crude oil has not helped the Continuous Commodity Index much. Grains, metals, sugar, coffee, and lumber have a contribution also. The 570 level was defended with vigor last week. The bearish crossover of the 20-week MA below the 50wMA was cause for alarm, but it might be in the process of repair. The key factor is the USDollar and also the prospect for a global recession if it hits the emerging market economies like China, India, and Brazil. Look for the 20wMA to work back up and kiss the red line. A move in the CCI above the downtrend line, such as over 620, would be a very strong positive signal. The key is the USDollar.


The index tracks the shipping costs for global dry freight like grains, lumber, cement, containers of finished products. It has fallen off the ship deck in a bad way. The signal is very clear, that a global recession is in the offing. It is unclear whether some Wall Street chicanery is at work, but probably not since this arena is not in their usual corrupt playbook. The fast decline has confused many analysts. It could be a maneuver by the Chinese to win more favorable freight rates, as they pulled orders. Just conjecture on my part.

Special thanks to Stock Charts, an indispensable tool for investors and analysts.