Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Bugs Infiltrate Central Banks

Commodities / Gold and Silver 2010 Sep 28, 2010 - 02:36 PM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleHave Gold Bugs managed to infiltrate the central banks? Or, do we have another indicator of the frothiness of the current Gold market? From and Financial Times we read, “In the CBGA’s(Central Bank Gold Agreement) year to September, which expired on Sunday, the signatories sold 6.2 tonnes, down 96 per cent, according to provisional data. The sales are the lowest since the agreement was signed in 1999, and well below the peak of 497 tonnes in 2004-5.(27 Sep 2010)”

In 1999, at near the bottom, the central banks were selling Gold. Now, with Gold at a record high, the central banks are hoarding their Gold. In recent times they have actually been buying. Have we found an investor’s dream, someone who is always wrong? That may be more valuable than someone occasionally right. One would have to conclude that the Central Bank Gold Indicator is flashing a do not buy signal.

Enthusiasm of speculators for Gold has helped to create the beautiful pattern in the above chart. That pattern is a classic parabolic curve. Such formations are important as they are totally unnatural. They defy financial gravity, for a short time. Ultimately, financial gravity regains control, causing speculators to crash. Margin calls can be stronger than any widely accepted fundamentals.

Parabolic curves work just the opposite of the way nature intended. When we toss a ball into the air, the momentum of that ball slows until gravity becomes the dominant force. The ball then falls to the earth. In a parabolic move, the “ball” actually rises faster as it rises. The slope of the curve becomes steeper. It does so until the speculators are exhausted, and then it falls to earth.

The penalty phase of a parabolic curve is not enjoyable. When the end arrives, and they all do end, the discomfort can be down to 40-60% of the high achieved. Some may actually exceed that depending on the nature of the speculation. Gold, with much of it held in strong hands, may only decline 30-50% from the high.

A characteristic of the late stages of a parabolic move is the widespread discovery and fanciful creation of fundamentals and outrageous forecasts. Analysts begin to create price forecasts in a race to grab headlines, and spur speculators on. Am still waiting for oil to reach, what was it, $250.

One particularly false fundamental tossed around with abandon is that “they are running the printing press.” As the above chart shows, no one is running the U.S. dollar printing press. They may do so in the future, but at this time the printing press throttle is closer to being on idle.

One need only look at the charts of Silver and the MVDXJ to observe the level of speculative fervor being expended. While the long-term case for Gold rests on the intellectual bankruptcy of Keynesian economics and politicians, when the Street discovers an investment with gusto caution should be exercised. Gold Bugs have lived through price troughs before, and survived. They may have to again do so.

“What about fear?”, an email asked this morning. What fear? Anyone buying $Gold at more than $1,300 has no fear at all. If they have fear, it is fear of being left out, of not being part of the locust swarm.  When one looks at Silver and small mining companies the conclusion must be that no fear exists at all. If anything, we should fear the lack of fear.
Do not disturb your Gold holdings, but sit on your wallet. Buying is not appropriate at this time. Those that have speculative trading positions in Silver and small mining stocks should be booking profits. Better to take profits early, perhaps leaving some on the table, than taking losses later.  

By Ned W Schmidt CFA, CEBS

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


28 Sep 10, 18:53
I do not trust you

In spring 2008, these same men were drawing "the parabolic curve" tangent to the point where gold broke out in July-August 2007 when FED began easing. When it declined to $680 in October 2008, these men said it broke down the "rising bowl formation". Again gold broke out $1,000 decisively and these men re-drew "the parabolic curve" tangent to October 2008 lows. And claimed it is a bubble. Probably if gold falls to $1,300 from as high as $1,500 they will again re-draw "the parabolic curve" this time tangent to $1,300 and recklessly will claim it went too much. I do not trust these pundits.

The most important thing to remember is that "unlike oil, gold is a physically demanded asset and physical gold ($6 trillion) is extremely scarce when compared to total paper financial assets (over $200 trillion)"

29 Sep 10, 05:46
what is parabolic?

with charts, as with statistics, one can bend and twist them to make it look anyway we want them to look.

You can make a trend look parabolic in any chart, depending on the time scale used. And probably depending on your imagination.

As you have already noticed, dincer, there are some snake-oil men out there perpetually selling a story of a collapse. Just as there are snake-oil men selling the story of perpetual rocket launch.

If I were you, I would use them as a contrian indicator.

From a psychology point of view, it is easy to understand why some people keep calling for a collapse from some point onwards. It is because they had either missed the big move or had gotton out of their long position way too early. So psychologically, they have to keep imagining a collapse coming in order to keep their sanity and alleviate their pain of having missed the big move.

Seth Barani
29 Sep 10, 07:00
it is statistics

The author makes a good point, parabolic trajectories have historically shown to reach unstable peak. Further, the relative strength indices of gold, silver are knocking at 90% mark, which is a huge red flag. These are from financial mathematics, not any psychological projections. Besides, money making isn't always by going long (which is your assumption that 'people missed the wave'). In derivative market you can make money when a price falls down!

Again, there are no such things as right and wrong in market predictions. Everything has to do with the time intervals within which a prediction is highly probable.

29 Sep 10, 09:04
it is statistics?

Seth, I did not say what is right and what is wrong. You are missing the point.

For me I am very comfortable shorting the gold market when I think the time is right for it. Just as I am comfortable being long in gold. I have done both in this big bull market. But I must tell you that until the major trend turns down, it is easier generally making money being long then being short in gold. The day will come when it will then be easier making money shorting the market than buying it.

That being said, you missed the point that pincer and I were making. And that is that in a big bull market like gold for the past 10 years or so, if you have been calling for collapses so many times and for so long(think EWI and some other Elliot wave practitioners too) and THEY didn't happen, I think you are a peddler of snake-oil if you keep calling for it yet again. This is the whole point of the message.

What did Einstein said about insanity? And what about the saying that "even a broken clock can tell the time correct twice a day". And in case you do not know the meaning, it means that if you call for a scenario(a collapse in this case) many times too often, one day you are bound to get it right. And this is not a complimentary saying if you don't get it.

Of course one is entitled to be wrong once in a while, being human. But there is a BIG difference being stubborn and being wrong. And many a times, besides pyschology, ego is the reason for the stubbornness.

And by the way, although you hide behind your invocation of mathematics, you don't seem to realise that although rsi(or stocastics or whatever indicators) may be at 90%, or even 99%, that doesn't mean that a market will collapse. Of course that market will eventally correct but it may not necessarily mean the end of a trend and a collapse. It is too lengthy and will take many pages to debate you about the merits of indicators and I will leave it at that.

And the pyschology of missing a move(or wave as you call it)

can apply equally to a big bear market, by the way. A point you missed again.

Shelby Moore
29 Sep 10, 16:12

Everything in nature is logarithmic, because entropy has a logarithm in it. Logarithmic means something is changing with constant percentage change per unit of time. Everything logarithmic has a parabolic shape, but the key point is if you plot the part that looks flat by zooming in on it, it will also look like a parabola too. So a parabola is not an indication of the end of a trend, because every trend is a parabola from its inception until its end.

What causes the end of a trend is when the nominal change becomes significant and outpaces some other nominal change that sustains the trend, i.e. the amount of cash the public has to spend on gold.

If Schmidt were to redraw his gold chart using a logarithmic scale for the gold price axis, the parabola trend would become line trend.

It is more correct to draw charts using logarithmically scaled axis, because investors are interested in percentage gains, not nominal gains. For example, if you bought gold at $250 and you sold at $500, that is the same percentage gain as if you bought at $500 and sold at $1000. But on Schmidt's non-logarithmic chart, the latter has 2x more height than the former. Thus the non-logarithmic chart lies to the eyes.

I highly suggest that everyone watch this YouTube video: (1.8 million views!)

I suggest you make that video required reading in an introduction to investing.

I recently wrote about entropy, some readers might find it interesting:

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules