Is this what the charts look like before a monetary collapse?

The chart set-up for bitcoin is similar to 2013, before the last great melt up.
Cryptocurrencies are coming to the fore, just like various forms of private money did during the Great Depression. Image: Chris Ratcliffe, Bloomberg

Cape Town-based gold and crypto analyst Hubert Moolman sees something momentous in the gold and crypto charts.

The gold, silver and cryptocurrencies charts are showing signs of going parabolic, he says; the US dollar is close to confirming a massive breakdown. “The gold price broke $2 000/oz in recent months, retraced, and is now nudging up against a resistance level of $1 902/oz. Should it break this, it is likely to surge higher.”

JPMorgan’s quantitative analyst Nick Panigirtzoglou, writing in his Flows and Liquidity, recently noted that while older generations were buying gold as a risk asset, younger investors are choosing cryptos such as bitcoin. Grayscale Bitcoin Trust is now the fifth largest holding in Milletmeals’ retirement accounts.

This, and the growing institutional support, is bullish extremely bullish for bitcoin.

Panigirtzoglou writes that “the potential long-term upside for bitcoin is considerable as it competes more intensely with gold as an ‘alternative’ currency we believe, given that millennials would become over time a more important component of investors’ universe”.

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Gold price bears striking similarities to break-out in the 1970s

Source: Hubert Moolman

Turning to the charts, Moolman notes a similarity between the late 1970s and the current gold chart (marked ABC in the above chart). For this similarity to continue, gold will have to break the $1 920/oz level.

“We’ve already seen the breakout, now the price has just been consolidating around that level. It is very close to blasting higher,” says Moolman.

“From a cycle analysis point of view, we are right at a point where a sustained multi-year gold rally is possible.”

The set-up for bitcoin is very similar to the end of 2013.

Bitcoin poised for breakout?

Source: Hubert Moolman

Moolman says the set-up for silver is the same. Should it break current levels, it will trend far higher.

We are at the end of the fiat debt-based monetary system, adds Moolman.

It is becoming clear that the system is in collapse due to the enormous debt load.

“Hate them or love them, many people are running to bitcoin and other cryptocurrencies, especially the younger generation. The very fact that bitcoin and cryptocurrencies exist, and are coming to the fore, just like various forms of private money did during the Great Depression, is a major sign of the times.”

Bitcoin has an interesting relationship with the US dollar index. Below is a comparison between bitcoin (bottom chart) and the US dollar index (top chart).

Comparison between US dollar index and bitcoin

Source: Hubert Moolman

Bitcoin tends to make key breakouts around the same time the US dollar index tends to make a key breakdown (and vice versa). This was the case before the bitcoin blow-off rally in 2013, and recently.

“It is interesting that the 2013 US dollar index breakdown and the current breakdown also coincides with the fractals marked (1 to 5) on the bitcoin chart. This is a perfect set-up for a massive bitcoin rally,” says Moolman.

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I don’t know about Bitcoin, but gold is going to add 1400% over the next decade, as it did in the ’70s, for the same reasons.

If the dollar depreciated accordingly …

Gold will continue buying the same number of potatoes or oil or whatever widgets you choose as purchasing power. If the dollar crashes and potatoes become 14 times more expensive, sure gold will go up 1400%

It will not buy 14 times as much potato in 2030 and eventually you must sell some gold in order to eat

I agree with you on that point. The share market won’t keep up though. Only the shares of gold mines will benefit.

Sensei: “I agree with you on that point. The share market won’t keep up though. Only the shares of gold mines will benefit.“

Shares are like cash. If the dollar halves, Apple price will double. OK maybe bit less because they are global and the discount rate will be higher, but still. In the end everything is eventually worth or priced at how many potatoes / wheat / oil / soybeans / smartphones you can swap it for. When dollar crashes oil price will go up

One must remember that the 1970s were very different. They were characterised by ongoing stagflation. Successive US regimes used Keynesian policies (borrow, borrow, borrow, spend, spend, spend) to promote growth. This failed dismally and effectively killed JMK’s theory for good. All it did was flood the economy with liquidity which spurred on rising commodity prices.

Today’s environment is very different and characterised by a deflation and a massive debt overhang. Ironically debt is exactly what gives fiat its value. All dollars are borrowed into existence and therefore owed by someone or some entity. Money to pay interest is not created thus there is always more debt than money. There is a continual scramble for fiat to service debt. This is why despite QE there has been no inflation. In fact QE causes more deflation. Speculators front run the Fed selling bonds at a profit, driving bond prices up and yields down. The Fed must buy bonds at an auction by law. Risk free profits for the speculators. The newly created money is simply recycled back into the bond market, driving bonds ever higher and yields ever lower. This is not inflationary (sensu lato).

The irony is that which gives fiat its value (debt) will be its undoing. The debt house of cards will collapse along with the monetary system. The only way the Fed can save the dollar is to remonetise gold. Gold, when monetised, is the ultimate extinguisher of debt i.e. money that is nobody’s debt. With monetised gold one can reduce debt and expand the money supply at the same time.

The gold price is a poor indicator of when the collapse will take place. It is simply too manipulated. There is only one reason people are allowed to own gold bullion: the US regime needed to create a futures market to manipulate the gold price. Kid yourself not. For every ounce of gold there are 20 promises (futures) to pay someone that ounce. Let that sink in. if the POG rises too much then just issue a whack of futures and drive it down.

What then in the magic indicator of the coming collapse? Let me share something that very few know: less than one in one thousand. The gold basis. This is simply the difference between the spot price and near futures price. The normal situation (contango) is that the future POG is more than the spot POG. When this reverses we have “backwardation”. backwardation should be a risk free gold profit. Sell your gold bullion now and exchange it for paper gold. When this future matures, exchange the paper for gold and you have more gold than you started out with. Why would gold ever go into backwardation? The answer is that it will when people stop trusting the paper promises. When that happens the futures game is up and the system collapses.

Thank You, Richard. Always good to read your comments.

The futures contract is a legally-binding agreement for the delivery of the commodity at settlement date. Most contracts are nor settled by delivery but are cash-settled. That means that all contracts are netted off. After closeout of the futures contract, the open interest is zero. All the longs were netted off against all the shorts. The hedgers and the speculators can enter into contracts to buy or sell, they can write or purchase Call and Put options either to protect themselves against adverse price movements or benefit from positive price movements. Near closeout, the participants close their open positions. Previous buyers become sellers to the previous sellers who are now buyers. The opposing positions cancel out until all contracts have been cash-settled or physically settled. It is quite normal for the open interest on futures contracts to a multiple of the actual underlying instrument. We see the same in wheat.

Speculators use arbitrage to earn risk-free profits. They use the cost-of-carry (storage and interest) to arbitrage between the risk-free rate and the futures price. They sell the future until the cost-of-carry reflects the risk-free rate that is negative. It could be that backwardation reflects the shrinking cost-of-carry and a negative risk-free rate.

In any case, the implication is the same and it supports the point you are making. Gold in backwardation is a sign that something is terribly wrong with the monetary system. Gold in backwardation also tells us that there are huge underlying problems in the banking system.

Thank you Sensei. Certainly what you say about most futures contracts being settled by cash is true. In my understanding commodity futures are nothing more than a market for warehousing services where the future supply is uncertain. Backwardation reflects a shortage of the commodity. This situation is common in agricultural produce subject to cyclical seasonal fluctuations (e.g. a maize harvest). Arbitrageurs, rather than speculators, can earn risk free profits especially if the basis exceeds the warehousing charge. In such a case the warehouse manager sells the commodity forward and buys the physical. His profit would be the difference between the basis excess over the warehousing charge. Of course the basis would rapidly come down. Such opportunities are fleeting.

However, the gold basis demonstrates no cyclicity, rather a consistent downward trend over 40 years. If gold goes permanently into backwardation there is no readily available source to enable the warehouse to meet their commitments and it is unlikely that any supply will come out of hiding in such a situation. In such a case the “warehouse” e.g. COMEX will be bankrupted triggered by a massive futures default.

I came across this fascinating bit of commentary on the COMEX and how the futures price is seemingly being massaged in almost exactly the way you described. My curiosity was peaked since if you are in the markets long enough, you learn most of the ebbs and flows, particularly those of whom dictates the apparent spread which essentially results in paper profits as described by Sensei. I even sought out the interview mentioned and there seems to be some substance to this chaps story. Would appreciate any views from the two of you on the potential of this to become another cascading fallout situation like the CDS debacle(in order to trade it of course). My intuition tells me that with a 20 to 1 ratio of paper to product as mentioned, this is a major drawback to repegging the gold standard in some form or the other.
http://www.desogames.com/shadowcontracts-and-a-history-of-comex-manipulation-in-2020/

Well the general consensus seems to be that fiat money is on shaky ground.

How does this threaten the value of shares in solid companies?

TTR, don’t worry. Ever since 1971, when the USA went off the gold standard, the Federal Reserve has been working to support the nominal value of assets, shares in solid companies included. Before 1971 we used to invest for dividends, now we invest for capital appreciation. The fact that investors focus on capital appreciation instead of dividends is testament to the fact that currencies are being debased. The US dollar has lost 90% of its purchasing power since 1971. That trend will simply continue at a similar pace. This is the beauty of mathematics – after your currency has lost 90% of its purchasing power over 50 years, it can lose another 90% in the next 50 years and still act as a fiat currency.

To cut a long story short – if the depreciation of the last 50 years did not cause you any concern, then you don’t have to worry now.

“Cape Town-based gold and crypto analyst Hubert Moolman sees something momentous in the gold and crypto charts.”

Sigh …

Lots of charting here……or technical analysis (and it’s terms) to predict things.

Have read comments on a trading websites that some in the know regard charting/technical analysis is what “homeopathy is to the modern medicine industry”.

Have heard much stronger words about charting, which I’m not going to repeat on this reputable financial site.

To be fair, since crypto is not backed by any asset…I suppose what does one have to your disposal, despite “charting”?
But then why not try tea leaves at the bottom of a cup as future prediction?

Michael, it is good to read your comment, my friend.

It is irrelevant what people may think about technical analysis. Many highly successful traders and investors add a lot of value by using this art and science. People will say that it is impossible for a hunter to find the position of a wounded animal on a property of hundred-thousand hectares until they see a seasoned tracker in action.

Those same people won’t believe it when you tell them that a seasoned tracker is able to tell you how late in the day it was when this amount of terrorists were resting at this position, where they are heading, at what speed they are moving and how long it will take your patrol to catch up with them.

People won’t believe that this is possible, but at the same time, many skilled individuals make a living with the art of tracking. Technical analysis is not about predicting the future, in the same way, tracking is not about predicting the future. A good technical analyst simply reads the track. That is enough to give him the direction in which this animal is heading, and he will get an objective signal when the direction changes.

That is all you need to know to stay alive as a tracker and as a market technician. Technical analysis is not a crystal ball. It is a wind vane.

Thank you Sensei 🙂 You have a diplomatic knack for describing it very beautiful, and yet practical. Like a wind vane. Or to “read” a track.

I still can’t believe that after the crowing cocks were silenced following their huge losses on Bitcoin that anybody is still stupid enough to give weight to “cryptocurrency”

Blockchain is great as a technology.

Cryptocurrency is a hype that will disappear just as soon as those who are aggressively advertising their “crypto exchanges” shut up.

You may want to tell Paypal and multiple global exchanges who have since listed crypto indexes your theory. I think they may have a stronger argument than your hype assertion.

End of comments.

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