Jim’s Mailbox

Posted at 1:12 PM (CST) by & filed under Jim's Mailbox.

Bullish Concentration Index Triggers As Jim Proposes $1630 Could Be Reaction Low

Less visible but equally important events supporting Jim’s thesis that $1630 could be the reaction low:

Bullish concentration of money flows in the futures and options markets. Aggressive accumulation, a combination of short covering and long buying, generated a double and triple peak in 2008 and 2011-2012, respectively (see chart 1). In other words, the peaks represent repositioning of paper within the trend. The concentration index, a variant of the diffusion index, illustrates the rarity and extremely bullish nature of these money flow setups (see chart 2).

The bullish third hook in the largest paper gold ETF confirms the bullish transfer of control from weak to strong hands (see chart 3).

Chart 1: Gold London P.M Fixed and Gold Diffusion Index (DI)

Chart 2: Gold London P.M Fixed and Concentration Index (CI): 1 = Bullish Setup, -1 = Bearish Setup

Chart 3: London PM Fixed Gold and GLD (ETF) Total Assets WA Stochastic

Today two events took place, one which has the capacity to make the recent low price of gold in the $1630s the low of this reaction (disappointing housing statistics), and another to fuel the gold price into its true 2012 range of $1700 – $2111 by this summer (utilization of selective lock out of the Swift system to India and others).

For fuel into the true 2012 range of $1700 to $2111:

"If a country doesn’t prove it’s making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system."

This is terribly ill advised and poorly timed. It smells like a threat of selective lockout via the Swift system.

At a time when the US dollar is sundering as the major international settlement mechanism this is the last thing that dollar managers should consider. Whoever came up with this idea has no appreciation of two points – the weakness of the Western financial system and whatever weapon of war will be used in kind.

The major financial weakness in the US is the level of the US dollar due to sundering use in international contract settlement, the clear and present trend of substituting both the Yuan and Euro as international settlement currencies, and the lack of true economic buyers in the US long bond market.

History will record this decision at this time as a major factor in the final move to financial unwind in the West.

The letdown of the housing report today does not support the majority view that the US is gaining take off speed economically. It is not. It will not and QE will go to infinity, about that there is no question.


Source: Swift Kick To The Dollar