GBN Reciprocal Weekly

One chart that has some fascinating clues to what might come next is the GBN.V reciprocated chart on a weekly basis. At the very least, this chart is calling for share prices to reach the extreme lows encountered in 2001, if you compare GBN.V share prices reciprocated to the TLT chart. GBN.V share prices have actually lagged bond price rises and should decline further.

What this chart also says is that the reason why GBN.V share prices never advanced in all of that time is that GBN.V shares were being sold while the TLT was being bought. This is especially noticeable in 2002, when share prices truncated right after the TLT ETF was issued.

This is especially important from the point of view of equity swaps, which hold the liability of all of those shares sold first without owning them. The negative carry in GBN.V shares is the entirety of the publicly held float, which cannot be exceeded, unless someone sells their holdings.

Sell-side brokers have full advantage here, where they are committed to their leveraged hedging strategy (buying TLT), while they rely very heavily on their selling strategy in GBN.V shares. If you go by the inverse correlation, it appears we are in a similar condition just prior to the market rout in 2008. (going from negatively correlated to strongly positively correlated - strong positive correlations on this chart means either a low or a high - thus we are not yet at a low)

Sell-side brokers are betting that bond prices will continue to rise, by selling GBN.V shares and buying TLT. Central bankers have been very aggressive at jawboning monetary expansion. They might be right, but they underestimate GBN.V, especially if the gold price advances under the same conditions.

I would expect central bankers to intervene with renewed vigour on quantitative easing, far beyond what anybody expected.

supersize: http://www.flickr.com/photos/11747277@N07/8455537941/sizes/l/in/photostream/

http://scharts.co/WI14WR

via SafeHaven - David Chapman

David Chapman has an interesting chart showing expansion in the U.S. monetary base vs. gold prices in nominal terms. (no adjustment for inflation)

http://www.safehaven.com/article/28720/the-us-monetary-base-and-gold

via Kingworldnews - John Williams

Any link to Kingworldnews will give you a warning that the site is infected with malware, so you need to have anti-virus installed and active before linking.

John Williams makes the case for equities, and gold, but does not conclude for gold equities.

http://ow.ly/hyf49

via Profit Confidential -

"Just look at the Bank of Canada, the central bank of Canada. Its reserves consist of only $184 million worth of gold bullion versus U.S. dollar holdings of $35.75 billion and other currency holdings of $19.43 billion! Imagine what would happen if a country like Canada (one of many countries whose holdings of gold bullion are minuscule compared to their U.S. dollar holdings) decided it needed to diversify into metals?"

Profit Confidential

If the Bank Of Canada were to diversify out of U.S. dollars and into gold, this would be considered an act of bad faith by Canada, and you could not transact internationally with the U.S. without having billions on short notice to effectively balance trade.

via Financial Post - All-in Cash Costs Don't Go Far Enough

I have to say I agree with this article, as the lights come on once again for gold miners with a gold price above ~$1750/oz.

http://business.financialpost.com/2013/02/07/all-in-cash-costs-dont-go-far-enough/

-F6