imageHaving got out gold price decline fairly well-nailed last week, we find ourselves (me and Zeus the Cat) looking at the charts this morning and wondering if the gold decline isn’t just a little over-done?

Ideally, we would flatten out to rise a bit toward the end of the month and then the price would go into another $30-40 decline for the end of month so deliveries would be cheap.

My consigliere called Monday afternoon with a few remarks on point, which I’ll poorly paraphrase:

“People don’t understand the dynamics of gold very well.

They think when a big market – like China lately – gets into trouble, everyone will run to gold as a safe haven.

But that’s not what happens.  People who have suffered losses in the paper markets will need to sell anything they have – INCLUDING GOLD – in order to meet margin calls.

So I think that while it may seem like an over simplification, there’s something to be said and it should be in Trading 101:  Good assets are sold to cover bad assets when your but is in a sling…”

Yes. 

The first thing we can do is look at the price of the Hang Seng and a chart over here.

As you can see, the market went from a high around 28,440 at the end of April and fell to a low of 23,516.  That’s a loss of more than 17%.

The problem is that the Chinese market bubble is not over with, yet.

As you will remember from some of our recent charts on  the Peoplenomics side (it’s really worth the $40 a year) we explained how most bubbles nowadays have a similar formation, to them.

The two charts at the top of the column this morning are a fine example.  the top chart is what the run-up and collapse of the Dot Com bubble was like.  The bottom chart is how how the BitCoin implosion went.

Zoom out to a five or 10 year view of the Hang Seng and what you will see is that in Elliott Wave terms, the Chinese market has just done a “wave 1 or a down” and its somewhere in here things will get really interesting.

The reason?

It’s not really a down move on China’s part, unless the old low, and in this five year perspective, it would be the lows around 23,000 which we saw in October of last year.

The question is whether the Hang Seng is really making a major corrections, in which case the market could lose almost half its value – which would imply sinking to the 17,500 range, or whether this will be more of a mess than even this.

Still, from recent all-time highs, the Chinese market looks a lot like it is in a B wave rally and the odds of a C wave to new (recent) lows – and beyond – would sure make for an interesting speculation.

I don’t make those kind of bets anymore. 

Still, when the 90-freeze comes off in China, and with all the overspending envisioned in turning Beijing and surrounding provinces into a multi megacity of 130-million people, I can’t help but think that the market is choking on some of the grandiose plans of Party leaders.

There’s one more way to look at this:  In October of 2007, again this is an Elliott kind of interpretation – the Hang Seng sailed over the 30,000 mark. 

But in the spring of 2009, it had dropped to the 12,800 area.

So, do I think the we have seen China in the same kind of recovery from the US Housing and consumption bubble?

Yep.

But time will tell, and the arrival of a genuine long-term rally (not just a 6-year B-wave or 2) will only be confirmed if the Chinese market goes on to a new high promptly.

With the end of trading controls hanging over the market like a guillotine, I just don’t see it.

But it wouldn’t be the first time I’ve been wrong.

No Iran-Like Deal for NK

Is it me, or has NK leader Kim Jong Un lost a couple of pounds? 

Sure looks that way in this CNN story about how the kid at the helm is not interested in negotiating an Iran-style stand-down with the West.

Got to admit, it would be a hard choice:  Do you want to cut a deal with the West and let financial cutthroats, like the ones ravaging Greek in the house?  Or, do you do the Iran option because otherwise, Israel might launch a sneak attack?

Tribal Warfare

It’s never gone out of style.

Oh, sure, we like to thing that humans have evolved to new and higher strata, but the data just isn’t there to argue otherwise.

India has seen a sharp rise in communal violence during the first five months of the year, reports Time.

It would be a dream to think that empowering people with technology would allow people to reach out to one another and negotiate their differences.

But it doesn’t work that way, or at least hasn’t so far.  Whether you’re talking Ferguson, or the social mobs that rip of retailers in big cities.

Not all Flashmobs are bad…just the ones that hurt people and their businesses.

The reassuring part of technology is that it’s turning out to be like any other tool;; it can be used for good or bad.,

A piano can play a sonnet or it can be dropped on someone.  Shovels can dig wells, or graves – it’s the damned curse of choicing in today’s world, ain’t it?

Political Correctness Implosion

OH, no!  “Pride event bans drag queens performance because ‘they might cause offense” to the transgenders attending..

You see?  This is why I keep my ViseGrips handy.  I need constant reminding which planet we’re on.

We Can’t Handle the Truth, Dept.

Richard Nixon said what on his first call to the moon?  Making the rounds…

Other than being awkward, ask yourself this: 

Who was doing the outside camerawork?  Outside?  Who?

Don’t look now but we’ve got some questions here…

Where’s my damn ViseGrips gone…

Dow’s looking to open down 50 and gold is bumping along 1,100…another day in the Worker’s Paradise, is it not?

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