QUESTION: Dear Mr. Armstrong,

I have a question for your Blog . Do we need a falling dollar, like today, to see Gold rise?
Thank you

SH
Germany

ANSWER: No. When the majority begin to see government is really in trouble,
gold will rise with stocks as they have done going into 1980 as well as 1929 (in basket terms). The press is still touting the world is fine with government in charge. The polls are showing people are losing faith. It is a gradual process which will snap in 2017.

The REAL function of gold is the hedge against government – not inflation. Neither do we find any correlation that is consistent to imply that increasing the money supply will make gold rise. When you put the theory aside and just look at the data, you will see that gold rises when CONFIDENCE in government declines. When gold hit $875 in 1980, the national debt of the US reached $1 trillion. We are now approaching $20 trillion. Obviously, all the sales jobs they use to sell gold are just fiction.



Yearly – 1920 to 1950 in Basket of Global Currencies

Here is what gold really did during the period 1920 to 1950 through the eyes of a basket of currencies rather than just the gold standard fix of $20.67 and then $35. It was the dollar that rose extremely high going into 1934 which is why Roosevelt devalued the dollar. Gold had actually fallen BELOW the gold standard price of $20.67 to $19.78.

Now look at gold in January 1970. It fell BELOW the Bretton Woods gold standard price of $35. I was a kid. I was stunned at the time. I thought gold could never go under the “official” pegged price. I was clearly wrong. With time, I came to see that markets always made a FALSE MOVE in the opposite direction before a big move. You need this type of false flag move for it cleans out everyone.

This is what we are doing right now. We just have to do this. We will get everyone off-side and then slam them. The bearishness in the Euro is too great so it must rally to clean-out the shorts making them think the Euro has bottomed and QE is working at last, and then when the majority flip positions, wham, it will unfold.



So beware of market false moves. This is just the pendulum swinging to both extremes. It must do so to create the energy for the opposite direction.

QUESTION:  Martin, You have said on multiple occasions, that gold will only rise when the Market loses confidence in the Gov’t.This Mid-Benchmark Rally you note here in this article.

is this a temporary blip???, temporary rally???, that will still pop and go bust to the low side???

Or are people losing Confidence in Gov’t now??? is that happening hence this rally???

Thanks

SH
ANSWER: Of course there are many of us who have already lost our confidence in government. Odds are you would not be reading the blog otherwise. Granted, more than 3 million unique viewer read this blog. We are still well below the 10% mark of the US adult population which would be about 23 million, so we are far from that level at this time.
Nevertheless, the rise in the polls of Donald Trump reflect this growing dissatisfaction with government. When Social Security goes bust in 2017, our computer is projecting that between 2017 and 2020 is when we will most likely see the collapse in confidence.
Therefore, it is still premature to expect a breakout just yet. Governments are still moving toward negative interest rates. This will help shift capital from PUBLIC to PRIVATE.
The volatility is still insane. Gold should make a new low yet this year. However, since we DID NOT get the sell signal in gold at year-end, then this is the bounce, but do not expect it to be a breakout just yet.

[...]

We are finally starting to get the breakout to complete the retest in the Euro which has been vital to achieve. This is also helping gold as well. We need these counter-trend moves to end the consolidation the market have been trapped in since the book-squaring at year-end.

We are finishing up the world currency reports. The reports are not ready at this time, but we will make an announcement once they are available.

As we stated at the conferences, nothing appears ready to break before May. Nevertheless, the crazy period ahead appears to be the 2017-2020 time frame. The euro held the Yearly Bearish at the 103 area and elected the 116 number. Normally we would see a rally first to retest that area before turning down.

Every time the dollar moves to record highs, we get major monetary reform. Roosevelt devalued the dollar in 1934, and in 1985 when the dollar was pushed to all-time record highs they formed G5, which is now G20. When it broke in 1971, we ended up with the Floating Exchange Rate System. Extreme moves in the dollar spark political economic reform. Governments see this coming and are preparing to move electronic.

This is the type of move we need to see to create the change in the monetary system once again. It will probably take the form of the U.S. dollar no longer being the reserve currency. We will probably be looking at some electronic currency based on a basket.

So nothing has changed yet. We have a long, hard, road ahead into 2020. The Fed knows there is a problem and raising rates may attract too much capital inflow. They are entertaining negative interest rates to ward-off the inflow of capital. Of course, such a move will create a massive collapse of pension funds nationwide. Most state pension schemes will go belly-up.

The Federal Reserve has been talking to U.S. banks behind the curtain and asking them to consider that the Fed might have to do the same to stop the capital inflows. In its annual stress test, the Fed will assess the ability of big banks to survive a drop to negative rates on the three-month U.S. Treasury bill, which simply becomes prolonged.

The central bank announced the stress test for 2016 last week, commenting, “The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.”

Negative Interest Rates will flip investment and drive capital into the [USA] stock market just for yield. If pension funds do not dump government debt, they will go bankrupt. This is totally insane and even Social Security will collapse.

The Federal Reserve is in a real crisis. Interest rates are falling negative around the world which by no means has succeeded in stimulating anything. Governments are dead broke and they keep raising taxes yet hope the central bank can compensate by lowering interest rates to negative. Between rising Taxes and declining interest rates, this toxic-mix is destroying pension funds and wiping out the elderly. There is nobody in government who has any common sense to see this is going to wipe out the economy – not stimulate anything.

Gold will be driven underground. If you have too much gold jewelry on, they will pull you over and weight it at the airport. So, this guy would be in trouble.

In all cases where a currency has been cancelled or the confidence in government collapses to any extent, from Russia to a Zimbabwe event, the people use the currency of a neighboring country. The best thing for Europeans to do right now is to hoard U.S. dollars in cash — not euros, and not even Swiss francs. The Swiss will surrender to the demands of the EU, so I would not count on those 1,000 Swiss franc notes remaining valid for long either. The USA would find it extremely difficult to move to electronic currency. The USD remains the legal tender since 1792. It has never been cancelled and it might even spark a breakup of the USA with the Bible Belt whom is moving to secede.