Simit Patel's  Instablog

It's September, and if you're a gold bug, you know what that means: it's Indian wedding season time! Gold has risen each September since 2007, and from 2002 to 2007, gold averaged a 10% increase from the start of September to the end of October (source). So, from a seasonal/cyclical perspective, we're on the brink of gold's best time of the year.

Of course while weddings create jewelry demand for gold, the true driver in gold's secular bull market is not jewelry demand but rather monetary demand -- meaning demand for a store of wealth. And so the global sovereign debt crisis, which remains completely unaddressed by the world's monetary authorities and is only growing, remains the true driving force. On that front there is no sign of public debt cancellation or even reduction, and so the outlook for gold remains wildly bullish, as many, including myself, have noted many times here on Seeking Alpha. Bernanke's two-day affair set to commence on September 21 will be the key central banking activity for gold bugs to watch this month, as we enter prime time in both gold's seasonal demand and in the ongoing sovereign debt crisis.

In terms of price action, though, it is vital that gold reach new all-time highs soon -- preferably this week. If gold retraces from here, it is setting itself up for a pattern of falling highs -- a bearish sign. This could pave the way for a retracement all the way down to $1,650. In light of the fact that we are on the brink of greater seasonal demand, are seeing the global sovereign debt crisis continue to escalate, and have just witnessed gold sharply bounce off the $1700 level, though, I think waiting for further dips before accumulating is becoming unnecessarily risky.   

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Facebook announced a partnership with Miramax films to allow Facebook members to rent Miramax movies through Facebook's social networking platform, and to allow payment to be rendered in Facebook Credits -- the company's virtual currency. This event is a major milestone on the virtual currency trajectory, and thus is of great significance to all those interested in creating the new monetary and political systems of the post-dollar world order.

Here are some key bullet points to ponder:

1. Because this partnership increases the exchange value of FB Credits -- what you can get for when you exchange them -- it increases their value as a store of wealth. This leads to the foundation for a financial economy involving loans and investing.  

2. Facebook's monetary policy is critical here. What if Facebook all of sudden reprices the exchange rate between FB Credits and US dollars? Can they seize your FB Credits directly? If so, can you go to a jurisdiction in the global nation-state system and take legal action against FB and accuse them of theft? Other companies in the field of virtual worlds have faced these issues before; the Chinese government has even banned certain virtual currencies for their de-stabilizing effects. Likewise, US Senator Charles Schumer has identified Bitcoin as a threat to the US economy. 

This latter aspect -- Facebook's monetary policy -- is where I suspect they will fail. Culturally, their money is very close to the Goldman Sachs money epicenter; Goldman is the incumbent in the world of monetary policy, and so I find it unlikely they will be able to play the disruptive card, or will even tolerate it. There is an element of political battling that is also needed to play the role of the currency manager, and I doubt Facebook as the DNA for such a battle. 

In any event, we are getting closer to the intersection of the collapse of the current global monetary system and the rise of a new one built on virtual currencies and gold. This event is the keystone to the economic transition we are in the midst of; it is especially relevant for those participating in the re-monetization of gold or social media/Bubble 2.0 value plays. More importantly, I view it as the most important step in the trajectory of the world, politically and economically. 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Chicago Mercantile Exchange (CME) raised the margin requirement on gold, which contributed to the sell off and decline in gold's price today. An increase in margin reduces the amount of leverage traders can use; in other words, it reduces the amount of contracts that can be purchased on credit. The effect of this is to get some of the weaker hands, participants whose interest are short-term and speculative, out of the market; in doing so, a temporary price drop occurs. However, better capitalized traders/investors can then come in and buy the dip. So in reality, a margin hike simply transfers gold from weak hands of speculators into the strong hands of better capitalized buyers. As these buyers are less likely to sell, the result is that gold's price stabilizes a bit, and its prospects for a strong bull market are only growing. 

In terms of price action, gold is back within the price channel that has been in development since the financial crisis of 2008. Buying demand at the $1500 level -- where both the bottom of the price channel and the 30 week moving average are currently situated -- should be very strong, if the margin hike can push enough speculators out of the market to push price to that level. Once the market can break past this channel to the upside even with margin hikes, I think the stage will be set for more rapid price acceleration, which may be expressed via the formation of a new, steeper price channel on the gold weekly chart. 




Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.