Copyright Martin Armstrong All Rights Reserved January 18th, 2012

GOLD & THE NEAR TERM

old closed year-end for 2011 in a positive light above $1434 suggesting that it is not ready to

collapse into dust. The longer-term levels are still in a bearish mode showing that we are still

in a correction phase. This is generally being caused by the fact that we are still in a

deflationary mode that is the hallmark of ALL economic declines where asset values decline

and the purchasing power of money rises – i.e. the housing collapse. The hyperinflationists fail to

understand that this is what makes a depression. The values of assets become bloated and when

everyone wants to sell, the demand shifts from assets to cash regardless what it might be then.

1

The critical key to

understanding HOW the

economy functions is this

perpetual shift between

money v assets – PUBLIC v

PRIVATE. Simply put,

DEFLATION prevails as long

as the demand for cash

exceeds that of assets. The

key to the shift in this trend

will be the shift from PUBLIC

assets (CASH) back to

(ASSETS) PRIVATE. We face

the beginning of this shift

with the BIG ROLLOVER OF

2012. In other words, we are

looking at €600 billion in debt

of Italy and Spain for starters

that needs to be rolled over

this year 2012. This is setting

in motion the rise in interest

expenditures in the future

that will blow out the deficits

that is so necessary to create

the “inflationary" trend that

begins ONLY when the demand for cash shifts back to assets. This is the trend we need to see develop in

Europe that is a leading indicator to the USA trend. It unfolds when we begin to see interest rates rise

that signals the shift in demand from PUBLIC back to PRIVATE assets that many will perceive as inflation

and the breakout will then unfold in gold at last. Those who think gold will drop to it 1999 low based

upon the Great Depression ignore the fact the USA was not the debtor then by the creditor much as

China is today. So there will be NO deflationary collapse any more than there will be a hyperinflationary

blowout. History repeats, but more like a Shakespearian play – the actors keep changing with time.

In this economy journey into the future, we must understand TIME like never before. Everything we do

is a matter of TIME and how that will be reflected in PRICE. Oscillators can help us see objectively when

something is over-bought or over-sold. Yet we still need to understand TIME and its role in the

marketplace. We can look at the shape of a wave and try to ascertain how long each segment will take.

However, we return to the age old problem – subjective forecasting. This means we are at the mercy of

personal opinion. As they say, opinions are like assholes – everyone has one. Using technical analysis in

the same fashion as to predict the future based upon the patterns leaves us in the same subjective

analysis delemna. To get anywhere, we need the cold light of day without subjective analysis. Two

people look at the same cloud will often result in one seeing patterns and the other nothing but a cloud.

2

The economy unfolds through the dynamic nature of the markets. While the timing periods remain

unchanged, what does unfold depending upon the dynamic structure of the economy is what we call

Cycle Inversions. This means the timing targets do not change, but what should have been a high can

invert into a low. But the “turning point" remains that – a turning point rather than a specific high or

low. In the Forecasting Array presented here, the Alpha Cycle in GREEN is contrasted with the Beta

Cycle in RED where the former is derived from highs and the latter from lows. The Trading Cycle is

plotted in Red or Green ideally suggesting that this is a low (RED) or a high (GREEN). However, you will

see a YELLOW bar for January 31

st

, 2012. This represents a conflict where both projections for a high and

low converge on the same target. This signals a high probability of a Cycle Inversion. Now look down in

the Forecasting Array and you will see a Panic Cycle due the same day. These are often outside

reversals to the up- or downside, but can just be a change in trend.

In the December 15th article, "What's Up With Gold", it was stated: "As it currently stands, a decline

into January is the most likely course of action. We can see an intraday low form in February,

however, January is still likely to be the lowest close." There is an important difference between a

“Turning Point" and a “Directional Change" target. The former tends to be a high or a low whereas the

latter is when the market begins to change direction and that does not require it to be also the high or

low of the move.

3

The primary objective of creating a regular model of any market is to ELIMINATE the personality that is

involved in forecasting or trading. Even investors encounter the same problem. Too often the EGO gets

in the way and will cause people to hold on to a losing position because to take a loss means they were

wrong. Likewise, some refuse to look at the opposite side of a market and only want to hear up, up, and

away. Analysts are married to one side of a market and become blinded by prejudice. These are the

travails of investing and forecasting – the reason for black & white models. We simply must get away

from bias and preconceived ideas in order to survive our own trading decisions.

Whether we consider with aloof amusement the dreamlike state of governmental prognostications

rooted in self-interest, or we read with the utmost cultivated rapture about the latest sinister attempt to

influence and control the population, there is only one thing that matters – objective reasoning rather

than subjective. It is impossible for anyone to fundamentally comprehend all the various influences at

work that creates a trend. The reasoning on a global scale is different from each perspective because it

reason is perceived through the prism of the currency of the investor.

Alternatively swayed by the

domestic myopic views of

economic factors, and the

clamors of international faction

steeped in currency trends, it is

the Reversal System that gives

substance to our expectations by

reducing the world of complexity

emerging from the detached

dynamics of real world global

interconnectivity into a binary

equation of black and white. It is

what it is and the market

performance will be the ultimate judge – not opinion shrouded in preconceived ideas. For months, gold

held 1605 on a weekly closing basis. Then that Weekly Bearish Reversal was elected. The market first

rallied to test the high of the week, then crashed like a plane in a nosedive. It moved from one level

1605 down to the next Weekly Bearish Reversal at 1522.7 bottoming at 1526.9.

The mere fact that the REVERSALS are a separate and distinct model steeped in physics rather than

cyclical nature, provides us with an independent tool to help filter the cycles. Because cycles are turning

points and not specific highs or lows, the REVERSALS help to often qualify the direction. For example,

34.4 months (4 x 8.6) from the March 2009 low is due here in January. It is often confusing to those who

are not familiar with cycles. Just keep in mind that they are turning points and not always specific

events. Therefore, January 2012 instead of a low, may produce a reaction high along with the stock

market – i.e. DJ Industrials.

4

We can see on the WEEKLY LEVEL that the oscillator is still in a downward position. At this time, the

Major Weekly Bearish Reversals are 1522.7 and 1405.8. Thus, only a weekly closing below 1522.7 will

signal that an immediate downtrend could retest long-term support. According to our model, the Minor

Weekly Bearish Reversals are found at 1588.5 and 1542.8, followed by resides at 1479.7. Consequently,

only a weekly closing below 1588.5 will signal that a sell-off is likely to follow.

On a long-term basis, our Reversal System indicates that our Major Weekly Bullish Reversals are 1680.1,

1730.5 and 1762.9. In order to see a reversal in trend, gold would have to close ABOVE 1762.9 on a

weekly basis. The weekly turning points are coming into the end of January and to stabilize this market

gold has to at least accomplish a weekly closing above 1680.1 for the end of the week of January 23

rd

.

Failing to accomplish even that, will warn that January may prove to be a high with a decline thereafter.

Hence, the REVERSALS are the hurdles that must be accomplished. They are separate and distinct from

the cyclical target of TIME. They tend to provide us with a more black and white view of a market and

they should always been seen as moving from one level to the next and not a continuation of a trend

unless it is just starting rather than one that has been in place for some time as the pattern we see in

gold.

5

When we look closely at the Weekly Cyclical targets, note that the week beginning 01/30 is the low in

the composite and then the high thereafter is the week of 2/2- and then 03/05. Each of these target

weeks are turning points. The Directional Change target are falling into line one week prior to these

idealized events.

Looking at just these two distinctly different models, Cycles and Reversals, we can see that it is the

combination of these two models that give us a better sense of what is developing..

SUBSCRIPTION

SERVICES

We hope to have the subscription services

up and running by June. These will be the

computer generated reports written by the

computer to further eliminate the personal

prejudice and bias

inherent in

forecasting &

trading

.

6

The response to the offering of Roman Coins was simply

overwhelming. So many people have written asking how

they can buy Roman Coins and others realizing these are

from the 3

rd

Century have asked are there examples

available showing the collapse of the monetary system. I

have contacted some old friends regarding making available

a selection of Roman coins of this 3

rd

Century period for

those interested in owning a piece of real live history from

hoards.

7

Because of the turmoil of the 3

rd

Century and precisely the dangers we face as government goes after

citizens hunting down their wealth to confiscate to sustain their existence, what happens is they cause

capital to hoard reducing the VELOCITY of money. Hoards of Roman coins of earlier periods exist.

However, such hoards are few in number. Consequently, the coins tend to be much rarer. As shown

above, here are two gold coins from the civil war period that followed the assassination of Julius Caesar.

In the case of Brutus, a non-portrait silver denarius would bring generally $2,000-$5,000 where a silver

EID MAR would be $25,000-$100,000. There are only two gold EID MAR coins and these today would

bring more than $1 million. The gold Ahenobarbus would bring over $50,000 today.

Hoards of the 3

rd

Century are far more common. Pots with up to 50,000 coins have been discovered, but

of course the condition is often well corroded making such coins worth perhaps $10 simply because they

are a relic of the past. Silver and gold endure through the ages much better than bronze. Thus, condition

of coins during the 3

rd

century does help to reduce the supply of decent well preserved coins in

proportion to the bulk that are found over time.

Consequently, those asking the question: Is it

possible to obtain coins showing the drastic

collapse in silver content of the 3

rd

Century.

This collapse took place during the reign of

Valerian I (253-260AD) who was captured by

the Parthians (Persians) and stuff as a wild

animal trophy upon his death. His son,

Gallienus (253-268AD) made no effort to

rescue his father and the collapse from there

is easily seen in the coinage. So the answer is

yes! I have made arrangements for those

seeking such an example of the Monetary

Crisis of the 3

rd

Century. This is an

accommodation – not a business.

8

Examples of the Monetary Crisis

of the 3

rd

Century

PRESERVED BY A HOARD

In this particular hoard, the earliest coins were

those of Valerian I (253-260AD). These appear

to be silver coins, albeit the silver content is

slightly below 50%. Valerian was captured by

the Parthians of Iran and thus his joint reign

with his son Gallienus (253-268AD) came to an

end. Therefore, these coins were minted

between 253-260AD. This suggests that the

person burying this hoard began to cull the

coins in circulation as the monetary system

began to collapse. Additional silver coins of this

period exist in this hoard as Salonina, the wife

of Gallienus. These also are from the same period of 253-260AD.

The last coins found in this hoard take us

up to Diocletan (284-305AD) and his joint

ruler Maximianus (285-305AD). Since the

monetary reform of Diocletian took place

in 295AD and the coins included within

this hoard were pre-reform, this suggests

that this hoard was assembled covering

the period of 253-295AD or 42 years. It

was discovered in England and thus

includes coins struck by Postumus 259-

268AD, which were once again a

restoration of silver. For you see, in 259AD because of the monetary crisis brewing, there was a division

of Europe. The Gallic Empire was born and this France and England separated from Rome and were not

reunited with Rome until 273AD. Therefore, the Gallic Empire lasted officially about 14 years while the

full duration was 15.7 years (1/2 the Pi Cycle).

9

Pictured here are the debased coins of Gallienus. Most of these once silver coins are not merely reduced

in weight, but are struck in bronze and are generally of a very poor quality with respect to workmanship,

style, weight, and regularity. Precisely as the USA and all countries did in 1965, the removed silver from

the coins, but replaced it with a white meal (nickel) to give the appearance of silver. The Roman pulled a

similar trick. This issued the coins in bronze, and then silver plated them to make them appear to be

silver. Such coins that survive with the silver plating intact are naturally much difficult to find. The silver

plating wore off quickly, and any hoard coins that are cleaned that had the silver still present, end up

removing the silver to get rid of the corrosion. Pictured to left, are four coins with much of the silver

plating intact, but as often the case, they are badly corroded. Bronze does not survive well in the

ground. Consequently, finding acceptable specimens with the silver intact is difficult.

The question has long been, just how did the Romans silver plat the coinage without electricity. These

ancient metals craftsmen working in the Roman mints at that time had discovered how to apply a

complex principle of Chemistry involving oxidation and reduction to achieve silver plating. This process

would not truly be entirely understood by scientists until the 19th century.

The ancients probably learned the technique by observing special rare cases of naturally occurring

processes. Throughout history, we find plated coins were often produced. The process seems to be

discovered by counterfeiters. The earliest official use of the trick dates back to the Peloponnesian War

where Sparta defeated Athens in

404BC. Illustrated here is a silver

tetradrachms on the left and the

official issue at the end of the war

as Athens was running out of

silver and resorted to plating

bronze coinage. Again the issues

are very crude and rare with the

silver plating intact.

10

Pictured above, are genuine coins of the Emperor Claudius (51-54AD) that are ancient counterfeits

produced by the mint. These are bronze coins produced from the official dies, yet are silver plated. This

demonstrates that the bureaucracy always has had its own agenda. These coins stand as evidence of

how.government.workers.were.scamming.the.process.of.producing.money..These.“Fouree Denarii" are

extremely rare and will bring much more than a genuine silver denarius. These coins stand as witness to

the fact that the ancients knew how to plate bronze coinage for hundreds of years.

During the early days of the Roman Republic pre-27BC,. “Fouree Denarii" were produced by covering

copper blanks with a sheet of silver on both sides and heating to weld the metals together. Alternatively,

heated copper could be quickly dipped into molten silver accomplishing the plating appearance. Both of

these processes required a considerable amount of labor to produce coins reducing the incentive to

create such counterfeits. These ancient forgeries are known by their French term - “Fouree".

The method of plating that was used during the 3rd and 4th Centuries was substantially different. The

Roman moneyers had discovered that copper could be etched away by certain acids and corrosive salts

that will leave silver untouched. A coin blank was made in the regular way of alloying two metals

containing about 5% silver, sometimes even less, with the majority being copper. The blank was then

dipped in a "pickle" type solution of corrosive salts and acid. The process could be repeated heating the

planchets again followed by another dip to speed up the process. The copper was dissolved out, leaving

a microscopically thin layer of sponge-like pure silver that now covered the surface of the blank. When

the planchets were then struck with the dies, the sponge-like silver was flattened down and spread

across the surface of the coin, creating a stunning, brilliant silvery finish on the coin. This silver plating

soon wore off in circulation leaving a bronze coin.

Absent from this immediate English hoard are coins of Macrianus (260-261AD) and his son Quietus.

These were Eastern usurpers declared emperor by the troops following the capture of Valerian. The

absence of these coins illustrates that much of the circulating money supply in the West tended to be

local. Also absent are coins of Regallianus (260AD) a brief usurper in the Balkans.

11

The economic decline that caused the

disintegration of the Soviet Union due to

fiscal mismanagement and excessive

control of the people as the United States

is now adopting where everyone is a

terrorist, can be seen as history repeating.

The economic decline of the 3

rd

Century

brought more than just the rise in

Christianity as people prayed to their gods

and nothing happened. As illustrated

here, the Roman Empire split at first into

two parts with the Gallic Empire breaking

away including England, France and Spain.

Then less than a decade later no doubt

encouraged by the fact that the Gallic

Empire was able to sustain itself and

Rome could not take it by force, we find

in the East at Palmyra there was hope that they too could separate into a new empire free of Rome.

Economic declines open the door to political changes on a grand scale. Those who fail to understand

that the more aggressive the United States becomes with

its taxation, the greater the possibility that the nation will

split also along religious ideals.

The Gallic usurper Postumus (259-268AD) took Britain,

France, and Spain up to the Rhine River and carved out a

new Empire. Here the coins are silver once again and

Postumus portrays himself as the great restorer of the

economy. There are small quantities of his successors’.

coins found in this hoard.

Gallienus’.immediate successor after his assassination was Claudius II Gothicus (268-270AD). His coinage

is generally of the same poor quality as that of Gallienus

at the end of his reign. The coins are poorly struck,

bronze and silver plated, which quickly wore off.

Claudius.was.given.the.title.“Gothicus".for defeating the

Goth barbarian tribes. Claudius was most likely part of

the conspiracy against Gallienus along with Aurelian. The

Goths brought with them a plague and thus Claudius

died of the disease just shy of two years of a reign.

12

Claudius was succeeded by his co-conspirator

against Gallienus – Aurelian (270-275AD).

Aurelian was the great restorer. He is the one

who built the wall that still surrounds Rome

today. He constructed that due to the swarm of

barbarian invasions. His coinage reflects the first

monetary reform that provides the bounce

coming out of the low on our chart. The

workmanship is greatly improved, and the coins

take on a general uniform look. They are marked

“XXI". or. “K.". and. this. states. that. the. coins,.

although are still bronze, not contain 1/20

th

part

silver. This reflects the official acknowledgment of this chemical process to create silver plated bronze

coins. Now there is no return to silver coinage, just a claim that a tiny portion of the coinage is now

silver mixed in with the bronze.

.urelian’s. reform. is. clearly. extensive.. The.

increases both the size and the weight of

the antoniniani as they now took on a

more uniform appearance. Aurelian

officially adopted the silver plating process

and increase the size and weight of the

gold coins from 5.5 g to 6.5 g. He made no

attempt however to reintroduce any silver

coinage. Additionally, he made an

extensive production of coins bearing his

wife's portrait Severina. These coins

however are approximately 3 times as common as those of his wife.

Aurelian is assassinated because of his reforms. The internal bureaucrats, corrupt as we see they are

today, plot against him to prevent him from cleaning house so to speak. So we see clear parallels – (1)

Rome splits because of the monetary crisis just as did the USSR, and (2) the bureaucrats were running

government (BACKROOM DICTATORSHIP). Because it was the bureaucrats who killed Aurelian rather

than a general, we have a brief period of the Interregnum where the Senate issued two bronze coins

without the image of an emperor.

13

After the death of the Aurelian, the troops of the

Balkans wanted to just associate themselves from

the assassins in the bureaucracy. They petitioned

the Senate to nominate the new ruler. This was

highly unusual since normally & been overthrown

by generals. In this case, it was a corruption of the

bureaucracy that took down a Aurelian. The

Senate nominated Tacitus (275-276AD) was an

elderly senator claiming descent from the famous

historian of the same name. Tacitus was 75 years

old. He joined the troops in Thrace to defeat the

Gothic invasion. The traveling prove to be

burdensome and Tacitus died in April of two

276AD.

Following the death of Tacitus's half-brother

Florrianus (276AD) claimed the throne. His rule

was recognized by the Senate and most of the

Western provinces. However, the Eastern armies

proclaimed Probus to be emperor and thus the

to were locked into confrontation. The two

armies met at Tarsus however before Battle Took

Place, Florianus was murdered by his own troops

after rain of only two months.

Probus (276-282AD) was a highly competent emperor for

he was not merely competent as a general but he also

attempted to restore the economic livelihood of the

Empire. To some extent Probus represented a time where

the prestige of Rome had declined greatly due to the

barbarian invasions. Probus was to some degree very

much like Ronald Reagan's insofar as he sought to restore

the prestige of the Roman Empire much as Reagan came

at a point in time where the United States had been

humiliated by Iran.

The interesting aspect of the assassination of Probus

282AD is that he was murdered because of his attempts

to reform the bureaucracy. In this particular case Probus

was murdered by mutinous troops who objected to being used for public works. We must keep in mind

that the military received a full pension after 20 years of service similar to the current situation with

government employees of modern-day. Having such a huge sow read force who were entitled to

pensions, Probus attempted to achieve some economic gain by having the military construct public

14

Carinus (283-285AD) we still see

the Aurelian standard reformed

coinage 1/20

th

part silver with the

silver plating. When his father

and brother set out for Persia

Carinus remained in Rome. In the

Balkans a new usurper appeared

known as Julian of Pannonia

(284-285AD) who Carinus

confronted him near Verona and

slew him in battle. He now had to

face Diocletian who is now held

by the troops in the East and was marching against Carinus who actually defeated him in battle yet was

nonetheless murdered by his own troops leaving Diocletian as the new Emperor of the Roman Empire.

It was now Diocletian (284-305AD) who came to the throne with new ideas about how to turn the

economy around and strengthen the borders of the Roman Empire. Was during the year 295AD or

296AD that Diocletian began his monetary were forms. He introduced a new silver coin that was equal

to five bronze folles that was now equal

to 2 1/2 bronze antoniniani. The follis

adopted the Aurelian reform insofar as

its fabric consisted of one part silver to

20 parts copper. The post reform

antoniniani became pure copper

abandoning the one part silver denoted

by.the.marking.“XXI".that.now.appeared.

on the follis.

Diocletian realized that the Empire was

too big for one man to manage alone.

Part of his political reforms included

dividing the Empire between East and West with two emperors and he selected Maximianus (286-

305AD). There were also two Caesars who were the

heir apparent forming the Tetriachy. Diocletian

became the first emperor to retire. While the

empire was actually divided between east and

west, it would be Constantine I The Great who

would move the capital to the east.

15

works. Even

during the Great

Depression the

Empire State

building in New

York

was

constructed giving

much needed

boost to the

morale of the

population. In this same context we find Probus was attempting to restore the confidence of the people

through also establishing public works. It was the corruption of the bureaucracy that had not merely

killed or Aurelian but now rose up also against Probus. There were two usurpers during this period time

approximately during the year 280AD. The

first was a general Saturninus (280 AD)

located in Egypt. Not much is known of

Saturninus and only two coins exist one

being located at the Louvre in Paris. The

second usurper was in Britain by the name

Bonosus (280AD). These coins tend to be

very crude and extremely rare. Neither of

these coins existed in this hoard.

. The Praetorian Prefect Carus (282-283AD)

was duty bound to protect Probus. Upon

his assassination the troops haled Carus to

be emperor who raised his two sons to the

rank of Caesar Carinus this and Numerian.

Carus set out on a campaign against the Persians which he defeated. However, he was struck by

lightning in his camp at Persian capital in late 283AD. Carus perhaps one month before his death raised

his two sons to the rank of Augustus meaning co-emperors. Numerian was with his father in Persia and

after his victory led the troops back to

Europe when he was discovered

murdered in his litter. The Commander of

the Imperial bodyguard was Diocletian

who immediately accused the praetorian

prefect and had him executed without

trial. It is quite possible the Diocletian

may have had a hand in the death of

Numerian. So once again we have a very

short-lived emperor

16

Silver

Silvering

Mostly

Bronze

Intact

Silver

Valerian

253-260

Silver

200

Gallienus

253-268

Æ

40

Salonia

253-268

Silver

200

Postumus

259-268

Silver

125

Claudius II

268-270

Æ

50

Aurelian

270-275

Æ

50

Severina

270-275

Æ

100

Tacitus

275-276

Æ

150

300

Florianus

276

Æ

300

500

Probus

276-282

Æ

65

Carus

282-283

Æ

85

Numerian

283-284

Æ

100

250

Carinus

283-285

Æ

75

150

Diocletian

284-305

Æ

50

125

Maximianus

286-305

Æ

50

125

The quality of these coins is virtually Extremely Fine without corrosion. All names are legible. These are

the selected quality from the hoard and and are not the typical low grade junk often sold. This provides

a good sampling of this period (minus the extreme rarities) that have survived thanks to the tremendous

economic upheavals of the times that led people to burry their wealth.

Prices include shipping. Payment is acceptable at:

Or checks may be send to:

ARMSTRONG ECONOMICS

Two Penn Center - 1500 JFK Blvd, Suite 200 – Philadelphia, Pa 19102

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