On January 29, 2013 I wrote in the protected premium area: “While my assessment for the precious metals sector has deteriorated a lot the past months, my outlook now suggests the ultimate nightmare… The ‘trapdoor to hell’ is open & $500-$1,000 is not just realistic but likely… Maybe I am now one of the biggest gold bears on the planet, which is a huge caesura.“ This unprecedented warning was issued just in time, as the plunge started in February.
JP Morgan was able to maneuver itself to the long side of the gold market while speculators (which by nature are long during the bull market) have been pushed to the short side. Does it mean that the gold price will move up right away? No, although it could. Timing a price move is not what COT is about. But with the largest holder of gold futures contract on the long side of the market things could seem less bearish as the picture that has been painted lately.
We want to remind readers that inflation and deflation are determined by the expansion of the monetary base, but of the money supply. The fact that the money supply is hardly growing anymore, given the fact that the velocity of money was at all time lows at the beginning of this year (the official chart has not been updated since) it is fair to accept that deflationary forces are at work and prevailing.
With the whole world tied to the printing press, inflation is just a matter of time, says Jim Rickards. A greater danger is a widespread collapse in confidence in paper money. That will be the single catalyst driving gold to unprecedented levels. The gold price that is needed to reflect the extended monetary base is approximately $7,000.
I mentioned in Thursday’s trade alert that we could expect a back-testing sell-off from that breakout, and that would be normal. But I did not expect to see anything more than a retest of the breakout line around $1,394. I certainly did not see a move all the way back into the ascending triangle. So this week will be an important week for gold because if this is a Left Translated Cycle, then Friday morning would certainly have marked the top of this Daily Cycle.
We hold that the higher time frame charts are more controlling than lower time frames. The month of May had a smaller range on increased volume. What this says is that the buyers were meeting the effort of the sellers, preventing the range from extending lower. The close, about mid-range the month, confirms this observation. That would be the qualified good news.
While the markets have been very volatile lately, hence difficult to predict, it is reasonable to expect a bounce in the price of gold and silver. We hasten to say that nobody can predict the future, so our expectation could turn out to be wrong. To be more precise, the probability of higher prices is higher than the probability of lower prices, at least in the short run. Here is why.
We have two things going on at once right now. You have deflation which is perfectly natural and what you would expect in a depression. Against that, we have inflation from the Fed money printing. In rough numbers we might have 4% deflation and 5% inflation at the same time which net out to about 1% inflation in the CPI. That is not a stable series; that is actually two forces pushing against each other.
Gold and silver are in long term bull markets. One of the objects of a bull market is to arrive at the peak with very few long term participants. The “bull” wants to buck you off periodically. It usually happens. Basic human nature – fear and greed – makes it difficult to ride the bull most of the way up and exit at the proper time. Fortunately for gold and silver bulls, there are many more years of deficit spending and increasing debt that will push metals prices much higher.
If you choose to stay in the banking system, expect to take losses on anything held in a bank. Read that sentence as many times as it takes to have it sink in. What have the bankers been hell-bent on destroying and discrediting? Gold and silver.
The good news is that with the culmination of this Daily Cycle we should be starting a new Investor and Yearly Cycle and it should be good for at least a $200-$300 move. Even if the bear market still has a hold on gold, we should expect violent counter-trend rallies. We know there is no way of knowing whether this will end up being the start of a major new bull trend. But in the least, this is shaping up to be a powerful and bullish setup.
We are in the merry month of ‘sell in May and go away’ so we could experience a sell-off in the general stock market which in turn would take the mining stocks lower. We also need to be aware that the summer doldrums are upon us and gold tends drift lower until August.
For all the short-comings of the paper prices reported by the COMEX and what resulting charts, are saying, they will be used until something better comes along. Regardless of what the charts show, one should continue to buy physical gold and silver, personally hold it, on a regular basis. Fiat currencies will continue to be debased by governments.
Will the price of gold and silver continue to go lower. We think they will. Does that mean you should wait before buying more? That has now become a personal decision that needs to be viewed in the context of what has been expressed above, and there are so many other instances that can be cited.
On the question where gold will trade for the rest of this year, Rickards is convinced that gold will go sideways this year and that it will go up next year. He also believes inflation is coming with a lag. On the question what deflation means for gold, Rickards answers that gold traditionally performs well amid deflation, as well as inflation.
Gold And Silver – Greater Certainty Is Found In Charts
We can assert the trend is down because of lower lows and lower highs. What can be seen, at this point, is a very small range, so far, following a small range in May that closed poorly. What we know for certain is that the downtrend has not yet changed, so lower prices can be expected. We may hold an opinion that gold will ultimately be considerably higher in value, but there is no confirmation that price has begun to rally.
JPMorgan Now Long Gold. A Game Changer?
JP Morgan was able to maneuver itself to the long side of the gold market while speculators (which by nature are long during the bull market) have been pushed to the short side. Does it mean that the gold price will move up right away? No, although it could. Timing a price move is not what COT is about. But with the largest holder of gold futures contract on the long side of the market things could seem less bearish as the picture that has been painted lately.
Time Cycle Model for Silver Price
This simple model, which uses only four cycles and an exponential increase, indicates that a low in the silver price was expected approximately February – July 2013, and that the next high is expected approximately March – October 2014 in the $50 – $60 range. Further, the model suggests that a silver price of $90 – $110 is possible in the September 2015 – March 2016 time period. Do not depend solely on a model such as this; it is one of many tools.
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