Tag: gold outlook
There is an obvious 7 year cycle in economics. Stock markets are overdue for a major correction. During periods of financial turmoil people have always turned to gold for safety.
I’ve been bearish on gold for so long that my successively lower targets have become almost perfunctory. Lately, I’ve focused on a ‘Hidden Pivot’ target at $817, the attainment of which would presumably wash out the last of the die-hard bulls, clearing the way for a resumption of the long-term bull market. Now, however, I am obliged to consider an alternative possibility — i.e., an explosive move without the washout. Although I lack the imagination to envision such world-shaking news as might cause this to happen, I credit a relatively recent Rick’s Picks subscriber, Michael Gibbons, with jarring me awake.
Could it be that these convincing forecasts are a contrarian indicator? Let’s face it, the “consensus trade” is that gold will and must go lower. When everyone is convinced about an asset moving in one direction, usually the opposite happens.
The inflation camp shares the conviction with deflationists that there is too much debt in the system. But they differ on the outcome. Harry Dent and those in his deflation camp figure that central banks and governments will ultimately be powerless to stop default. They think the purchasing power of the dollar will rise against everything else, including gold. We expect default to occur primarily through inflation, with debts stealthily repudiated through repayment in less valuable dollars.
As we go to press, gold is testing the bottom of its triangle pattern near 1186, but if that level is conclusively broken, a quick move down to 1180 is in play later this week. From a longer-term perspective, a breakdown from the triangle would suggest a measured move objective all the way down to the year-to-date low at 1140. Of course, gold may still manage to bounce from the bottom of its triangle today, but unless we see a bullish breakout above resistance at 1200, the odds favor an awakening for the bears that have been hibernating throughout the first three weeks of April.
A reset in the financial system seems inevitable. We survived other resets, such as the depression of the 1930s, WWII, 1971 separation of the dollar from gold, 1970s inflation, year 2000 stock crashes, and the 2008 financial crash. The world will survive the next reset. Excess debt, fiat currencies, and “printing currency” are the center of global economic problems. Those problems will not be resolved with more debt and “printing currency.” If central banks and politicians choose hyperinflation, all bets are off regarding how high gold and silver will climb, and how crazy our Twilight Zone world will become.
I was very encouraged because gold had broken below its December 2013 low, and it seemed that every pundit and blogger in the world was saying that there was nothing to stop the fall short of $1,000, or even $700. It was widely believed that breaching the prior low was the trigger that would take it much lower—but that’s not what happened. Instead, the new low was a buying signal to Russians, Chinese, Indians, and others, and gold shot right back up again.
The latest Commitment of Traders Report for futures positions held at the close of trading on Tuesday March 17th 2015 is very encouraging. We can easily conclude, based on the data, that the current setup in futures positions point to a meaningful rally, at least in the short run, in both gold and silver. In other words, the selling in the ongoing cycle seems to be behind us, and a new short to mid term cycle should have started last week. To back up our thesis, we are looking at the rate of change of commercials short positions in the COT report. We have used this time and again, so far each time with success.
NUGT, the 3x ETF, is hovering at or below support with a very clear volume signature. The reason I think this might be a chart to pay attention to is where there is this much smoke, there is usually fire. With 200 Million shares on the week, its important to remember one primary cornerstone of Technical Analysis is volume precedes price. A chart that glitters might be worth some attention even if you choose to use another ticker symbol for your trade.
Gold investors have been suffering in the last 3.5 years. The outlook for gold, however, is quite positive, according to John Hathaway. Driven by extremes in sentiment, the fact that the gold production will fall at current price levels, the advances in institutionalizing the Chinese gold market, the world monetary system, it seems that gold investors will be rewarded in the future. In a recent interview with The Gold Report, Tocqueville Asset Management fund managers Doug Groh and John Hathaway share their view on the gold market.
The chart in this article shows that the negative progression is still intact. It would be reversed with a rally above the previous high, say at $126. What is interesting is that recent prices retraced exactly 66% or two thirds of the previous advance. Arguably more important is the fact that volume patterns have turned bullish. Note how the previous declines were associated with selling climaxes. This is pointed up by the percent volume oscillator in the bottom panel.
In simple terms, government took real revenue, spent it, and then added more debt each year. Worse, the US owes compounding interest on the larger debt. Each year the US and many other governments pay interest on the loans (caused by deficit spending) from previous years. The total debt increases rapidly – far too rapidly to be repaid without massive inflation. Hence default via debt repudiation or devaluation of purchasing power is inevitable.
Let us go straight to the key message. The long term gold chart is flashing a “buy” signal based on the technical indicator MACD. The chart says it all. Mind that this is a monthly chart, which means it looks at gold from a long term perspective.
Jim Rickards discusses the observation that the financial mainstream media is increasingly questioning the credibility of central bank monetary policies. “I don’t actually think that the fundamental state of the world has changed. What has changed, it has become more visible. Analysts, investors and mainstream media are starting to wake up to things like currency wars, the save haven nature of gold, etc. I think the reason for that is that until you reach the zero rate bound, you can pretend it it’s a normal rate cutting exercise. Once you hit zero that pretense is gone and the currency war becomes more explicit.”