First, despite volatile trade this week, and a miniscule new record high in gold, as I write this column, gold has not closed above the $1,453 level that I have targeted as a breakout level.

Instead, gold remains below that important resistance level … very overbought … and cyclically prone to a sharp pullback. Ditto for silver.

So right now, my view has not changed. And it will not change until I see gold close above the $1,453 level for two consecutive trading days.

Having said that, let’s take a look at what’s really going on. First, I have been long gold since 1999, calling this bull market every step of the way. I only turned bearish on the short term, and just last December when gold was trading at about $1,433.

Today, gold is at $1,433. In other words, it’s gone nowhere!

Meanwhile, as I have also recommended all along — you should be holding your long-term core positions in physical gold and gold mining shares. Reason: Longer term, gold is heading much higher. It’s just not ready to do so yet.

Second, I maintain my view that silver is extremely overbought and is being manipulated. It is way too risky a market right now to trade either long or short. Ditto for silver stocks.

Admittedly, I have missed a big chunk of silver’s big rally last year. And many readers are angry about that. I can’t blame them.

But I maintain my view in silver: Silver needed to prove itself first. It has now done that, and I will not hesitate to buy into silver — once it, too, puts in a healthy, way overdue correction. Ditto for silver miners.

Third, the broad stock markets are now at an inflection point that is going to dictate the next few months’ action. Specifically, keep a close eye on the 12,391 level in the Dow and the 1,338.25 level in the S&P 500.

Two consecutive daily closings above those levels, and the Dow and S&P 500 will likely rally into June, to new post 2009 crash highs, eliminating the bearish short-term decline I have been expecting.

Fourth, the U.S. dollar is starting to rally a tad, which is what I have been expecting and is one of the reasons why I believe the precious metals will soon pullback.

But even here, the dollar is not rallying enough yet, and it is also at an inflection point that remains very important on a short-term basis. Its next move will impact all markets.

Now, on to more emails and comments from readers …

August writes in: “Larry ― I specifically remember that you said several months ago that your cycle studies indicated a downtrend for the PMs into the end of March (I even marked my calendar) — and then a continued rise — why have you changed your opinion and adjusted your time frame?”

Larry: I have not changed my opinion. Barring two consecutive closings above $1,453 in gold, I still expect a sharp, surprising pullback in the precious metals, and then a much stronger rally than what you’re seeing now.

All that has changed is that the shorter cycles have become distended, probably due to heightened volatility in the currency markets, which is at its highest levels in decades. The wild swings in the currency markets (due to recent central bank intervention to stem the Japanese yen’s rise) are wreaking havoc on the markets.

Ryan writes in: “I have followed you for some time now and over the last year became a subscriber. I also follow the Elliott Wave Model which appears to track fairly well to your cycle studies.

“I will say that you have always given timely advice and all of this emotion will lead to a pull back to the downside eventually. We are in a strong 5-up wave which catches everyone’s attention and they think the blow off will continue. Keep waiting folks, for the necessary correction to load up on the metals.

“On a side note, I’m now starting to become a buyer of natural gas for the long-term hold. It’s only so long that the market can sustain pricing below the cost of production. Really big profit potential will result from nat gas over the long-term. I got burned on the ZSL short but quickly closed out my position realizing that this wave 5-up move will continue over the short term. I expect a correction soon. Keep up the good work Larry!!!”

Larry: Thanks for loyalty and kudos Ryan. I don’t use Elliot Wave, though I have studied it extensively. I do, however, use sentiment measures, which Elliot Wave theory does rely on. And the sentiment measures now are, yes, indicative of an ending 5th wave higher, one that will lead to a short-term bust, and hurt a lot of investors. The extreme, blue sky optimism toward precious metals right now is not a good sign.

As to natural gas, yes, it looks like it is forming a major bottom!

Bob writes in: “I, too, have followed you for about three years and consider you to be sincere and accurate in your concerns and predictions.

“I am heavily invested in gold and silver mines and stocks. I am not educated in options, therefore, I have hedged with (DGZ and ZSL).

“Unfortunately, these hedges don’t nearly keep pace with gold and silver stocks when they drop in value. What should I do when this happens?

“At present I have had a nice run up in both areas. Because of the uncertainty of the market, the devaluing of the dollar, and my age of 70; two-thirds of my money is in money markets getting only 4% and the rest is in many ETFs in the stock market.

“Is this wise? What would you do if you were 70 years old, retired, good health, had $600,000 in cash with no outstanding bills and a paid for house. I know you can’t give advice so I’m just asking what you would do if you were in the same situation.”

Larry: The inverse gold and silver ETFs are not doing well, precisely because gold has been going sideways for nearly four months, and because silver has rallied. So, as hedges against gold mining shares, the inverse ETFs have not performed well either.

Put options on mining shares would have performed better as hedges, but even then, the amount of time consumed by these markets over the last four months would not have helped either.

As to your questions about retirement, you are correct: I cannot give individualized recommendations or advice.

However, I can reiterate my overall portfolio recommendation, which is to keep roughly 75% of liquid cash safe in a combination of a money market fund, foreign currency CDs such as the Aussie and New Zealand dollars — and 25% in a combination of physical gold and gold ETFs and mining shares.

Ewy writes in: “Why is your mate Sean saying silver and gold are buys now if you’re bearish short term?”

Larry: We use different technical systems. Sometimes Sean is going to be right short term, and I’m going to be wrong. At other times, he’s going to be wrong, and I’m going to be right. That’s what makes markets!

Nevertheless, do note that both Sean and I are very bullish long term on precious metals and commodities.

Rick writes in: “You may end up being right Larry, but your timing in the short term will be atrocious and that is what the problem is. Your cycles sure have dropped the ball in that respect and may be useless in this time of major economic and geo-political trouble. Time will tell.”

Larry: The short-term has indeed been tough to deal with lately. However, gold has really gone nowhere for nearly four months, and most gold shares have gone down. So, we haven’t really missed anything there.

On the other hand, I have been dead wrong on silver. But I have no problem with that. Silver needed to prove itself first. Now that it has, I will merely be patient and wait for a low risk buying opportunity.

MSG123 writes in: “Since China is buying gold & silver [on] dips, I think [pullbacks] are less deep than maybe you’d think. Also buying are India and Middle Eastern nations. So I don’t think gold is going to dip as deep as you may think.

“Although I value your advice, I bought at the $1,375 level and again at $1,335. So far, I have made all of my investment back and then some.

“If the dip you write of comes to pass, I will be buying more. Nevertheless, I’m happy that I bought when I did and back in 2008 and several times per year since.

“By the way, between you and Sean and Tony, I am up over 14 percent overall and during the VIX drop last week, I was still up over 5 percent. So thank you to you all.”

Larry: Great. Thank you! China and India are indeed big buyers, not only retail, but so are their central banks. However, they are very savvy, and they, too, like to buy on pullbacks. I do not believe they are buying right now, but like me, are waiting for the next opportunity.

Rose writes in, responding to last week’s video update titled Tipping Point Near: “Yeah, I think we all know that all these markets could either go up or down.”

Larry: Yes, indeed, plus of course, they can also go sideways. The key is knowing when they will either change direction, or break out from a sideways trading affair. And being prepared to take appropriate action.

Nick writes in: “Hi Larry, I respect your work but I really think that you missed something that would have stopped you from making the negative short-term call for gold. That was that in an update early this year you posted a cycle chart that showed gold bottoming in March and since then you seemed to ignore it.

“I would also respectively suggest that your big concern that gold and other commodities will embark on a parabolic spike going into the fall and then a massive bubble burst followed by a deflation implosion seems to me to be the higher probability forecast.”

Larry: In a previous comment above, I note that the cycles seem to be extending, and that the low, if it happens, could come later. As to a big parabolic spike higher going into the fall, that is still possible provided we get a pullback now. That would also be the healthier of the two scenarios.

I don’t recall saying anything about a deflation implosion. I do not see that happening. I do see that if gold and silver go parabolic here and now, that we will face a more serious correction later. But not deflation.

Regarding the Dow, Eden writes in: “You mentioned that once we close above 12,335 on Dow we will see a higher price to even 13,000. I think that is what’s going to happen right now. We just closed above 12,335 on Wednesday!”

Larry: Per my column last Monday, and also reiterated above, that signal has been refined to two consecutive daily closes above 12,391 in the Dow and 1,338.25 in the S&P 500 Index.

Danie writes in, quoting one of my previous replies: “But truth be told, the level of emotions that are now running so high against anyone who dare say that gold, silver, other metals, and commodities could, and should, fall in the short term — is one large reason precisely why they probably will decline. Precisely!!!”

Larry: Yes, it is amazing to watch markets unfold. Back in 1999, when I said gold was bottoming and about to begin a major long-term bull market, everyone told me I was nuts. Now all I am saying is that gold needs to pause, pullback and refresh, after a 468% gain — and most think I’m nuts again!

Nick writes in: “Your crystal ball is getting foggy, and your interpretation of what is happening in the precious metals market is foggier.”

Larry: Agreed! Most all markets are pretty foggy right now, not just to me, to others as well. Hence all the outpouring of emotion and the wild swings in the markets.

Neil writes in: “You are using charts to determine your forecasts to your detriment. You have been calling a pullback in silver to $25-$24 for the past month and that has not and will not happen. We are in new territory that cannot been predicted using historic reference. I predict silver will hit $67.50 this year and gold will hit $2,500 this year.”

Larry: I sure hope not. Not so soon. If they do that, it would be premature!

John writes in: “Larry, is that not a rising wedge formation on gold as well as silver on a weekly chart? If so, that alone forebodes your targets very closely.”

Larry: Yes, John, indeed, they are forming rising wedge formations, which, after long uptrends like we’ve seen in gold and silver, have very high probabilities of being a bearish signal, and now some kind of pause. This is one of the many pieces of evidence why I am still short-term bearish.

Steve writes in: “Hey Larry, why don’t you come to your site’s blog and respond, for once.”

Larry: I will make a point of it going forward, for sure!

Sep writes in: “11 months ago [you] predicted the Dow might go up maybe 900 points maximum, but more likely drop 2,000 points … if [you are] waiting for that ‘I told you so’ moment, it’s sure taking a while …”

Larry: Not sure of the exact dates and levels, I’d have to look them up in my published works. But it seems you’ve missed a lot of forecasts I made. I have tracked the Dow’s twists and turns very accurately. We have not yet gotten the pullback I expected, but I have informed my readers that the markets would push higher, first to 11,500, then 12,000, then 12,500.

I have taken the position that it’s a risky market though, and I have told my readers and subscribers to stay largely on the sidelines since the Dow broke above 11,500. So I have missed the run up from 11,500.

But again, I am perfectly comfortable with that, as a continued rally is not anywhere near certain at this time.

Tony writes in: “Hi Larry. Thank you for the idea of hedging gold with an inverse ETF. I have found that hedging just a portion of the core gold position is not a bad way to go. If gold goes down, your inverse ETF makes up for part of the temporary reduction, and if gold goes up you do not miss the boat. So far, I prefer using a hedge as compared to stop losses or just selling a portion of the position. 

“Of course the underlying assumption is that gold is still in a long-term bull market and no matter what happens in the short term, it is going much higher in the long term. Also, I am hoping that the long term is not 20+ years.”

Larry: Agreed! Except, you’re not going to have to wait 20+ years for precious metals to go much higher. No matter what happens in the next few days or weeks, they are headed higher into 2015/2016 — much, MUCH higher.

Dealroush writes in: “Well, it’s another monthly all-time record high for my portfolio. Month after month, higher and higher, rolling in the gains, stops in place, shine on you crazy diamond.”

Larry: Thanks, and congratulations!

Alan writes in: “Larry, thanks again for the update. It’s getting exciting now. We’re going to be glad that we listened to you, and kept our powder dry. This may be one hell of a ride!”

Larry: Very exciting indeed. Thanks Alan.

All, stay tuned, lots of exciting developments are about to unfold in nearly all markets!

Best wishes, as always,

Larry

P.S. For just $99 a year you can get ALL of my timing signals, recommendations, risk reduction strategies, insights into the markets, and more. It’s a freaking bargain. Join now by clicking here.

Larry Edelson has more than 30 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Resource Windfall Trader (weekly) provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management. He is also editor of The Foundation Alliance, an exclusive stock and ETF trading service that leverages the historic strategic alliance between Weiss Research and the Foundation for the Study of Cycles.

For more information on Real Wealth Report, click here.
For more information on Resource Windfall Trader, click here.
For more information on The Foundation Alliance, click here.

The Bottom Line
Optimal opportunities to introduce new equity and ETF positions with favourable seasonal characteristics have now passed. Exceptions exist (e.g. the biotech sector). However, additional intermediate upside potential remains in most markets and sectors until at least the beginning of May and perhaps longer. Stick with favoured equity and ETF positions for now.

The month of April historically has been one of the strongest months for equity market performance on both sides of the border. Strength during the past 10 years has been notable in the first half of the month. Investors anticipate good news when first quarter earnings reports are released (usually at annual meetings). Look for a record number of dividend increases and share buy back programs to be announced when first quarter earnings reports are released.

Jeffrey Hirsch, chief of the Stock Trader’s Almanac offers a slightly different perspective on seasonality based on studies over the past 50 years. Over the weekend he released a comment on www.marketwatch.com that summarizes his expectations. The comment is entitled, “April strength makes for a great market exit”. Following is a link to his report HERE

Economic and earning news is not expected to have a significant impact on equity markets this week.
Short and intermediate technical indicators currently are overbought, but have yet to show signs of rolling over. Recent breakouts by key North American equity market indices and sector indices are attracting more cash from the sidelines.

International events are unlikely to help equity markets this week. Indeed, the news became worse over the weekend: Nuclear waste continues to spill into the ocean in Japan, Gadhaffi rejected a truce offer and Spain’s prime minister confirmed that he would not seek re-election next year.

…..read much more and view 50  charts HERE

….

Between the recent report that sales of new homes hit a record low in February and this week’s news that 19 of the 20 largest metro areas tracked by the Standard & Poor’s/Case-Shiller home price index saw a price slump in January, it hasn’t exactly been a stellar few weeks for the housing market. And yet another data dump tracking foreclosed and distressed homes that have yet to hit the markets – what’s known as “shadow inventory” – suggests things are not likely to get a whole lot better for a long time.

For the first time history the Federal Reserve has been forced to reveal secrets that it has never released in its 98-year existence. What it revealed will not only shock you, but will give you insight on how real world conspiracies work.

At the height of the 2008 crisis on October 29, 2008, the US central bank lent up to $110 billion through its emergency “discount window,” an emergency fund only used when banks have nowhere else to go for borrowing. These emergency funds, along with trillions of dollars in emergency aid to U.S. and foreign banks as well as other companies, were kept secret from the American people. As the “People’s Bank,” it’s only fair that its citizens should know what is being done with their money. But that of course is never the case.

The Fed argued that naming banks that used its discount window could cause a self-fulfilling bank run prophecy, endangering the institutions and defeating the program’s purpose. As unethical as it sounds, I agree. What we don’t know can’t hurt us…

So the Fed kept their lending documents and practices hidden away from the world and the citizens it sought to protect. They kept secret the names of all the banks that drew emergency loans during the financial crisis…until now.

On Thursday, the Fed was forced to reveal the names of every bank that turned to the U.S. government’s emergency bailout program for help during the peak of the credit crisis.

Find All of the Files Here

Big U.S. banks, such as Wachovia and Morgan Stanley, took out short-term loans of $6 billion and $1.25 billion, respectively. Washington Mutual borrowed from the discount window on Sept. 18, 2008, with an initial loan of $2 billion. But it then borrowed another $2 billion every night until its collapse on Sept. 25, 2008 when it was finally bought out by JPMorgan.

The Federal Reserve warned that releasing details of its lending could lead to a rapid loss of public confidence in borrowers and possible bank failures. They were probably right. If these documents were released two years ago, the public might come to the conclusion that the banks were all going to fail. This would have undoubtedly caused a major bank run and the ultimate crash in the financial system.
Luckily, that didn’t happen.

Now that the banks are in much healthier positions, these recently released documents appear to have done little harm to any of the banks involved in the borrowing.

Since the unprecedented release of the documents, the KBW index of 24 banks has risen 1 percent. JPMorgan Chase (NYSE: JPM), which borrowed at least $5.9 billion from the discount window in 2007 and 2008, gained 0.5 percent Friday. Morgan Stanley (NYSE: MS), which borrowed as much as $6.9 billion in October 2008, fell just 0.2 percent.`(Keep in mind that these numbers are strictly based only on the “discount window” borrowing, and does not include other numbers. For example, along with the $5.9 billion, JPMorgan also accepted $25 billion from the U.S. Troubled Asset Relief Program, better known as TARP.)

While the information released has had little effect in the financial sector, it doesn’t mean the banks are in the clear.

There were thousands of pages released which will take time to sift through. The list of those who tapped into the discount window includes many extremely shocking names, from foreign industrial competitors to hedge funds in tax-haven nations to various powerful Wall Street figures (and even some of their relatives!) Until they are sorted out and reviewed completely, I wouldn’t jump into any particular banks just yet as the market hasn’t had time to truly absorb the information. However, at this point, there doesn’t appear to be anything major that could harm them. The borrowing did happen more than two years ago and a lot of it has been paid back.

The amount of money lent out through the discount window during the peak of the crisis doesn’t surprise me one bit. Nor does it have me concerned. But what I am about to reveal just might shock you.

The biggest recipients of the discount window funds were foreign – not American – institutions that benefited from hundreds of billions of taxpayer dollars. During the crisis’ busiest week, 70% of the $110+ billion borrowed through the discount window went to overseas banks.

That’s right. They were used to bailout foreign banks.

Dexia, Erste Group and Depfa, were among the top foreign banks who tapped into the discount window. Other big foreign borrowers were Norinchukin Bank of Japan, Bank of Scotland, and Germany’s Landesbank Baden-Wurttemberg and France’s Societe Generale.

But get this. Among the 25,000+ pages released by the Fed were documents showing that Arab Banking Corp. (ABC) had borrowed more than $35 billion from the U.S. Federal Reserve in the 18 months after Lehman Brothers collapsed with interest rates as low as 0.25%. Guess who is now the majority owner of the ABC? Drum roll please…

The Central Bank of Libya

During the crisis and until now, the Central Bank of Libya has somehow managed to grow its ownership in the ABC from a mere 29% to a majority controlling 59% to date.

To make matters worse, the Fed’s assistance to the now Libyan-controlled bank did not end there. On March 4, the Treasury Department exempted ABC from economic sanctions and any other bank that is owned or controlled by the Libyan government operating under the laws of a different country. How messed up is that?

I am not done.

All of the loans to the ABC were backed by collateral in U.S. Treasury securities purchased by the ABC. In other words, at the same time that the ABC was borrowing money from one arm of the U.S. government for next to nothing, it was also lending money to the U.S. Treasury and receiving a higher interest rate.

How messed up is that?

Why in the world would the US lend money overseas when it has some very serious financial problems on its own turf? Why would the US lend money to foreign countries when it is suffering from failing mortgages and its citizens are losing their homes?
Therein lies the controversy for which I am about to reveal.

It’s all about oil. You scratch my back, and I’ll scratch yours.

Call me a nut bar, a conspiracy theorist, or whatever you want. At the end of the day, the nation who controls the world’s oil supply is the world power.
The attacks in Libya and the unrest in the Middle East has everything to do with the control of the world’s oil supply. Yes, it also has to do with regime changes and political uprising, but at the end of the day the US is in there for one reason: Oil.

Without going into a 1000-page report, the premise is simple: The US helps Libya and in return gains political power and specialized trade agreements with an important oil country. The new trade agreement and investment framework came into place immediately after the bailouts on May 20, 2010 and also includes help from Washington to advise Libya on their WTO (World Trade Organization) membership bid. See Press Release Here

Coincidence? I don’t think so. Doing some simple research will show you how this process has happened many times over in the past. There’s no such thing as a free lunch – especially not from the Fed or the US government.

I don’t care what type of solar power or new energy technology is out there right now, the fact is oil will remain the number one source of energy for many, many years.

While there are alternatives to oil on the horizon, we’ll need to see at least $150 oil for a sustained period before any of them would start to become a viable alternative. Even if we saw $150 oil, the costs to bring alternative sources into play would be staggering. Furthermore, if alternative energy sources become viable with oil over $150, it would also mean that the demand for oil would shift and oil prices would sink. This, in turn, will drop oil prices and make those so-called “viable” alternatives, not so viable anymore.

The fact is we need oil. HSBC just warned that the world has roughly 50 years of oil left. It believes that the emerging market growth will put another 1 billion cars onto the road by 2050. That is on top of the 700 million on the road today (see Actions Speak Louder Than Words). China will lead the way and it has already begun to accumulate oil assets in preparation for their growth. (see Actions Speak Louder Than Words)

While oil may trade sideways for a while with the unknown outlook for the Middle East, oil is here to stay. As I mentioned in the last newsletter (see The Controversy and Far From Over), many of the major oil stocks are more than capable of keeping their dividends consistent with $80 oil. At current prices, it leaves a lot of room for growth in these stocks.

Until an alternative energy source becomes viable -which is a long time from now, or if oil hovers over $150 for a sustained period – oil will remain number one.

Oil has already climbed past $105 and closed in on $110, as I predicted a few weeks back in The Controversy. Over the next five years, we could see this number increase substantially along with the rise of inflation.

Keep your eyes on energy stocks, especially those who pay good dividends. Many of them, such as Provident Energy Trust have done nothing but climb in the last six months. I think Suncor, Encana, and Chesapeake Energy, despite nearing their 52-week highs, still have room to climb. However, I would be careful short term as swings in oil and gas prices could swing these stocks slightly to the downside.

Agricultural stocks are also continuing their bullish climb and sees no signs of a slowdown. You should be able to ride this momentum to the upside, as long as you don’t get greedy.

The recent release of the discount window bailout by the Fed has given the world another reason to be cautious of the world’s banking systems. It gives the world another reason to question fiat and digital currencies while putting more faith into gold and silver. I expect both gold and silver to climb next week.

Until next week,

Ivan Lo

Managing Director, Equedia Weekly

Equedia Network Corporation

www.equedia.com