The 200-Day M.A. Gold B.S. 

by Peter Grandich of Grandich.com

Important Update on Gold & Silver 

by Larry Edelson of Uncommon Wisdom

Gold has plunged through many of the support levels I’ve previously provided you. It’s dropped through the $1,730 level … the $1,610 level … and has thus far reached as low as $1,564.

Once it closes below $1,610 on a Friday, which it will likely have done before you even read this column — the stage will be set for gold to collapse to at least $1,435 and, very possibly, as low as the $1,100 mark.

And silver, precisely as I’ve been warning you, has started to crash again — losing more than $4 last week and shattering support at the $30 level … then the $29.16 level — and is now ready to make a beeline down to $25 and, very possibly, much lower to $22 to $23 an ounce.

As a result, suggestions I made previously to purchase inverse ETFs such as the ProShares UltraShort Gold (GLL) and the ProShares UltraShort Silver (ZSL) are now paying off very nicely. GLL has already soared as much as 29.8%. ZSL, as much as 37.8%.

I’ve taken a lot of flak over the last couple of months for being bearish on commodities, especially because of my forecast for much-lower prices for gold and silver. Some even treated me as if I were some kind of traitor.

But that’s OK. I will never succumb to the crowd that believes markets can go up forever and that bull markets always have blue skies overhead. I’ve been around too long to fall into that trap, which causes nothing but blindness and losses.

And most importantly, I will never, ever tell you anything but what I believe … or what my indicators tell me. I can assure you that I’ll never report on what anyone wants to hear.

There are way too many pundits in this business who tell you what you want to hear, all in the hope of keeping you as a customer or a subscriber. Not me. I refuse to do anything but report on what I see … and what I would do with my own money.

Are the Precious Metals
Really Losing Their Luster?

So why are gold and silver falling? Why could they fall much more? Why are they plunging in the face of a crisis as bad as Europe’s?

This is where you need to separate fact from fiction, and use critical thinking skills to understand markets. And the truth is that most gold (and other metals) bugs don’t have a clue when it comes to what really drives the precious metals.

They figure gold and silver are all about inflation. When inflation is escalating, gold and silver do well. Sounds good, right?

But nothing could be further from the truth! Inflation is a very minor force driving the prices of gold and silver. And at that, inflation isn’t even a force. Rather, it’s a symptom of a much-deeper issue, which is none other than what I call a “crisis in confidence.” That’s the true underlying force behind the precious metals’ behavior.

Simply put, when confidence in government or in fiat currency is falling, precious metals do well regardless of whether inflation is at hand or not!

Once you understand that, then you have a better understanding on what really drives gold and silver.

But that’s not nearly enough either. You have to delve deeper and determine where the crisis in confidence is manifesting itself.

Right now, the crisis in confidence is clearly in Europe. Though the United States certainly has many problems — many of them bigger than those affecting Europe — right now, it’s all about Europe, and it’s making the United States look like an island of safety.

Put another way, plunging confidence in Europe is bolstering the United States and, most importantly, the U.S. dollar. Since the euro is NOT the world’s reserve currency, that means that the capital that’s fleeing Europe right now is heading, guess where?

To the U.S. dollar, for safety and liquidity … which is, by default, bearish for the precious metals.

Should You Get Sold
On Selling Silver, Gold?

So you see, plunging gold and silver prices are not so hard to understand when you delve a little deeper and view the world in international terms and with no biases.

No biases about inflation, one currency or another, what markets can or cannot do. Just pure, simple, logical reasoning — unaffected by emotion. That’s all it takes.

Don’t get me wrong. There will come a time when a massive crisis in confidence hits the United States. The time is coming, and that is when you will see the next leg down in the U.S. dollar and the next big bull market in precious metals. But it is not here yet!

Which is precisely why I continue to recommend that all precious metals investors be very careful now. Gold and silver can fall much further than you think possible.

And odds are they will. Because their next bull market legs higher will likely not form until most gold and silver investors have thrown in the towel, and there are very few left to sell. That’s when the precious metals will violently turn back to the upside, leaving most investors in the dust.

If you’ve acted on my suggestions to hedge your gold holdings, or take outright speculative positions in inverse ETFs like those mentioned earlier, hold those positions. There’s a lot more downside potential in gold and silver right now.

Ditto for most commodities. As Europe continues to go down in flames, capital will pour out of Europe and into the U.S. dollar for cash and liquidity purposes … boosting the dollar higher, and forcing the prices of nearly all commodities lower.

My Real Wealth Report members have been way ahead of these moves, and I’ve had them hedge up their gold holdings and take some speculative short positions well ahead of time, and they’re doing great.

My more-speculative service, Resource Windfall Trader, is doing fantastic. Every one of my closed trades over the last 12 consecutive months has seen an average 45% gain in market price. That includes all seven of my losing trades over the last year.

The average hold time for those trades is just 44 days — or about a month and a half. Some examples include big wins such as 233.3% gains on a bearish gold position … 118% and 354% on a bearish silver bet … and much more, including 101.85% gains on a bearish S&P 500 play.

You might want to consider cranking up your profit potential by becoming a member of my Resource Windfall Trader. You can do so now at a full 30% off the regular membership price by clicking here toread my special report.

Best wishes, as always …

Larry

Larry Edelson has nearly 33 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.

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

Important Update on Gold & Silver 

by Larry Edelson of Uncommon Wisdom

Gold has plunged through many of the support levels I’ve previously provided you. It’s dropped through the $1,730 level … the $1,610 level … and has thus far reached as low as $1,564.

Once it closes below $1,610 on a Friday, which it will likely have done before you even read this column — the stage will be set for gold to collapse to at least $1,435 and, very possibly, as low as the $1,100 mark.

And silver, precisely as I’ve been warning you, has started to crash again — losing more than $4 last week and shattering support at the $30 level … then the $29.16 level — and is now ready to make a beeline down to $25 and, very possibly, much lower to $22 to $23 an ounce.

As a result, suggestions I made previously to purchase inverse ETFs such as the ProShares UltraShort Gold (GLL) and the ProShares UltraShort Silver (ZSL) are now paying off very nicely. GLL has already soared as much as 29.8%. ZSL, as much as 37.8%.

I’ve taken a lot of flak over the last couple of months for being bearish on commodities, especially because of my forecast for much-lower prices for gold and silver. Some even treated me as if I were some kind of traitor.

But that’s OK. I will never succumb to the crowd that believes markets can go up forever and that bull markets always have blue skies overhead. I’ve been around too long to fall into that trap, which causes nothing but blindness and losses.

And most importantly, I will never, ever tell you anything but what I believe … or what my indicators tell me. I can assure you that I’ll never report on what anyone wants to hear.

There are way too many pundits in this business who tell you what you want to hear, all in the hope of keeping you as a customer or a subscriber. Not me. I refuse to do anything but report on what I see … and what I would do with my own money.

Are the Precious Metals
Really Losing Their Luster?

So why are gold and silver falling? Why could they fall much more? Why are they plunging in the face of a crisis as bad as Europe’s?

This is where you need to separate fact from fiction, and use critical thinking skills to understand markets. And the truth is that most gold (and other metals) bugs don’t have a clue when it comes to what really drives the precious metals.

They figure gold and silver are all about inflation. When inflation is escalating, gold and silver do well. Sounds good, right?

But nothing could be further from the truth! Inflation is a very minor force driving the prices of gold and silver. And at that, inflation isn’t even a force. Rather, it’s a symptom of a much-deeper issue, which is none other than what I call a “crisis in confidence.” That’s the true underlying force behind the precious metals’ behavior.

Simply put, when confidence in government or in fiat currency is falling, precious metals do well regardless of whether inflation is at hand or not!

Once you understand that, then you have a better understanding on what really drives gold and silver.

But that’s not nearly enough either. You have to delve deeper and determine where the crisis in confidence is manifesting itself.

Right now, the crisis in confidence is clearly in Europe. Though the United States certainly has many problems — many of them bigger than those affecting Europe — right now, it’s all about Europe, and it’s making the United States look like an island of safety.

Put another way, plunging confidence in Europe is bolstering the United States and, most importantly, the U.S. dollar. Since the euro is NOT the world’s reserve currency, that means that the capital that’s fleeing Europe right now is heading, guess where?

To the U.S. dollar, for safety and liquidity … which is, by default, bearish for the precious metals.

Should You Get Sold
On Selling Silver, Gold?

So you see, plunging gold and silver prices are not so hard to understand when you delve a little deeper and view the world in international terms and with no biases.

No biases about inflation, one currency or another, what markets can or cannot do. Just pure, simple, logical reasoning — unaffected by emotion. That’s all it takes.

Don’t get me wrong. There will come a time when a massive crisis in confidence hits the United States. The time is coming, and that is when you will see the next leg down in the U.S. dollar and the next big bull market in precious metals. But it is not here yet!

Which is precisely why I continue to recommend that all precious metals investors be very careful now. Gold and silver can fall much further than you think possible.

And odds are they will. Because their next bull market legs higher will likely not form until most gold and silver investors have thrown in the towel, and there are very few left to sell. That’s when the precious metals will violently turn back to the upside, leaving most investors in the dust.

If you’ve acted on my suggestions to hedge your gold holdings, or take outright speculative positions in inverse ETFs like those mentioned earlier, hold those positions. There’s a lot more downside potential in gold and silver right now.

Ditto for most commodities. As Europe continues to go down in flames, capital will pour out of Europe and into the U.S. dollar for cash and liquidity purposes … boosting the dollar higher, and forcing the prices of nearly all commodities lower.

My Real Wealth Report members have been way ahead of these moves, and I’ve had them hedge up their gold holdings and take some speculative short positions well ahead of time, and they’re doing great.

My more-speculative service, Resource Windfall Trader, is doing fantastic. Every one of my closed trades over the last 12 consecutive months has seen an average 45% gain in market price. That includes all seven of my losing trades over the last year.

The average hold time for those trades is just 44 days — or about a month and a half. Some examples include big wins such as 233.3% gains on a bearish gold position … 118% and 354% on a bearish silver bet … and much more, including 101.85% gains on a bearish S&P 500 play.

You might want to consider cranking up your profit potential by becoming a member of my Resource Windfall Trader. You can do so now at a full 30% off the regular membership price by clicking here toread my special report.

Best wishes, as always …

Larry

Larry Edelson has nearly 33 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.

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

Commodity prices can be very volatile, oftentimes more so than just about any other asset class. These large price swings, which have been particularly evident in recent years, have given commodities their reputation for high risk. Those investors who lack a large buffer of disposable risk capital are repeatedly advised to steer clear. But for those investors who can bear the risk, and who look to invest in commodities as an inflation hedge, there is some evidence to suggest that commodity prices move in long term “supercycles,” which play out over years and even decades. By observing and understanding these movements, these investors may be able to be more strategic in their approach.

Commodity booms and busts oftentimes last far beyond the time frame normally associated with a typical business cycle. IMF analysis of historical price movements in commodities filters out less significant short term movements to search for “trough to peak” and “peak to trough” cycles. They found that between 1862 and 1999, long booms were followed by large slumps, resulting in cycles of several decades.

For example, after hitting lows in 1868, prices then followed an uptrend until 1907, when they reversed course and drifted downward until 1915. That complete cycle lasted a full 47 years. There is a 16 year cycle from 1915 to 1931, and a still longer, nearly symmetrical 40 year cycle, which saw rising prices for 20 years between 1931 and 1951 and falling prices between 1951 and 1971. 

For much of the late 1990s and early 2000s, booming commodity prices lent powerful support to the idea that the world was locked into an uptrend of a supercycle. A World Bank index of commodity prices climbed 109% between early 2003 and 2008. From trough to peak, oil prices rose 1,145% in nominal terms between December 1998 and July 2008. But when commodity prices suffered a significant collapse in the latter half of 2008, many had assumed that the down leg of the cycle had settled in. The stunning collapse in oil prices, with Brent sinking from $146 per barrel in mid-2008 to $36 per barrel five months later, was a decline of historic proportions. Having jumped aboard the train too late, many investors booked staggering losses and wrote commodities out of their asset allocations strategy for the post crash era.

But the rapid price rebound from the lows of 2008 and 2009 has challenged these conclusions. Between December 2008 and June 2009, the price of Brent crude oil more than doubled, ultimately returning to $126 in April 2011, within spitting distance of its 2008 peak. The recovery was not only in oil: the Rogers International Commodity Index total return product also doubled between February 2009 and April 2011. Given these rebounds, it is possible that the panic drops of 2008 were not in fact a fulcrum of a supercycle. Indeed, the robustness of the price recovery has led some to wonder whether any corners were actually turned and whether we are still locked in a commodities uptrend that began more than a decade ago. 

Indeed, key drivers like global inflation are still in place to propel commodity prices upward for what appears to be years to come. There now can be little doubt that overly indebted nations in Europe and the U.S. will look to inflate currencies rather than cut spending or raise taxes to solve their fiscal woes. To maintain a global status quo, Asian economies will also inflate to limit the rise in their currencies. At the same time, demand emanating from the developing world has exceeded available supply on a near-continual basis since the early 2000s, except during the depths of the Great Recession. In addition, the marginal cost of production also appears to have increased across a variety of commodities.

Even without these drivers, there is ample historical precedent to allow for the continuance of a multi-decade commodity boom. Even if commodity prices continue rising over the next 20 years, as Jim Rogers has argued, the total boom period would still be 10 years less the boom between 1868 and 1907, and just a few years more than the one that occurred after the Great Depression and World War II.

Certainly a global economic boom between 2003 and 2008 was part of the story that pushed up commodity prices so severely during the early part of the last decade. Real world GDP grew by more than 4% each year from 2004 through 2007, which the IMF points out was the first time that level of growth on a global level had been achieved since the early 1970s. Many people who are negative on commodities mistakenly focus solely on demand as a key driver. They argue that a continuance of a commodity boom can’t occur absent growth in the developed world.  

But a look at the aluminum market over the course of the twentieth century makes clear that demand is not the only, or even primary, factor in spurring a decades-long increase in prices. Based on surging demand, global aluminum output rose 40-fold for a full three decade span, from 1939 to 1969 – yet real prices trended downward over that time. The example of crude oil is even more dramatic. Between the years 1965 and 1970, global oil consumption exploded from 30.8 million barrels per day to 45.4 million barrels per day. But according to BP data for Saudi Arabian crude, prices over those same five years declined from $12.43 to $10.10. Despite the outward shift in the demand curve, the supply response was more than sufficient, in both cases, to keep prices tethered. Climbing demand is necessary, but not sufficient to provoke an upward commodities supercycle. More thought should be given to supply issues and monetary distortions.

Currently the actions of central banks have supplanted private sector activities as the principal driver of price movements. The price movement of the U.S. dollar is of primary importance. Weighted against the currencies of the U.S.’s main trading partners, the dollar is bumping along the bottom. Any political solution to the chronic sovereign debt crisis in Europe should put much greater pressure on the dollar, and push up commodity prices.

As a result, although we do not expect the economies in the United States or Europe to suddenly strengthen, we don’t believe that the supercycle has turned south. As soon as the situation in Europe finally shows a moderate degree of stability, long term growth-oriented investors, who can tolerate the heightened volatility, may consider adding weight to their exposure to a broad basket of commodities, either through direct exposure to commodities or through a carefully selected portfolio of commodity-related equities. 

About Euro Pacific Capital Inc. & Peter Schiff

Peter Schiff, the firm’s founder and CEO is recognized for spotting trends long before mainstream analysts. He leads our experienced and diverse team of managers, researchers, consultants and support staff in delivering the highest possible value for our clients – a team literally scanning the globe for investment opportunities.