Gold & Precious Metals

5 Signs Of An Imminent Gold & Silver Price Rally

(1) Excessive speculative shorts and growing commercial longs

COT gold 24 may 2013

While the markets have been very volatile lately, hence difficult to predict, it is reasonable to expect a bounce in theprice 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.

Can 1976 Give Us Insight Into Gold’s Price Behavior?

The Wall Street Journal ran a piece delineating the two sides of the gold debate giving five reasons why the gold bulls are right and five reasons why the gold bears are right.

Here is the 5-point gold “Bull” case:

1.    Fears that Cyprus may sell its gold have receded.

2.    The exuberance in the equities market will fade as soon as there is a major correction and investors will turn to gold.

3.    The monsoon season in India will end, the marriage season will begin and with it the traditional gold buying frenzy which will contribute to long-term demand.

4.    Banks in India count gold as part of the bank’s liquid ratio. As the asset base of banks will grow, so will demand for gold.

5.    Physical demand for gold is high.

We added a few more reasons that they didn’t think of.

6.    Central banks in various countries are buying the dollar to lower the value of their own currencies. That’s a currency war.

7.    Central banks are still net buyers of gold and we don’t see any signs of abatement.

8.    Central banks are flooding more and more fiat money into the system. The more they do, the more it loses its value. Gold cannot be printed and there is a limited amount that can be mined each year. Gold is money.

9.    Owning gold isn’t necessarily about buying low and selling high. Sometimes, it is about owning a long-term insurance policy.

10. We don’t see a balanced budget in sight. We are not buying the economic recovery and the “recession is over” story.

Here are the five-point “Bear” case.

1.    The U.S. Fed could cut the stimulus sooner than later.

2.    Investor sentiment for gold is poor, to say the least.

3.    The U.S. dollar is strong which dampens gold’s appeal for other currency holders.

4.    Indian gold demand faces risks in the near term before the wedding season begins.

5.    There could be further liquidations of gold ETFs.

Regarding the first point, comments from Ben Bernanke to Congress last week suggested the central bank may begin tapering its bond-buying program in coming months. On Wednesday morning, stocks had rallied after the release of Bernanke’s prepared remarks, in which he said that premature tightening in policy could strangle the economic recovery. However, in the question-and-answer session, Bernanke said the Fed could slow the pace of asset purchases in the “next few meetings.” That comment sent the markets gyrating downwards making for a volatile and interesting day for precious metals. The sector moved slightly higher, then soared, stayed high for several minutes and then crashed with stocks following more or less the same path. The USD Index did the opposite. The Fed’s bond-buying program is one of the major factors underpinning the stock rally. There is no denying that there was a time when it directly helped gold. In Thursday early trading gold bounced back as the dollar fell sharply and European shares dropped after weak Chinese factory activity added to concerns about a delayed recovery. According to the Market Watch report, Thursday saw safe haven gold buying, something the yellow metal has not experienced in a while.

China manufacturing data issued Thursday came in weaker than expected, which is bearish for commodities. The fact that gold rallied in the face of this news suggests there was “solid safe-haven demand for gold Thursday,” according to MarketWatch.

Last month’s savaging of the gold price no doubt has left new gold investors shaken. But the reasons that led to the bull market in gold have not changed. If anything they are stronger than ever. Unless governments suddenly start balancing budgets, or unless central bankers suddenly stop printing money, there is definitely a good case for those who side with the gold bulls. But as of now, Japan and the US have embarked on a record quantitative easing policy. The speculators have been shaken out and gold has moved into stronger hands who have been buying up the physical kind to keep and to hold.

We think that the gold bull market will resume its upward trajectory shortly. It is, however, vulnerable to further weakness in the short run.

Having discussed gold’s fundamentals, let’s move on to today’s chart section to see how the technical picture of the yellow metal looks like. We will start with the very long-term chart (charts courtesy by http://stockcharts.com.) 

Click on Chart or HERE for larger image

radomski may282013 1

Gold prices moved higher last week but from the long-term perspective the rally is really not significant. It is barely visible here as it seems to simply be the expected period of consolidation which we have written about in the May 20 Market Alert we sent to our subscribers:

[in 1976] there was a pullback in gold before it moved below the initial low. We could see this type of action shortly. If silver and mining stocks consolidate below their previous lows it will simply serve as a confirmation of the breakdown and an indication of further declines.

The very long-term cyclical turning point is now quite close and it still seems that a bottom will be formed relatively soon but it is not necessarily in just yet. The reverse parabola trading pattern remains, so the possibility of a sharp drop in price is still in place for the yellow metal. The next support level, the 38.2% Fibonacci retracement level is around $1,285 and could be close to the level where the bottom finally forms, but a sharp intra-day or intra-week drop below it, would not surprise us either.

Now let us have a look at two important ratios that show gold’s performance relative to other important groups of assets. The first one is the Dow to gold ratio chart which is a proxy for a ‘stocks to gold’ ratio.

radomski may282013 2

Little has changed in this ratio last week and it seems that the comments we made inlast week’s essay remain up-to-date:

Here, we saw an important breakout above the declining long-term resistance line. This has bearish implications for gold. (…) The next resistance level for this ratio is at 12.5 and with it currently at 11, declines in gold will surely be needed in addition to higher stock prices in order for the ratio to move this much higher (it seems that a move higher in the general stock market will not be enough for the ratio to move that high soon). The implications are, of course, bearish.

The second important ratio that we’d like to discuss today is the gold to bonds ratio. Let’s have a look then.

radomski may282013 3

In this another important ratio for gold, some strength was seen last week. Overall, however, this is not enough to change the outlook at this time and the short-term trend remains down. The next support line is the 61.8% Fibonacci retracement level, at 3.79, more than one-half a point lower than Thursday’s closing ratio level of 4.31. This is also equal to the level of the 2008 bottoms in terms of the closing prices.

Summing up, last week a pause was seen in the decline around the level of gold’s previous bottom. This is what we expected as it is very similar to what was seen way back in 1976. History does seem to rhyme here and since back then a bigger decline followed this type of move, we expect to see the same once again.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold Investment & Silver Investment Website – Sunshine Profits

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Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Bullish Case – SLV Bullish Divergence

1317369027Silver has suffered horrendously in 2013’s opening months, plunging dramatically to miserable lows.  This exceptional weakness has naturally kindled extreme bearishness.  Predictions abound for silver to continue selling off indefinitely. 

But amidst this severe carnage, the silver bullion held by the flagship silver ETF has remained flat.  This is an extraordinary bullish divergence in the face of rotten sentiment.

…..read the entire analysis HERE

 

Rick Rule listed 10 key questions regarding today’s economy. They are:\

10 Questions for Precious Metals Investors

  • Is the financial crisis in the Western world over?
  • Have the G20 countries balanced their budget?
  • Did the commercial banks manage to become solvent?
  • Are (real) interest rates positive or negative?
  • Is a global competitive devaluation to increase exports still ongoing?
  • Is the European periphery still financially challenged?
  • Do the Asian countries still have a cultural affinity with precious metals?
  • Which are the US budgetary issues and solutions?
  • Are the derivatives from large banks still a problem for economies and client portfolios?
  • Can liquidity solve the issue of insolvency?

If these are the questions, then gold and silver are two good answers.

But, let’s approach these questions from a different direction.

  • Have gold or silver ever defaulted?
  • Do gold or silver have counter-party risk like EVERY paper investment?
  • On January 1, 2000 the Dow was about 11,500, gold was priced at $289, and silver was priced at $5.41. As of May 24, 2013, those numbers were: Dow: 15,303, gold $1,386, silver $22.49. Which was the best investment?
  • Gold fell (in 21 months) from over $1,900 to about $1,320. Does that mean the gold bull market is over? The Dow crashed from 14,100 (October 2007) to about 6,500 (March 2009), and then rallied back to new highs. Don’t exclude the possibility of new highs for gold and silver in the coming months.
  • Why are Chinese businesses, individuals, and their central bank buying gold as rapidly as possible? Why does the Chinese government refuse to allow any gold to be exported? Why does China (world’s largest gold producer) additionally import a massive amount of gold every year?
  • Ask the same for Russia, India, and much of Asia. What do they know about the VALUE of gold that the EU and the USA (who are selling gold) don’t understand?

Further:

  • Gold and silver have gone up and down, when priced in unbacked paper currencies. The same is true for trucks, diamonds, the Dow Index, laundry detergent, gasoline, cigarettes, and wheat. Price increases and volatility will continue.
  • Gold, silver, and the national debt have increased exponentially since Nixon severed the link between the dollar and gold in 1971. All three will continue to rise. Gold and silver will occasionally rally too far and crash, while the national debt will increase until politicians no longer enjoy spending other people’s money.
  • Goldman Sachs (and many others) have said gold is in a bubble. The same individuals and groups probably did not see the bubble in Internet stocks and housing. Do you trust them or the 3,000 years of history during which gold and silver have been real money and a store of value?
  • If JP Morgan (and others) can make huge profits using computers, complex mathematical algorithms, and High-Frequency-Trading, then they will. Often their trading temporarily drives the prices for gold and silver down. After the markets have been driven far enough down, the same trading process is used to drive the prices higher. Expect it!
  • Silver has dropped from about $49 (April 2011) to just above $20 (May 2013) – almost a 60% drop in price. Does that mean it will continue to drop more – perhaps to $10? Silver has retained its value, on average, for 3,000 years but has fallen in price for two years.On the basis of price action in those two years, most individuals (based on sentiment measures) have chosen to trust unbacked paper currencies issued by an insolvent central bank and an insolvent sovereign government instead of silver. This is typical of market bottoms, even if it is not sensible.
  • About 4.5 years ago (October 2008) silver crashed to a price bottom where “everybody felt” like it was hopeless to expect silver to rally again. About 4.5 years before that (May 2004), silver also crashed to a price bottom where “everybody felt” like it was hopeless to expect silver to rally again. But, in fact, the silver rally off the low in 2008 was over 450%, and the rally off the 2004 low was over 175%. Silver will rally again.
  • We may not trust bankers and politicians to effectively run the country, but we can trust them to “print money” and to spend in excess of their revenues. Consequently, we should trust them to drive the prices, as measured in unbacked paper currencies, for gold and silver – MUCH higher.

GE Christenson
aka Deviant Investor

 

 

 

World Bank Insider “No Gold in Central Bank”

goldcustody thumbA former insider at the World Bank, ex-Senior Counsel Karen Hudes, says the global financial system is dominated by a small group of corrupt, power-hungry figures centered around the privately owned U.S. Federal Reserve. The network has seized control of the media to cover up its crimes, too, she explained. In an interview with The New American, Hudes said that when she tried to blow the whistle on multiple problems at the World Bank, she was fired for her efforts. Now, along with a network of fellow whistleblowers, Hudes is determined to expose and end the corruption. And she is confident of success.

Citing an explosive 2011 Swiss study published in the PLOS ONE journal on the “network of global corporate control,” Hudes pointed out that a small group of entities – mostly financial institutions and especially central banks – exert a massive amount of influence over the international economy from behind the scenes. “What is really going on is that the world’s resources are being dominated by this group,” she explained, adding that the “corrupt power grabbers” have managed to dominate the media as well. “They’re being allowed to do it.”

According to the peer-reviewed paper…

….read it all HERE