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Exclusive: David Bensimon on Gold and Silver

Grant Longhurst: I’m joined today by David Bensimon who is here in Vancouver at the Fairmont Pacific Rim. David, just finished up a lunch session and this evening will be covering off the Gold and Silver markets for a private group of investors but Michael had asked me to come down and ask if you could quickly let our Money Talks audience know what your feeling is about the short term timing on the gold and silver markets.

David Bensimon: You are absolutely right that there are some very interesting junctures where we are now on gold and silver as well as the other markets, equities, currencies and commodities in general. Your listeners are probably familiar with some of the larger scale forecast that I made and the analysis that were in multi year, if not multi decade advance for gold and silver and copper and other commodities. But within the context the major high anticipated in 2014 for gold and 2015 for oil and the 2016 for silver as well. If the contexts of those larger scale movements, we can recognize that there are tradable turning points of intermediate highs and intermediate lows. We are very close to one of these moderate level turning points. In fact gold has already had a first test of that level of around 1560 and the 1580 area and is poised to retest that level in the very near future. But once it’s done that, it is vulnerable to a moderate pull back between five, eight maybe even 10% towards to the 1400, mid 1400 areas, about $120 drop.

In fact what we could say is on the structure of the movement of gold since the price is low, it has followed a really very nicely laid out pattern adhering to something we call the Lucas Series. This is the mode of the magic number of series that I talk about quite often but here we see in the case of gold that it went up by a certain size out of the bottom 680 in 2008. It had a correction and then had another jump of the same size of $320 and then a correction. Since then it has risen by $520 up to this recent high area which is 1.618, again there is natural relationship on the symmetry of the gold factors. So the expectation is that we will have some consolidation from this 1500, 1600, 1580 area and back to 1440. But then it should grow by $840 up to that $2200 and $2300 area, another consolidation and then culminating in the primary objective which is at $2600. Even just a little bit above 2600 possibly 2680 in 2014. So we are only three years away from this major effect.

Grant: Great, in that time frame do you see something similar happening with silver in that time?

David: Well, the interesting thing is that percentage wise for gold to go from where it was recently, let’s say a 1300 to 2600 is 100% increase in value, a doubling in value. So from current levels at 1500 plus, it’s less than 100% increase in value to get to those final objectives, or the objectives of three years from now. Silver has recently and will continue to outperform gold. Silver has some really extraordinary targets that I’ve spoken about for the last decade where we were down at $4 or $5 and now we went as high as $50 recently which of course was a perfectly natural place to expect some resistance and a pull back, $50 being of course the record high in January 1980. So the next time you touch that very important level, because it went from $50 all the way down to $3.50 the next time you touch that $50 level you can expect it to react and it did in a very short span of time when it collapsed from $50 to $32.

Partly driven by that technical juncture and partly driven virtually the next day by changes in the exchange trade and requirements for margin, this was a really potent affect on the market because everyone who was trading at their limits, capacity constraints, being so confident with these upswing, maybe even really profitably in the positions that they had, but trading with size that at their carrying constraint capacity and then the exchange says you know what, you need to have twice as much margin for every contract. It means that if you are at your capacity you could only have half as many contracts and therefore even though your contracts, your position might be in the money, you are obliged to liquidate some of those positions. The act of liquidating, especially right after reaching a key barrier like $50, starts to create a downswing that generates its own cascading spiral and therefore the original contract, the original sales might still be profitable if you’d bought them a long time ago, but as you sell those who bought into the markets up in the highs and are caught up in the momentum and that bullishness start to lose money and are obliged to liquidate their losing positions that causes an even bigger cascade and spiral so it goes all the way down until it drives itself to 32. My expectation is that the bounce, you know the drop down was $18 which is a Lucas type number rather than a Fibonacci number, but the market bounced back from 32 to 39 which was a $7 bounce retracing three eights of that first slide.

The structure is now vulnerable to another drop from this $39 area to the area around 37 or so and from 39 down to 28 would be $11. That would render the imminent down swing to be five eights of the first bounce which is a very natural kind of corrective relationship and would signal once you get to $28 that you are reaching the end of the correction. The other point of support at $28 is that the total increase after the crisis of was from $8 to $50, it’s a $42 raw gain in points. To drop from 50 back to $28, $29 is a $21 drop exactly half of that total raw increase. So you’ve got some internal relationships that coincide around 28, $29, this doesn’t mean necessarily that the market must fall but in the context of all the other elements that are suggestive of a corrective decline in the near future for equities, for other commodities, for currencies, it would be consistent with having one more dip in silver, but reaching that 28, $29 area would be an excellent place to reacquire raw positions.

Grant: Good news, thank you very much for your time David we look forward to having you on with Mike again soon.

David: You’re most welcome Grant.