Over the last couple of weeks there hasn’t been a lot of action in the markets. We continue to see very tight trading ranges that are likely due to the low volume.

But more importantly the markets are now dealing with the background noise of the second half of the fiscal cliff negotiations — the debt ceiling.

Let’s go to the charts .

Bonds Trending Lower

Bonds remain in a downtrend from their record high in price late last year and the record low in yields. And the cycles in the bond market are telling me that bond prices could plunge quite sharply in the weeks ahead.

Prices are rallying a tad, but overall the action is very weak. I expect this downtrend to continue because the bond bubble is imploding. The next stop for the 30-year Treasury bond will be at approximately the 135, 136 level. And I have almost no doubt whatsoever that we will see bonds fall and rates rise as we enter into the serious eleventh-hour negotiations on the debt ceiling.

There’s even a chance based on some of the cycles I’m looking at that Washington may not reach an agreement. And the government may have to temporarily shut down!

Gold Still Has 
Room to Fall

There’s not much happening there — just a little bounce higher. You can see that we remain below an important channel resistance and below an important cyclical trend channel. We may move a little higher to just back above $1,700 to test that resistance. But look at all the air down below here!

I maintain my view that the next great buying opportunity coming in gold will be at much lower prices, most likely during the first quarter of this year.

Same Story for Silver

Silver is really just sort of climbing along this lower support level. It’s trying to rally, but the rally is very meager. Once we break the support level down around $31.25, which I fully expect, there is a steep plunge coming. So my view has not changed one bit at all.

U.S. Dollar Could Rally

The Dollar Index is acting just as I expected it to. The long-term weakness is still present in the dollar because of its inability to stage a significant rally. It’s climbing along this uptrend line. And it’s hugging it right here. We may see the dollar start to rally even as the fiscal cliff negotiations on the debt ceiling fall apart.

Now logically you might think that if we hit the debt ceiling, the government shuts down, the dollar should plunge. I don’t think that’s necessarily the case.

If you think it through, if the government shuts down, or if the budget negotiations get really nasty, a lot of investors will seek out the sidelines. They’ll get out of the markets and go to cash to wait and see what happens, which would give the dollar some strength. So it’s not a sure bet that the dollar would fall on bad news about the debt ceiling. That remains to be seen.

Short-term, the cycles still point higher for the dollar as well. Long-term, we all know the dollar is in trouble. There’s no question about it. But I don’t believe the next disastrous bear market move for the dollar will come until later this year.

Dow Industrials Holding 
Up Amazingly Well

Like the dollar, the strength you’re seeing in the Dow is an indication of its long-term strength. We are, at some point in the not-too-distant future, going to enter a new bull market in equities that will see the Dow and the S&P 500 go to new record highs over the next few years.

In the short- and intermediate-term it’s a coin toss. We could see the Dow move up to just over 14,000 or we could see that long-awaited pullback that I’ve been looking for.

Fundamentally, anything could crop up that could drive the market higher or take it lower. Cyclically, on the short-term models, I’m still expecting a pullback.

So I am not willing to go all-in on the stock market yet by any means. Nor am I willing on the other side to go aggressively short at this time.

So keep your eyes on these markets. They are indeed the most frustrating I’ve seen in a long time. But I also know that when you go through periods like this, as long as you keep your ammo intact and stay defensive with your savings, when the markets start to move they are loaded with opportunities where you can make a ton of money.

Best wishes,

Larry

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Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

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