Special Update: Precious Metals Bear Market is Back …

Posted by Larry Edelson - Commodities, Stocks, Technical Analysis

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Regardless of what the near term may bring, the long-term outlook for gold has not changed. It’s still subject to powerfully bullish forces that will ultimately drive it to $5,000 an ounce and beyond — a massive flight to quality from investors around the world, the madness of bankrupt governments, rising geo-political conflict, and more. Ed note orignally published Sept. 16th. 

imagesBut for the near term, the line in the sand has been crossed and we are witnessing a temporary extension of the precious metals bear market. That’s news none of us want to hear, but it’s undeniable.

Always keep in mind that the extension of the bear market in the precious metals also opens up profit opportunities:

Opportunity #1: To profit as the precious metals and mining shares decline.

Opportunity #2: As they decline, die-hard bulls will get washed out of the markets. That will be a great time for you to pick up bargains. And it will provide the necessary fuel for an even greater bull market to follow.

Now, let me turn to what is happening, and why.

First, neither gold nor silver has elicited any buy signals during the past few months, casting a shadow over them the entire time, which is precisely why I recommended refraining from becoming too aggressive on the long side over the past few months.

Second, the deflation specter that is haunting Europe is worsening. Deflation is taking a firm hold on the euro region, and the European Central Bank (ECB) is now taking aggressive steps to devalue the euro.

Those steps, though, will not be enough to stem the tide of deflation in Europe. Further euro devaluations lie on the horizon.

Screen Shot 2014-09-18 at 6.35.10 AMThird, deflation will now become an ever growing threat in the U.S. as the euro tumbles in value and the dollar continues to soar.

Fourth, I am seeing further deflation already whack the grain markets, which continue to drop sharply. This I expected. But the speed of the recent declines in markets such as wheat, soybeans, corn and even coffee and sugar tells me deflation is already a growing threat in the U.S. 

Fifth, and perhaps the No. 1 question on most of your minds, is the war cycles and their positive impact — or lack of impact — on precious metals.

My studies continue to tell me that on a long-term basis, rising social and geo-political discontent will be the No. 1 driving force behind a resurgent precious metals bull market.

Screen Shot 2014-09-18 at 6.35.22 AMBut for now, when combined with the very serious deflation that is hitting Europe, it seems that the war cycles are having the opposite effect, prompting savvy money to simply abandon the euro and go largely to cash, and U.S. equities, which by default, is bearish for gold and silver …

And (mistakenly) into U.S. Treasuries, which is why interest rates are now nearing record lows again.

Let me address what are probably your top two questions right now: How low can gold and silver go and how long will their renewed bear markets last?

My answers:

1. From a technical perspective, it would not be unusual for gold and silver to drop back to near the origins of their previous major breakout points.

Based on the continuous nearest futures, that would put the ultimate lows in target ranges of roughly $920 to $970 in gold, and, worst case, $12.50 for silver.

2. Timing-wise, my cyclic work is now showing two targets for the final lows.

The first comes in January/February 2015 and the second in June. Odds favor the January period.

Now, what to do …

FIRST, and foremost, do not expect the precious metals to immediately collapse.

They are deeply oversold and important short-term support levels are near at hand. Put another way, we are likely to first see a sharp bounce, before the downtrend resumes.

That bounce could bring gold back up to the $1,280 level, even the $1,300 level. Silver could bounce to the $20 area.

Regardless of any bounce …

SECOND …

A. Now is not the time to buy any additional precious metals, in any form.

B. Now is also not the time to add any more miners.

And …

THIRD, for any existing precious metals holdings you have, sit tight. But use any upcoming bounce to hedge those holdings, via an inverse ETF such as the PowerShares DB Gold Short ETN (DGZ).

(Real Wealth Report subscribers will be getting specific hedge recommendations this Friday in the September issue. To learn more about the specific strategies I recommend to hedge your holdings, and to become a Real Wealth Report member, simply click here now.)

Above all, stay tuned and alert. As I stated at the outset of this column …

 

  • There will be many opportunities to profit as the precious metals and mining shares decline.
  • There will also be several enormous opportunities to pick up bargains down the road.

 

In bullion, in mining shares, and in other natural resources.

To add your view on these or any other matters, go to the comment section below. And watch your inbox tomorrow morning for my regular column.

Best wishes,

Larry

P.S. Did you miss Martin’s briefing yesterday?  Don’t worry — there is still time to view it! Martin revealed the investment strategy that he personally built from the ground up — the strategy that could have multiplied your portfolio more than SEVEN times over with a 613% return since 2005. You don’t want to miss this video … click here to watch now!