31
Jan

Current Thoughts for 1/31/2016

 

In Wednesday’s Current Thoughts I said the following; 
 
No, we are not off to the races yet. Not even close. I say that with all sincerity and not to be pompous about it. Gold has one more leg down in it and the market is giving you a little hint of what it can do. Little. Mining stocks still have a ways down and so does gold. We’ll trade the ride up in the meantime but gold has to stay above this $1,118 level and move past $1,125 for it to get to the next leg up.
 
We were in a range for a while and finally broke out of that range of $1,050 to $1,100 but we are not blasting up at all. Silver the same thing with it’s small move over the $14 resistance to $14.26. You’ll notice that most other commodities also caught a bid, like oil and natural gas (very small). We trade these small moves in my trading room over at Seeking Alpha. In fact, I called a low in DWTI on Friday morning and we jumped in and rode it 35 points. DWTI is an ETF that says the price will go lower. But we only trade these ETFs, and do not buy and hold them. While we rode DWTI to 264 and it hit a high of 266, it fell back down to the 240’s. I think DWTI can get to over 500 on the next leg down in oil to the teens. 
 
The book I am finishing up and should have off to the editors in a couple weeks makes the case for continued deflation and a stronger dollar. We saw on Friday what the Japanese did and the dollar shot higher. Europe with Draghi has been doing the same thing with their currency. They have no choice. Their Debt to GDP ratios (European countries individually) are much worse than the U.S. So perception is that we here are the “last bastion of safety.” That’s why the 10 year is paying under 2%. This is why the dollar will shot past 100 on the Index and at the same time drive gold and silver to their lows. That’s when I will be writing my all in article. 
 
A couple weeks ago I interviewed former central banker John Exter’s son-in-law Barry Downs who was involved in the gold business but has since retired. He has a garage full of all of John’s papers and is considered an expert on his father in law. We spent an hour and a half on the phone and he confirmed everything I was writing about in my book concerning deflation, the dollar and gold. 
 
He, John and Paul Volcker were in a room together back in 1980 when gold was hitting a new high and Volcker, then Fed Chair, asked John what to do. John said you need liquidity and Volcker opened the gates. They can’t do that today as it would kill the economy and I had said the December rate would be a one and done and we saw the results in the markets once the Fed did this with the worst opening two weeks to the stock market ever. This last Fed meeting, no raise in rates. No surprise to me and all the talk of 4 rate hikes this year was and is a joke. 
 
When I talked to Barry about what John would say about today’s Fed he said he wouldn’t believe it. He said the Fed will continue as we collapse in the deflationary spiral to buy assets, even stocks and bonds, if they have to. ECB President said last week they will “do whatever it takes.” These are desperate times for the central banks as they cannot create inflation. In my book I talk about how money velocity is at a stand still. All of this points exactly to the deflationary contraction I wrote about in 2010 and am expanding with in this next book Illusions of Wealth. My timing couldn’t be better to help people understand.   
 
If you look at chapter 4 of my first book there is a picture of Exter’s upside down pyramid. It shows risky assets flowing down the pyramid to perceived safety in treasuries and eventually into gold. Personally, I can’t wait to get past this bottom but I do want to prepare more investors to buy low first. 
 
Once we break $1,050, it should be a fast drop to under $1,000 and my all in price target of $900 and silver will be south of $12. Yes, we might go a little lower but I will have my reasoning to write the all in article then. I’m not aware of anyone who is calling the gold market better than I am and I have to stick with what I know. 
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About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534

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