I had called the gold short term bottom perfectly on April 23rd when gold was at $1,285. After a run up in gold to $1,316 today, and with the dollar bottoming, along with Yellen’s comment’s, the perception on where gold might go next doesn’t look good for a further move higher over the short term. While anything can happen, this article will explain more of why I see us going lower for gold and silver prices within the next 3 to 4 months.
Current Prices at Time Article Was Written
U.S. Dollar Index
We saw the dollar head to a lower low but still above the $78.50 mark that would cause me concern if it were to break. People are simply going after higher rates in Europe and elsewhere with their dollars at present.
U.S. Treasuries – 10 Year
Treasuries are still strong despite the paltry yield. Why would this be unless there was some underlying concern about risk? Treasuries tell the real story and eventually gold will too.
The stock market isn’t capitulating just yet. I say just yet because the P/E ratio for stocks is at historic high valuations that typically precede a decline. The following is from Richard Russel, the 40+ year writer of Dow Theory Letters who I have been following for many of those years (he’s pushing 90 years old now).
There have been only three times when valuations calculated by this method were higher — the late 1920s, the late 1950s and 2007 just before the bull market ended. Judging from current valuations, we are either near the beginning of a bear market — or facing a decade of sub-par performance from stocks.
Unemployment dropped to 6.3% which was below where the Fed first wanted it to go before they changed the rules. Although, real unemployment represented by U-6 is still 12.3%.
VIX CBOE Volatility Index
The VIX shows no real fear in the markets.
Silver and Gold
Gold has done better than silver off the December lows. My conclusion is we are on the cusp of many things occurring all at once. This occurrence though I think can be extended for another 3-4 months while market makers try and push gold and silver down one more time. We are still fighting a deflationary credit contraction as I have been saying since 2010. Silver sure is acting like an industrial metal (deflationary) during this decline, not a monetary metal. But it too will bottom and soar.
Like silver and gold, we have had a bounce up in commodities since December and we are getting toppy. The longer term chart below shows the trend being lower for commodities overall. We have simply had a bounce in the short run, not a bottoming.
When it comes to buying gold and silver, ask yourself these questions:
Q: Am I buying at the top?
Q: Am I buying at the bottom?
A: Not yet.
Q: Why don’t you talk about the Ukraine problems or China backing their currency with gold as reason why one should buy gold?
A: Ukraine is a temporary issue with leaders beating their chest. China isn’t going to back their currency with gold. It would be committing suicide. China has their own issues to worry about.
Q: Why do you stick with a stronger dollar outlook when all others who sell gold say the dollar is going to crash. Two of them even wrote books about the dollar problems that are forthcoming; The Death of Money: The Coming Collapse of the International Monetary System by James Rickards and MONEY: How The Destruction Of The Dollar Threatens The Global Economy And What We Can Do About It by Steve Forbes (or any Peter Schiff book).
A: I could come up with so many great negative issues that are occurring in the economy and be quite convincing. I would sell a lot more gold and silver because of it. I’m writing my own book, “Illusions of Wealth” that will explain how I think things will unravel. It will support over the short term a stronger dollar and stronger treasuries, a theme I have stuck with in cautioning investors on what gold and silver may do next. Maybe my crystal ball, based on my own research, is clearer than theirs. It hasn’t hurt me so far, but it has hurt many who have blindly followed their advice. Yes, I’m talking to you Zero Hedge.
Q: What money management plan would give me the best price if I know silver is going to go higher in the future?
A: Dollar cost averaging (If you don’t know what dollar cost averaging is, call us and we’ll provide you with more insight).
Q: How far will gold and silver fall?
A: I think we will take out the lows of 2013, which means gold will test $1000 and probably break below that price and silver Will break $18.
Q: Yes, but how low will the prices go?
A: The worse case for gold I see is the 1980 high of $850. If we break $1,000 an ounce, it will be a psychological barrier that market makers will exploit. That’s what they do. They exploit any weakness and will drive prices lower than expectations. If we did break $1,000 an ounce, I would expect a quick drop to around $900 and then a quick recovery. I don’t really care if we hit $850 or not. I will have written my “all-in” article. If gold broke this low, silver could possibly hit the $15 range, give or take. Again, I expect some extremes to be hit quickly and then bounce right back up. This signifies the bottom is in. Those who are on leverage will get killed. I think this will occur over the next 3-4 months, possibly 6 months. I’m ok if I miss the bottom call by a couple months. You’ll know how I feel when I write my all-in article.
Q: What if you are wrong?
A: While I have had a good track record for calling the ups and downs, I do admit that I could be wrong. I read as much as I can to come up with my turning points and predictions. I also feel I have an intuition for this after being around the markets for so many years and seeing how market makers work. I do have my indicators for “all bets are off” and will write my article immediately when those are triggered. Those indicators may throw my timing off a little and I’ll write about it at that time.
Q: What if you are right?
A: I do think patience will be rewarded. If I am right, then more people will have bought gold and silver at lower prices overall and some will profit more than others in the years ahead. If investor A makes 50% and investor B makes 70%, I don’t think either will complain. I do think that 50% and 70% aren’t even close to the returns that investors will see in precious metals in the years ahead. I don’t know of anyone who thinks the stock market has another 50% or 70% left in it over the next few years. One’s hardest decision will be “when to sell.” I’ll be there to offer my guidance the best I can.