Gold & Silver: These Markets Have Reached Critical Turning Points
If you’ve been following my work closely, then you know the markets have arrived at critical turning points.
We now have …
Two consecutive daily closing prices in gold (basis New York spot on the NYMEX) above $1,453. That indicates an important upside breakout for gold on my cyclical and technical models.
Gold also penetrating up through an important technical resistance level at $1,463.
In addition, we have …
The Dollar Index continuing to weaken and now very close to taking out its March 22 low of 75.505. This is a potentially very bearish sign for the dollar and further supportive of a rally in virtually all commodities.
We also have an initial buy signal in the Dow Industrials (NYSE:DIA), as it has now closed above 12,391 on two consecutive days.
I say initial, because the S&P 500 Index (NYSE:SPY) has not yet confirmed the Dow’s breakout, since it has not yet closed above the 1,338.25 level. A continued rise in stocks, though, is now expected and is also overall net bullish for gold and commodities in general.
Bottom line: The past few months of mostly sideways action in the gold market has passed, and the low we saw in gold at $1,308 on January 28 now qualifies as an important cycle low, the low I was looking for, though it came and went very quickly.
Simultaneously, it looks like the bullish long-term cycles in the broad stock markets that I have been warning you about are even stronger than I had expected, overwhelming the shorter-term cycles which had been rolling over to the downside.
And, at the same time, the dollar appears weaker than even I have been forecasting!
All of this means the following:
First, virtually all of my indicators for gold now point higher into June on the shorter-term cycles, and of course, the long-term cycles continue to point higher into 2015/2116.
You should expect gold to now form support at the $1,453 level followed by $1,438 — while upside targets are now $1,525 … $1,570 … $1,700 … $1,770 … $1,980.
I expect gold can now rally to at least $1,770 by June, possibly higher. But it will NOT be a straight up affair. It is bound to be very volatile.
Longer term, gold can now move to $5,000 or higher, but those price levels will not be seen for a few years.
Second, silver: Yes, I missed a lot of the action in silver over the last few months, and that irks all of us. However, I remain of the opinion that silver is still a very dangerous market right now, and though possibly headed to $50 over the next few months, silver should be treated with extreme caution.
So I will continue to favor gold over silver. Keep in mind gold is the only real monetary metal. Silver is an industrial metal and a high-risk, speculative market.
Third, most all commodities should similarly move substantially higher over the next few months.
Again, the trade will be very volatile. And again, natural resources have much higher to go long term. So there will be plenty of opportunities in the agriculturals, in oil and gas, in base metals and more.
Fourth, the broad stock market indices should now also continue higher, into late April, minimum, and possibly into the summer. Expect wild swings though.
Fifth, the dollar is in trouble. Unless it rights itself almost immediately, we should be on the lookout for a new sharp leg down in the dollar’s bear market. This will naturally boost commodity prices and push inflation higher, much higher.
I suggest you make these adjustments now:
First: Exit any gold hedges you might have purchased via any suggestions I’ve made in this column. That includes investments such as the PowerShares DB Gold Short ETN (NYSE:DGZ).
Second: Exit any silver short positions I may have previously suggested, such as the ProShares UltraShort Silver ETF (NYSE:ZSL).
Third: Exit any short-term hedges I have recommended for the broad stock markets, such as the ProShares Short S&P 500 ETF (NYSE:SH).
Fourth: Make sure you own gold! If you have been following my column for any time at all, you should have plenty of gold investments in your portfolio, with growing profits.
Just in case you don’t, now is the time to buy or add more. The best way: SPDR Gold Shares ETF (NYSE:GLD).
I also like the U.S. Global Investors World Precious Minerals Fund (UNWPX), U.S. Global Investors Gold and Precious Metals Fund (USERX), and Tocqueville Gold Fund (TGLDX).
Please note however, that I will not yet get super-aggressive in the markets.
Despite virtually all of my indicators turning from red and yellow to green, I continue to recommend caution as there is simply too much background noise and too many surprises that could affect these markets.
From the situation in Japan … to the Middle East … to the sovereign debt crisis and rising interest rates in Europe … and of course, the budget and debt ceiling battles going on in Washington — all markets are now prone to very high volatility, and hence increased risk.
I will get more aggressive in the days and weeks ahead, in virtually all natural resources. But right now, caution is still warranted.
Now, on to a few very important questions on readers’ minds …
Larry: How much does the budget battle in Washington have to do with the moves in gold and silver, and is it safe to assume that if a deal is reached, or substantial spending cuts are ever enacted, that the precious metals will collapse?
My answer: The debt ceiling wrangling has just been a symptom of what we’ve known all along: The U.S. government is dead broke.
That has not changed, and will not change. So, the precious metals markets have largely digested that and it is one of the long-term forces driving them higher.
In the short term, it has merely added to volatility. If any kind of meaningful deals are cut, it might give way to a short-term correction. That’s always possible. But I believe, based on my signals, we are past the riskiest period for gold and commodities. They have now built support levels at much higher price levels.
Larry: Interest rates seem to be rising. Won’t that dampen any precious metals rally? Or pinch inflation?
My answer: No. Interest rates would need to explode much, much higher, to above the current rate of inflation, which is probably running north of 8% or 9% in the U.S. — to have any meaningful impact.
Plus, you have the dollar now on the edge of another substantial decline, which will boost inflation further.
Moreover, I believe rising interest rates at this stage will actually be more inflationary than deflationary. It would mean that the cost of money is not rising along with other commodity prices.
Larry: You not only missed out on silver’s huge run, but on oil’s recent strong rally as well. What gives?
My answer: No doubt about it: I did not take advantage of them, I missed them. But I did so pretty much intentionally.
First, silver needed to prove itself to me. It is a highly manipulated and speculative market that is prone to sucking in investors and raking them over the coals.
Second, silver is still a very speculative market. But now that silver has proven itself by blasting above $28, holding that level, and moving higher, silver is now on a path to reach at least $100 by the 2015, late 2016. So there is plenty of opportunity and money to be made there that I will take advantage of.
Third, I did see oil’s potential to rally to at least the $105 level. But I did not like the way the oil ETFs (NYSE:USO) were acting, nor the overall, uncertain posture of the broad stock markets, which, if they had pulled back as I expected, would have likely hit the oil market hard. So I chose to stay on the sidelines.
There will plenty of opportunities ahead in oil and energy as well.
The bottom line is that I am actually a very conservative investor/trader. I always try to keep my wits about me … stay objective … and keep the longer-term trends in focus, trying to sidestep periods where I think risk is running too high.
If that means getting out of positions early, or even missing opportunities at times, that’s ok.
Indeed, I am still very nervous about some of these markets. Many of the comments I’ve seen on my blog remind me of peak, pie-in-the-sky sentiment that was seen right before the Nasdaq bubble burst … and right before the real estate bubble burst.
That kind of excessive bullishness is not healthy for markets. You don’t want to be heavily invested in any market where there seems to be nothing but buyers. When that kind of crowd turns south, your money goes up in smoke very quickly.
Always keep that in mind.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com/.