Larry Edelson: I’ll get right to the point … First, gold’s historic collapse — losing as much as $233 in just the last four trading days, a whopping 14.7 percent … and $565, or 29.44 percent since its high in 2011 — is NOT over.
Second, expect a bounce to soon occur, but don’t buy into it. If you do, you will likely lose a bundle of money as gold heads even lower.
The same advice applies to silver, to copper, to platinum, to palladium, to crude oil and more. Their interim-bear markets are not over, not by a long shot. Ditto for natural resource stocks.
For now, I’ll confine this update largely to gold. I want you to have the important system support levels for gold from my trading models. That way, you will have a road map.
I’ll cover these technical levels first, then I’ll briefly review the fundamental forces driving gold lower.
Gold’s major support levels now lay at …
— $1,380. Gold is currently below that level.
Each of the above levels should temporarily hold once they are hit. But the operative word is “temporarily.” Based on my system models, gold will likely not bottom until it hits major long-term support at $1,028.
As for overhead resistance, there is plenty. For any bounce that soon comes into play, expect resistance to form at the $1,380 … $1,412 … and $1,458 levels.
As for the fundamentals driving gold (and other commodities) lower, they are the same forces I’ve been telling you about for many months now …
First, central bank money-printing has lost its impact on the markets. Why? Very simply put, there’s too much bad debt floating around the globe and there’s simply no way central bank money-printing can offset it.
Second, austerity measures in Europe and the United States are also overpowering the inflationary impact of money-printing.
Third, and most importantly in my view, the Cyprus confiscation of uninsured depositor money has completely turned the world upside down. Money is no longer safe in a bank in Europe.
That, in turn, is causing hundreds of billions of dollars to essentially go into hiding. But not in gold, which is subject to confiscation, real or imagined.
Instead, capital is largely going into cash, which is also bullish for the U.S. dollar, since it’s still the world’s reserve currency.
Fourth, Japan’s new aggressive policy to devalue its currency is also not bullish for gold.Japanese investors are plowing their money instead into their own stock market, and my sources tell me loads of Japanese capital is also fleeing to our stock market.
In fact, much of the selling in gold originated in Japan. It was just a week ago that gold hit a record new high in yen terms, due to the depreciating Japanese currency.
But instead of lining up to buy gold, Japanese investors queued up at gold dealers around the country dumping every ounce of gold they could get their hands on, even melting down jewelry.
Why? Japanese investors don’t trust their own government, and if push comes to shove with North Korea, Japanese investors want their money liquid and mobile. That means cash, not gold.
In essence, we are seeing what I call “Money on the Run” and its momentum is picking up, in Europe and in Japan. Panicked capital is going into hiding, but in cash and equities in the U.S. and Japan, not in gold.
Later, when everyone realizes that Washington has many of the same problems that Europe and Japan has, all of the above fundamental forces will flip back to the bullish side for gold.
But that time is not here yet.
In my special Money and Markets issue of April 3, and in earlier columns, I suggested hedging any metals or mining shares you owned via purchases of the inverse ETFs, the ProShares UltraShort Gold ETF (NYSEARCA:GLL) and the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST).
I also recommended the ProShares UltraShort Silver ETF (NYSEARCA:ZSL) for a play on silver’s downside.
If you acted on any of those suggestions, you’re sitting pretty. Hold those positions and stay tuned for further updates.
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 inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whoseaccuracy 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.
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