<b>Gold Price</b> and the 120-year Cycle Bottom :: The Market Oracle <b>...</b> |
| <b>Gold Price</b> and the 120-year Cycle Bottom :: The Market Oracle <b>...</b> Posted: 31 Dec 2013 06:32 AM PST
By: Clif_Droke
There was one news headline recently that was quite conspicuous, however. A news site known as the Deccan Chronicle (www.deccanchronicle.com) published a story on Dec. 25 entitled, "Lift of import curbs may crash gold prices." The story was in reference to the Indian government's proposal to relax import duties on gold. Dharmesh Bhatia, of Kotak Commodities Services Ltd., was quoted in the article as predicting a gold price crash if the Indian government removes the duties on gold imports or even relaxes the curbs significantly. Mr Bhatia said that Barclays Bank had stated that commodity-linked investment funds are headed for record outflows in 2013 and between November 2012 to November 2013, there has been a $88 billion decline in assets under management. The article stated that investors had withdrawn $36.6 billion from commodity funds during this period due to the decline in prices of sugar, coffee, nickel, gold, silver, and other resources. By far the biggest decline, however, was witnessed in gold, with a 29 per cent crash after a rise over nearly 11 years. EPFR global estimated that investors have withdrawn $38.8 billion investments from gold funds alone.
Experienced investors know that when the word "crash" appears in a headline it typically carries a contrarian implication. It should further come as no surprise that this highly charged emotional word is prominent after a stock or commodity has experienced a steep decline. Could the appearance of a crash warning for gold signal the metal's imminent reversal? Perhaps, although a more likely interpretation is that gold has reached - or nearly reached - a temporarily "oversold" technical condition and is primed for at least a short-term technical rally. We still need to see gold close at least two days higher above its 15-day moving average, and for the 15-day MA to turn up. This will provide the technical context for an immediate-term bottom and short-covering rally based on our technical discipline. A corresponding decline in the U.S. dollar index would increase the likelihood that an immediate-term breakout signal in gold won't prove to be a false signal. For now the immediate-term trend for gold remains down as defined by the position of gold's price line to the 15-day moving average (see chart below).
Wall Street's reaction to the Fed's taper announcement at its December meeting was interpreted by many as a vote of confidence for the U.S. economy. The resulting rally in stocks and subsequent decline of gold's value would seem to justify this view. As I've argued in these pages, what's good for stocks is bad for gold and until something comes along to upset investor confidence in the economic and/or stock market outlook the bear market in gold is likely to continue. Gold is in need of a catalyst to launch a revival of its fortunes. The year 2014 is the best bet for such a revival due to the influence of the major long-term yearly cycles scheduled to bottom later next year. A return of broad market volatility and global economic uncertainty would be the most likely candidates. Speaking of the long-term cycles, a reader shared with me the following scenario: "Could it be that the gold and precious metals markets are reflecting the hard done phase of the Kress cycles? The action in gold the past few years is certainly consistent with what one might expect in the final sharp decline of the long term cycles. In fact, the action of silver might have been the best harbinger of the concomitant decline in the fall of the middle class over the second thirty year period.
My answer: This is thought provoking, and perhaps you're right that gold/silver will bottom out, long-term, in late 2014 with the 120-year cycle. As far as gold and silver bearing the brunt of the cycle, I'm not so sure. The Kress cycles are primarily equity cycles and secondarily economic cycles. I don't think Mr. Kress would have agreed gold and silver are primary recipients of the final "hard down" phase. Considering that gold is inflation/deflation sensitive, however, it's likely that the metals are experiencing a spillover effect from the cycles, however. The main effects of the deflationary cycle, IMO, can be seen in the economic numbers: despite record levels of liquidity generated by the Fed since 2008, unemployment has dropped only slightly and inflation remains below 2%. What else other than the 120-year cycle of inflation/deflation can explain this? High Probability Relative Strength Trading Traders often ask what is the single best strategy to use for selecting stocks in bull and bear markets. Hands down, the best all-around strategy is a relative strength approach. With relative strength you can be assured that you're buying (or selling, depending on the market climate) the stocks that insiders are trading in. The powerful tool of relative strength allows you to see which stocks and ETFs the "smart money" pros are buying and selling before they make their next major move. Find out how to incorporate a relative strength strategy in your trading system in my latest book, High Probability Relative Strength Analysis. In it you'll discover the best way to identify relative strength and profit from it while avoiding the volatility that comes with other systems of stock picking. Relative strength is probably the single most important, yet widely overlooked, strategies on Wall Street. This book explains to you in easy-to-understand terms all you need to know about it. The book is now available for sale at: http://www.clifdroke.com/books/hprstrading.html Order today to receive your autographed copy along with a free booklet on the best strategies for momentum trading. Also receive a FREE 1-month trial subscription to the Momentum Strategies Report newsletter. By Clif Droke Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com © 2005-2013 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.  |
| The <b>Gold Price</b> In 2014: Forecasts And Predictions | Gold Silver Worlds Posted: 30 Dec 2013 02:58 PM PST In his latest editorial, Michael Kosares, founder of USAGold.com and author of "The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold", introduces a series of forecasts and predictions to its readers. Not that he seems obsessed with forecasting and predicting, but he provided his readers with a nice (comprehensive) overview. He matched his own expectations with one of them, in particular the one from Scotia Mocatta (see first bullet point below). Readers are invited to sign-up for the newsletter to receive quality commentary from USAGold.com. Mind that our own stance regarding predictions remains unchanged compared to a year ago: "Forecasting isn't about predicting the market; it's about marketing the prediction" (see The Truth About Gold Price Predictions & Market Forecasts). Bulls Among The Financial Institutions
Bears Among The Financial Institutions
Calls from individual investors and gold enthusiastsArt Cashin from UBS: "There are always surprises. You will recall that although she hasn't been confirmed by the Senate, Yellen is to take over as the Chairman of the Fed. And every Fed Chairman, not only the ones that I've known over 50 years but the ones that have been there for the full 100 year history, have been tested in their first year by some market event. For Greenspan it was the Crash of 1987, and for Bernanke it was the Great Recession. I'm going to be very interested because we are seeing one possible impact of that already and that is mortgage rates are creeping up — therefore, mortgage applications have dropped off. We're back to mortgage applications falling to the level they were when Lehman was being deconstructed. That is a very, very significant indicator. It is more timely than some of the housing sales and a variety of other things. So if we find that the mortgage rates creep up and the mortgage applications continue to fall, the Fed may have to reverse itself with a 'red face' even before it gets started. I think it would be very significant in that people would begin to wonder, 'Is the Fed in any control at all?' If they had to reverse rather quickly, before they even began the taper, then people would wonder, 'How much in control are these people? How much do they know?'" Richard Russell: "I believe that coming up we are going to see a fourth devaluation of the dollar against gold. By doing this the US Treasury will overnight have a vastly greater supply of wealth compared with its debt, putting its finances in a much healthier state. How high might the US re-set the official price of gold? You pick a number — $5,000, $10,000 or $50,000, but the number should be high enough so that the price of gold won't have to be re-set again in a hurry. There are two problems with a re-set in the price of gold. (1) The government may decide to confiscate gold from its people. (2) There are arguments regarding how much gold the US Treasury actually owns. There have been no recent audits, and some of our gold may have been loaned out." Bachharaj Bamalwa, director of the All India Gems and Jewellery Trade Federation (via the IndoAsian News Service): "The World Bank and the International Monetary Fund may have written off gold as an investment option but the yellow metal shows no sign of losing its sheen in India. In 2013 not only did gold prices witness an upward march to touch Rs 34,600 per 10 grams, the demand also remained somewhat intact. Steady demand, despite import restrictions, saw gold prices swaying between Rs 26,440 per 10 grams in April to Rs 34,600 per 10 grams in August. 'Gold will always remain an asset class in India. It will never fetch any negative return. Temporarily, there can be some reverses but in the long term it cannot fade away." Marc Faber from the Gloom Boom Doom Report: "My sense is that at the present time, the US market is relatively expensive compared to foreign markets, especially to European markets and to emerging markets. On a cyclically-adjusted P/E [price-to-earnings] basis, it is actually going to return very little over the next seven to 10 years. . . 'Given all the money printing that is going on globally – and not just in the US – and given that the total credit as a percent of the advanced economies is now 30% higher than in 2007 before the crisis hit, I think that gold is a good insurance.'" James Rickards, Author of "Currency Wars": "There's certainly some Central Bank manipulation. There's some fundamental reasons having to do with what we've been talking about, which is deflation. Gold should go down in a deflation environment initially. But if deflation gets bad enough, the government will make the price of gold go up because they get desperate to create inflation. If you've tried everything, if you want inflation, and you've tried everything to create it, so you tried money printing, cutting rates, currency wars, Operation Twist, QE, forward guidance, nominal GDP targeting, you've tried everything, you still didn't get the inflation. There's one thing that always works, which is devaluing your currency against gold. So there could come a time when deflation gets so bad that the Fed and the treasury actually raise the price of gold, not to enrich gold investors, but to get close to generalized inflation. Because if gold goes up, silver and oil will go up along with it. It's exactly what happened in 1933. So that's one path. But the other, perhaps more likely path, is that the Fed just keeps printing money and finally succeeds in changing behavior, velocity of the turnover money picks up and inflation goes up on its own. Then gold will race way ahead of that." Tyler Durden from ZeroHedge: "The question of Buba's relationship with other central banks still remains open, however one thing we have just learned is the pace at which the German Central Bank has been able to repatriate its gold. It would make a snail proud. Yesterday Buba head Jens Weidmann told Bild that gold valued at €1.1 billion has been repatriated so far. Putting a weight to this number: to date the Bundesbank has received shipments of a paltry 37 tons of gold from its existing storage place in either New York or Paris to Germany: 'The gold reserves of the country will be stored in Frankfurt because it has a special storage with the corresponding equipment,' said Carl-Ludwig Thiele, a Bundesbank board member. The repatriated amount over the course of all of 2013 represents just over 5% of the total stated target of 700 tons, and is well below the 87.5 tons that the Bundesbank would need to repatriate each year if it were to collected the 700 tons ratably ever year in the 8 year interval between 2013 and 2020. So the question begs: since the price of gold has tumbled in 2013 (according to many driven in part by the Buba's own demand, which would make procuring gold in the open market for the US and French central banks that much easier for subsequent dispatch to Frankfurt) and one would assume there would be many more sellers than buyers of physical, why would the Bundesbank not be able to obtain a far greater share of the gold? Unless, of course, neither New York nor Paris actually have free, unencumbered physical gold in their possession -with most of it leased out to various even closer 'partners' – and are scrambling to procure as much physical as they can find at the new low, low prices (thank you paper gold ETF dumping). Chris Powell from GATA: We see these enormous volumes of gold moving from West to East, sometimes through Switzerland. We saw the disparity in the Bank of England's gold vaulting reports between February and June, where 1,200 tons of gold seemed to disappear. When I asked the Bank of England about that they basically told me to drop dead and they would have no further comment on the matter. All of this echoes what Kaye [Hong Kong analyst, William Kaye] is saying. We can see these gold outflows from the West, and we can also see the inflows to the East. We don't know exactly when the metal will run out, but we do know we have seen this movie once before. This is exactly what happened when the London Gold Pool was drained. The pool collapsed and there were emergency US Air Force transport flights, according to the Federal Open Market Committee Meeting Minutes, flying gold over from the United States to the Bank of England in 1968. This was at a time when the Bank of England was advancing its own gold into the market on behalf of the United States, in an attempt to hold the gold price at $35 an ounce. In March of 1968, the outflow of gold had reached hundreds of tons per week. At that point, the nations participating in the London Gold Pool realized they had only a few weeks' worth of gold left at that staggering rate of outflow. So, they closed the London Gold Pool. The dollar price of gold literally failed at that point. The price of gold was $35 an ounce of gold one day, and the next day there was no price at all because there was no official market. I suspect that either that will happen, and the gold that is available will run out, or more likely the central banks will see what's coming and arrange an international currency revaluation. At that point there will be chaos in the gold and currency markets, but in the end this will mean substantially higher gold after the official reset of the international gold price." Doug Casey from Casey Research: "First thing you should do is buy some gold coins – or one gold coin I should say – and buy an equal amount of silver coins and that should constitute your financial foundation . . . Bonds remain a triple threat to your capital. With interest rates at all time lows, that means bonds are at all time highs. . .Second thing is that bonds are denominated in paper currencies and those currencies are going to lose value much faster over the next couple of years due to the trillion of units being created by governments," he added. "Third thing is default risk…so bonds are a horrible place for your money, I wouldn't trust them with a 10-foot pole." Jeff Clark from Casey Research: "If you're like me, you've bought gold due to the money printing policies of most developed countries and the effect those policies will have on the future purchasing power of our paper money. Probably also because there's no viable way for governments to escape the consequences of all the debt they've piled up. And maybe because politicians can't be trusted to formulate a realistic strategy to avoid any number of monetary, fiscal, or economic crises going forward. These are valid, core reasons to hold gold in a portfolio at this point in time. But a new trend is under way, and someday soon it will be just as much a driving force for gold prices as anything else: a good old-fashioned supply crunch. A few metals analysts have mentioned it, but it escapes many and certainly is off the radar of the mainstream financial media. But unless several critical factors reverse course, a supply shortage is on the way with clear implications for the price of gold." Richard Kyosaki: "When the big bad wolf, also known as the Next Recession or New Depression, hits sometime between 2015 and 2035, these pigs will also be food for the wolf. The third pig builds his house out of tangible assets. These pigs are entrepreneurs and professional investors who study and invest for their own future, investing in real assets, not paper assets. When the big bad wolf comes, in that 20-year window between 2015 and 2035, those who have built houses of "bricks" are likely to get richer. They become richer because they built with bricks, investing in tangible assets such as real estate, gold, silver, oil, food, and businesses they control. I would definitely avoid paper assets such as stocks, bonds, mutual funds, and ETFs and the reason is these are paper assets, not real assets. Think of the story of the Three Little Pigs: The first pig built his house out of straw, the second pig built his house out of sticks, and the third pig built his house out of bricks. Here's my spin on that story: The first pig represents the poor. Poor people build their house out of paper. They work hard for cash and save cash. Their strategy is to work hard, live below their means, and save money. When the big bad wolf appears, huffing and puffing, these pigs are wolf food. The second pig represents the middle class. They build their houses out of illusions, believing in job security, benefits, owning their home, saving money, and investing in a retirement plan filled with stocks, bonds, mutual funds, and ETFs." James Turk from Goldmoney: "There is another reason to look back over the past 13 years, Eric, and view them as one time span: One losing year after 12 winning years is not that bad. Even with 2013 added in, over the last 13 years gold has generated an average annual return greater than 13%. It has been and remains one of the best assets to own, particularly given that neither physical gold nor physical silver has counterparty risk, and just like every other bubble inflated by banks or governments, the 'Money Bubble' will pop too." John Embry from Sprott Asset Management: "I've been to San Francisco with my wife 40 times, and I have never seen the city of San Francisco slower at any time in the past 40 years. I went shopping for Christmas gifts, and normally there would be lines out in the street at some of these places. Instead, I went right in with no wait, made my purchases and went straight to the cashier and paid without waiting. So there is something strange going on. Everyone is saying the US economy is strengthening, and President Obama was saying today that there could be a real turnaround in 2014. I see all of this as propaganda and outright lies because from what I observed with my own eyes, the bullish talk is patently false. I don't see the strength in the US economy at all. They just had about the third or fourth upward revision of the 3rd quarter GDP. And now, because the consumer had not been doing well, they cranked up the consumer numbers in the latest adjustment. So I think there is something seriously wrong, and as a result they are falsifying a lot of data in a desperate attempt to try to cover it up. But I strongly believe that the harsh reality will become all too obvious as 2014 unfolds." |
Trading volume across all exchanges has been muted lately due to the holidays. Traders are still mostly on vacation which has produced low volatility and a lack of excitement. Not much is going on in the news front, either.
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