Posted: 10 Jul 2014 10:56 AM PDT

Normally a graph shows the price of gold or the S&P on the "y" axis and time on the "x" axis. But it is possible to plot monthly gold on the "x" axis against the S&P on the "y" axis. The result is a squiggly line connecting over 240 data points. In the graph below I see 5 zones or phases during the past 20 years – approximately defined as:

SP vs Gold 1994 2014 price

Zone 1: Jan 1994 – June 2003. The S&P booms and busts and gold prices change very little.

Zone 2: July 2003 – December 2007. The "shock and awe" phase sends both the S&P and gold much higher.

Zone 3: Jan 2008 – December 2009: The "crash" phase sends the S&P down and gold prices are erratic.

Zone 4: Jan 2010 – December 2011: The "gold rally" phase sends gold up substantially while the S&P rises somewhat.

Zone 5: January 2012 – Present: The "paper era" where paper gold comes down hard and the paper S&P is boosted to all-time highs.

I think both the gold market and the S&P are at or near the end of their recent trends, so we should expect change:

a) The S&P is at all-time highs, has been rising for 5+ years, and is over-extended by many measures. Sentiment is overly positive. It appears ready to fall or move sideways for some time. "Financial TV" will be disappointed.

b) Gold dropped nearly 40% into its December 2013 low and is finally moving higher. Sentiment is still negative, but gold appears ready to rally. Gold "bears" and the bond market will be disappointed.

c) We can assume the Fed wants the S&P to continue rising and gold to remain stable or drop lower. However, I think those trends are reversing. The Fed will be disappointed.

I have added an arrow indicating what I think the next phase of price movement is: gold up and the S&P flat to down.

SP vs Gold 2 1994 2014 price

Time will tell.

In the meantime, read:
Stocks Heading For a Crash
The Entire US Gold Hoard Is Now Gone!
Gold Prices Benefit From Economic Sins
Cusp of a Nuclear Meltdown

GE Christenson | The Deviant Investor

Gold Price $10,000 Is it Possible? :: The Market Oracle :: Financial ...

Posted: 09 Jul 2014 11:12 AM PDT

Commodities / Gold and Silver 2014 Jul 09, 2014 - 08:12 PM GMT

By: Jason_Hamlin

When analysts forecast future asset prices they typically choose valuations that make sense in the context of current valuations. We could, for instance, easily imagine that a $100/share stock can trade up to $120/share. But when somebody comes out and says that it can go to $1,000/share in a few years time this person is ridiculed because it is very difficult for us to imagine a reality that differs wildly from the current state of affairs. So when I suggest that the gold price can rise to a level in the 5-digit range, I expect to be ridiculed or to have my forecast overlooked by most market participants. Nevertheless, as we will see in a moment the prospect of 5-digit gold is not so far-fetched. Gold at $10,000 or higher is not as unlikely as many people would think.

Gold is priced in U. S. Dollars, and its price is, in fact, a reflection of the market's sentiment with respect to the Dollar's purchasing power. Since gold's monetary role far outweighs its industrial role, a rising gold price reflects one or both of two things–an increase in the supply of Dollars, and/or an increase in bearish Dollar sentiment. The first of these is fairly objective, although there are numerous ways of measuring the money supply. The second is intersubjective, or the culmination of the various sentiments of all market participants.

The famous gold analyst–James Turk–came up with a way of quantifying this through his Fear Index. The Fear Index is a ratio that measures the value of America's gold (i.e. the gold that is presumed to be at Fort Knox, or 287 million ounces multiplied by the market gold price) and divides it by the most inclusive measure of money supply–M3. The idea here is that the higher the ratio the more investors question the value of the Dollar, and they would consequently want–in theory–greater convertibility between gold and the Dollar. Back in 1980, when the gold market peaked, the Fear Index peaked as well at about 10%. It bottomed in 2001 at about 0.9%. After nearly reaching 4% in 2011 the Fear Index has retreated to around 2% at the start of 2014. This data is illustrated on the following chart.

Before moving on note that the Federal Reserve stopped calculating the M3 money supply back in 2006, and so I will use the data provided by John Williams of ShadowStats.com.

Right now the American gold supply remains at 287 million ounces worth $1,320/oz, and the M3 money supply–as estimated by John Williams–is about $15.5 trillion. This puts the Fear Index at about 2.4%. Now if gold were to peak with a Fear Index reading of 10% the gold price would have to increase 4.1 times to $5,400/oz. But we know that the M3 money supply is increasing at about 5% per year, and as we can see from the following chart, the M3 money supply growth rate appears to be accelerating.

If we assume a 5% annual growth rate, which given the apparent acceleration is conservative, then depending on the amount of time it takes for the gold price to peak we get the following price targets using the above assumptions:

$5,670/oz.
$5,954/oz.
$6,252/oz.
$6,565/oz.
$6,893/oz.
$7,237/oz.

However this still doesn't get us to 5-digits. But I believe that we can easily get there given the following two assumptions.

The M3 money supply has been growing at a much slower rate than the monetary base due to temporary and unsustainable demand for the Dollar that will dissipate over time, and at some point in the next 5 years or so the M3 money supply will catch up with the increase we have seen in the monetary base.
New sources of demand, and the fact that the debt bubble today far outweighs the debt bubble that began to deflate in the 1950′s lead me to believe that the 10% peak in the Fear Index in 1980 can easily be breached in this bull market.

Let's look at each assumption briefly.

Assumption 1

Gold bears often argue that the rapid increase in the money supply hasn't had a significant impact on inflation, and as the CPI isn't climbing we should expect further weakness in the gold market. However, the counter argument can be summarized in three points.

Inflation is higher than the CPI says it is. The CPI's ascent trails that of nearly every single component that goes into it.
Even with point 1, the inflation rate trails the rate of base money creation, and this is the case because the value of the Dollar is determined by both supply and demand, and Dollar demand has been stronger overseas given that a large percentage of global trade takes place in Dollars, and this increases demand for, and the value of Dollars.
The velocity of money remains near all-time lows. When all of the newly-printed money begins flowing throughout the economy, we are likely to see a rapid rise in inflation.

What is going on is that the world needs Dollars, and this places a bid underneath the Dollar. But this is changing as nations throughout the world are signing bilateral trade agreements that allow for trade in local currencies or in Euros. As this takes place the demand for Dollars overseas declines, and the only demand comes from those who demand Dollars–Americans. As the supply of Dollars becomes concentrated in the hands of only Americans when it at one point was dispersed throughout the world prices will increase as more Dollars will be bidding up the prices of the same amount of goods. In fact it will be fewer goods because as the world stops accepting dollars they will stop trading with the U. S., and this means that the U. S. will import fewer goods.

The end result will be that the recent and ongoing increase we have seen in the monetary base over the past 6 years or so will be reflected in broader measures of the money supply.

How devastating can this be?

In September, 2008–before TARP and quantitative easing–the monetary base was about $910 billion. Now nearly 6 years later it has grown to $3.9 trillion, which is an increase of 330%. Now if we look at the above chart we see that the M3 money supply has been basically flat, which reflects the aforementioned demand for dollars. It follows that if this demand disappears, as I suggest it will, then we could see M3 money supply rise to reflect the increase in the monetary base.

So our previous $5,400/oz. target suddenly becomes $23,143/oz, and our five subsequent initial targets would rise accordingly.

Assumption 2

There is no reason why the Fear Index has to peak at 10%, and in fact there is reason to believe that the Fear Index can rise substantially higher than it did back in the 1970′s – 1980. There are two reasons for this.

The first is that there are numerous sources of demand for gold today that didn't exist back in the 1970′s. Back in the 1970′s gold was something that was owned primarily by a few Western central banks. American citizens were not allowed to own gold until the end of 1974. Developing market central banks such as the Central Bank of Russia and the Peoples Bank of China had minuscule balance sheets compared with the size of the gold market. Citizens in developing countries lived under heavily restrictive socialist regimes, and if they were allowed to buy gold they were too poor to do so.

All of the sources just mentioned are critical sources of demand in today's market.

The second is that the debt bubble that deflated in the U. S. bond market in the 1950′s through the early 1980′s was much smaller than the current debt bubble. Interest rates hasn't sunk as low as they have in recent months and years. The total size of the U. S. government debt market along with the government's unfunded liabilities, state and local debts, as well as corporate and personal debts dwarf the same market from 35-40 years ago. This claim can lead to a lengthy discussion, but just consider a few points.

The current debt to GDP ratio exceeds 100%, whereas in the 1970′s and in 1980 it was below 40%.
Now America has an aging population with more citizens becoming eligible for Social Security and Medicare benefits to the point that the government pays out more than it takes in for these programs. The opposite was true i the 1970′s.
The personal savings rate back then was over 10%, meaning that of every dollar that an American earned in the 1970′s he put away 10 cents. This figure has dropped to the mid-single digits. This means that there is less money available to lend, and less money available to prop up the enormous debt market.

As the debt bubble deflates this will push money out of bonds and interest-bearing assets such as CDs and dividend paying stocks, and into hard assets such as gold. The effect this time should be more substantial given that interest bearing assets are so over-owned in the western world.

Concluding Remarks

The impetus behind each of these assumptions can push the gold price well above $10,000. If we consider them together the possible upside in the gold market becomes unfathomable, and at that point the discussion almost becomes ludicrous because we are talking about a market that can multiply 10 times in value easily (and probably more), versus a downside risk of $1,200/ounce, or if the bears get one more short term victory we could see the $1,000/oz. level tested. Few assets possess such an asymmetric risk/reward opportunity and one has to conclude that buying gold at current prices is an extremely wise decision.

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Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. You can try it for just $35/month by clicking here.

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

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Gold Price Bracing for a Short-Term Correction :: The Market Oracle ...

Posted: 10 Jul 2014 01:27 PM PDT

Commodities / Gold and Silver 2014 Jul 10, 2014 - 10:27 PM GMT

By: Jim_Curry

In my prior article from back in early-June, I noted that a short-term bottom was due, which had been projected for the June 2nd timeframe, plus or minus a day. The actual low for Gold was registered the very next trading day, doing so on June 3rd at the 1240.20 figure. Since then, we have seen a rally of over $100 playing out with the metal, which is now looking for a short-term correction in the days/weeks ahead.

Take a look again at the chart below:

The chart above shows the daily/weekly cycle forecast path, which is shown in aqua. This chart is simply a combination of the dominant cycles that track the Gold futures contract, projected into the near future. Of note is that the next forecast peak for the short-term daily cycle is due right around the current timeframe - set for July 11th, which is plus or minus a day or so in either direction. From this high, the metal is projected to be weaker into what is looking to be later this month (exact date still tentative).

On the above chart, the most important periods are when both the daily and weekly forecast paths are moving in the same direction. The green vertical lines show when both forecasts are moving higher, and the red lines are when both models are forecasting lower prices. A blue vertical line is shown when the models are in disagreement (i.e., a 'neutral' condition).

With the above, we can see that when both forecast paths are in alignment, the market tends to move strongly in that direction. I should add that, when the daily and weekly forecasts disagree, that the market has more of a tendency to follow the shorter-term (daily) forecast path - but only when technical action is in agreement.

Take a look now at our next chart:

Stepping back, there is an even-larger 72-day cycle (shown above) for Gold, one that also bottomed at the 6/3/14 low - and thus is heading higher off the same. With that configuration of this larger wave, the probabilities tend to favor the whatever correction phase that is seen with the 34-day component to end up as a 'higher-low' – remaining at or well above the 1240.20 figure.

If the above assessment is correct, then the current speculation is that a low with the 34-day cycle around mid-to-late July, if seen, would then give way to another run to or above the recent swing top on the following upward phase of this component. If that should materialize, this would then set up the next peak for the larger 72-day cycle into August, prior to a sharp decline phase into what is now looking to be the month of September, where the larger 154-day cycle is next due to trough.

The chart above shows the 154-day wave, as well as an even-larger 310-day component - the latter of which is less dominant. With that, though still a bit sketchy at the present time (since we can look only so far out with the various cycles), it looks like a September bottom with these waves, if seen, should give way to the strongest rally of this year. If whatever low that ends up being seen with the 154-day wave is able to remain above the 1181.00 figure (which is the prior trough for this component, back back in December, 2013), then the cycle will have formed the bullish pattern of a 'higher-low'. And, when this pattern has been seen in the past, the probabilities are in the range of 80%-or-better that the prior top for the cycle (i.e., currently deemed to be 1392.80) will be taken out on its next upward phase.

The bottom line with the above is that while Gold was due for a rally back in early-June (where the cycles were bottoming), it is now looking for a short-term correction in the next week or two, ideally coming from the 34-day cycle. At that point, the assumption is that decline will be followed by another run at the highs on the next upward phase of this cycle, then to peak the larger 72-day component.

Jim Curry

Market Turns Advisory

Email: jcurry@cycle-wave.com

goldwavetrader.com.

Jim Curry is the editor and publisher of The Gold Wave Trader, which specializes in the use of cyclic and statistical analysis to time the markets. He is also the author of several trading-related e-books, including 'The Volatility Reversal Method', also 'Cycles & Moving Averages'. He can be reached at the URL above.

Copyright 2013, Jim Curry - Disclaimer - The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable. The methods used to form opinions are highly probable and as you follow them for some time you can gain confidence in them. The market can and will do the unexpected, use the sell stops provided to assist in risk avoidance. Not responsible for errors or omissions.

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Gold price | Gold Price & the S&P 500 Index: What Does The 20 Year Chart ...

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