Posted: 04 Sep 2014 11:55 AM PDT

Several markets seem over-extended and about to reverse their current trends.

S&P 500 Index: It bottomed in March 2009 about 670 and is currently about 2,000. The S&P, thanks to QE, ZIRP, Central Bank purchases, and who knows what other contrivances, has levitated to the magical 2,000 level. Will it go higher?

Dollar Index: The dollar index, currently about 83, is well below its high in 2002 at about 120. However it is also well above its 2008 low around 72. Will capital flows into the US and the fear trade continue to levitate the dollar?

Gold: Gold prices peaked in August 2011 about $1,920 and today gold sells for about $1,270. However, prices have retreated to 2010 levels but are still far above the lows in 2001 at about $255. Is gold ready to rally?

What about cycles?

I have little faith in short term cycles which can be easily overwhelmed by other forces.
I prefer longer cycles as I believe they are more reliable.
I think any cyclic analysis should be confirmed with additional technical and fundamental analysis.

S&P 500 Index: Consider the following graph of monthly prices for 30 years. The blue vertical lines are drawn every 81 months – about 7 years. Note the highs in 1987, 1994, 2000, 2007, and 2014, and note the current "over-bought" condition of the S&P as indicated by the MACD and TDI indicators. This graph does not conclusively inform us that the S&P is ready to correct, but it does indicate that the S&P could be forming a 7 year cyclic top with a low due perhaps in 2016 – 2019.

Dollar Index: Consider the following grAph of monthly prices over nearly 30 years and the vertical blue lines every 75 months. Note the alternating high – low pattern with a high in 1989, low in 1995, high in 2002, low in 2008, and possible high in 2014. The dollar index might move higher and take longer but it could be topping now. The monthly TDI is modestly over-bought and the weekly (not shown) is strongly over-bought. The dollar index could be peaking.

Gold: The gold chart shows 20 years of prices with Blue vertical lines every 56 months. Note the lows in 1999, 2004, 2008, and 2013. Gold appears to have made a long term low in 2013 – 2014 and has built a base from which another rally should appear. The MACD and TDI indicators are oversold and indicate strong rally potential. Further, my long-term empirical gold model indicates that current gold prices are too low by about 20%, which will provide a "tail-wind" for gold prices over the next several years, independent of massive QE, more wars, dollar weakness, and economic slumps that create even more unpayable debt.

Given the troublesome economic conditions in the world and potential expansion of war in the Ukraine, Iraq, Syria, North Africa, and elsewhere, there is considerable risk that the S&P could fall substantially and a strong probability that gold will rally. Furthermore, there is a growing global movement away from the use of the dollar in global trade, led by China and Russia, and that bodes poorly for long-term dollar strength, particularly as cycles indicate a potential top due in 2014. A fall in the dollar would likely be accompanied by a rise in gold prices.

Markets can move farther and take longer than most people expect, but it is certainly time to consider that the S&P is quite high and ready to reverse its five plus year uptrend, and that gold is too low and set to reverse its three year downtrend.

Additional Reading:
Bill Holter: What is Truly Real
The DI: Gold Prices 1971 – 2014 in 3 Waves
Arabian Money: Margin Debt Leaves Wall Street Exposed to Crash

Gary Christenson | Deviant Investor

NEW: Check Gary Christenson's brand new book site at GEChristenson.com

Gold Model Projects Prices From 1971 to 2021 | Gold Silver Worlds

Posted: 03 Sep 2014 10:40 AM PDT

Gold persistently rallied from 2001 to August 2011. Since then it has fallen rather hard, down nearly 40% at one point, but it currently looks ready to rally for the balance of this decade.

WHY SHOULD WE EXPECT THAT GOLD WILL RALLY?

The answer, in my opinion, can be found in my gold pricing model that has accurately replicated AVERAGE gold prices after the noise of politics, news, high frequency trading, and day to day "management" have been removed by smoothing.

WHY DO WE NEED A GOLD PRICING MODEL?

Most of us do not know if a current market price is "low," about right, or "high." A few of the difficulties are:

Major "Too-Big-To-Fail" banks are promoting paper, not gold, so they consistently issue bearish reports on the prospects for gold.

Rising gold prices are viewed by many as the "canary in the coal mine" regarding loss of faith in the currency and as an early warning sign of consumer price inflation. Hence the "powers that be" want gold prices suppressed.

Many well-known gold experts disagree about future prices – so much that some can't even agree as to whether gold prices will be higher or lower in three years.

It has been well documented that a massive quantity of gold has been shipped east to China, Russia, and India from the west in the past decade. It probably benefits both Western and Asian countries, in the short term, to encourage lower gold prices. This phase of selling western gold and shipping it east may be nearly finished.

Much of the official gold may have been "leased" or sold and many vaults, such as the Bank of England, NY Federal Reserve, and Fort Knox may be partially or nearly empty. With no transparency regarding gold in official vaults it is difficult to say conclusively what gold remains. But acknowledgement that central bank gold is "missing" could drive prices much higher.

More radical individuals believe gold prices can and will "go to the moon" any day. Similarly, others believe $250 per ounce is coming soon. Who and what should we believe regarding rational and defensible projections for the price of gold?

My empirical model (as detailed in my new book) accurately calculated all major trends in smoothed gold prices since 1971 based on several macro-economic variables. This model is, I believe, a good tool for projecting future prices.

MODEL RESULTS

The calculated Equilibrium Gold Price (EGP) had a statistical correlation of 0.98 with the smoothed gold price from 1971 – 2013.
The model was both simple and robust. It worked effectively, on average, during gold bull and bear markets, stock bull and bear markets, blow-off tops and crashes, volatile oil prices, Y2K and 9-11, QE, Operation Twist, ZIRP, various hot and cold wars, occasional peace, gold leasing, gold manipulations, and high frequency trading distortions in many markets.
In August of 2011 gold was priced about 30% ABOVE the EGP.
In contrast, the December of 2013 gold price was about 26% BELOW the EGP.

GRAPH NOTES

Smoothed gold prices (smoothed with two moving averages) are shown in a "gold" color. This is a long-term valuation model, not a trading model.
Calculated equilibrium gold prices (EGP) are shown in green.
The long-term trend from 1971 – 1981 was up, from 1981 – 2001 the trend was down, and from 2001 to 2012 the trend was up. (Actual gold market high price was August 2011.)
Nixon closed the "gold window" in 1971, removed any semblance of gold backing for the dollar, and thereby enabled the creation of significantly more dollars into circulation. The various measures of "money" supply, official national debt, Dow Index, price of gold, many commodities, and most other prices increased exponentially between 1971 and 2013.

FUTURE PRICES FOR GOLD per the EGP Model

Assumptions:

Macro-economic variables continue to increase and decrease as they have for the past 42 years.
The U.S. economy continues along its typical path with government expenses growing more rapidly than revenues, as they have for decades. National debt rises inevitably.
Congress continues its multi-decade habit of borrowing and spending, talking about change, and changing little. The Fed supports the stock and bond markets and continues "liquidity injections" as it deems appropriate to benefit major banks and the financial and political elite.
Monetary, political, and fiscal policies will NOT be materially different from what they have been during the past 42 years.
The U.S. will NOT be subjected to global nuclear war, Weimar hyperinflation, or an economic collapse, while we will continue to be subjected to the same Keynesian economic nonsense that has created many of our current "challenges."

Given the above assumptions, a reasonable projection for the EGP (a "fair" price for gold) in 2017 is $2,400 – $2,900. Remembering that market prices can spike significantly above or crash below the EGP for many months, we are likely to see a spike high above $3,500 in 2016-2018. Extraordinary events such as a global war, dollar melt-down, or an economic crash and the resultant massive increase in QE from global central banks could push gold prices higher and sooner.

My book ("Gold Value and Gold Prices From 1971 – 2021") describes my gold price projection model in detail, and discusses many other topics such as QE, counter-party risk, gold cycles, price projections from other writers, price bubbles, ratios to the Dow and silver, and when to sell gold. My book is now available at my retail site and at Amazon in paperback and eBook.

Other Reading:

Gold Silver Worlds Jim Rickards: Target Gold Price
Casey Research 23 Reasons to Be Bullish on Gold
Eric Sprott Do Western Central Banks Have Any Gold Left?

Gary Christenson | NEW: Check Gary Christenson's brand new book site at GEChristenson.com

Metals: Start of a New Trend? | Keith Weiner | FINANCIAL SENSE

Posted: 02 Sep 2014 12:00 AM PDT

Readers have been asking if there has been any signs of a turn in the market, especially for silver. Something may be happening. Read on…

First, here is the graph of the metals' prices.

The Prices of Gold and Silver

We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can't tell them whether the globe, on net, hoarding or dishoarding.

One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production can be measured in months. The world just does not keep much inventory in wheat or oil.

With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved up a hair.

The Ratio of the Gold Price to the Silver Price

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide terse commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price

The cobasis (i.e. scarcity) and the dollar price (i.e. inverse of the gold price measured in dollars) continued their correlation. The dollar price fell a little, and the cobasis fell a little. Neither move was terribly interesting.

Price moves continue to be driven by speculators repositioning themselves. As speculators buy, the gold price goes up (i.e. dollar price goes down). The scarcity of gold is going down right along with.

Now let's look at silver.

The Silver Basis and Cobasis and the Dollar Price

The cobasis (i.e. scarcity) in silver is ticking its way upwards, and not due to a rising dollar price (i.e. falling silver price). The dollar price did not change last week, but the silver cobasis rose from -0.74% to -0.55%.

Is this the start of a new trend, of renewed scarcity in this metal? The data is beginning to move in that direction, but we would be cautious about placing capital in harm's way just yet. It could be the leading edge of a trend change, or it could be a temporary little blip. It bears watching.

Stay tuned this week. Same bat time, same bat channel!

Long Cycles And Trend Changes: Gold Price, Dollar, S&P500 | Gold ...

Long Cycles And Trend Changes: <b>Gold Price</b>, Dollar, S&P500 | Gold <b>...</b>

WHY SHOULD WE EXPECT THAT GOLD WILL RALLY?

WHY DO WE NEED A GOLD PRICING MODEL?

MODEL RESULTS

GRAPH NOTES

FUTURE PRICES FOR GOLD per the EGP Model

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