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IS GOLD SILENTLY MOVING UP?
It depends who you ask! For example, Vince Lanci, Founder of Echobay Partners, thinks gold could go to $1700 in the next 9 months while Frank Holmes, CEO of U.S. Global Investments believes gold will go up $200 this year to $1500.
In a recent interview, Lanci said he has added to his gold position, and when asked what his real target for gold was he replied, “over $1900…but it is dangerous to make crazy calls. There are lots of guys who do that for attention, they bank on the short term memory loss of people when they are wrong. I’m not a fan of sensationalism. So I’m happy with $1700 in the next 9 months. There are no fundamentals for gold that matter when trading. It is emotion and money management.”
When asked where this projection came from, Lanci said, “It was based on a volatility system that is directionally agnostic. That system said in late October that gold would not be in its then current range in 90 days.” And Lanci added, “The volatility was cycling to a long term low. The system said that any trade below $1150 I think, or above $1305 ish should not be faded; that these prices signaled breakouts. The point of it all was that it would likely happen in the next 90 days, and it did.”
In fact, Jim Rickards, author of The New York Times best seller: Currency Wars: The Making of the Next Global Crisis, believes gold is now in it’s 3rd and final stage of a spectacular rally. Rickards believes this gold bull market will be even more powerful than those of 1971–1980 and 1999–2011 stating: “ This new rally could send gold to $1,475 or higher by next summer. Now looks like a good time to jump on board to enjoy the ride.”
GOLD SUPPLY & DEMAND
One of the reasons Rickards sees a rally in gold is the supply and demand factor. He warns of Peak Gold, where physical gold is in such short supply that refiners can’t get enough to meet demand.
GOLD TECHNICAL BEHAVIOR
Rickards also stated, “The most important piece of evidence that the next great bull market in gold has begun is the technical behavior of the prior bear market itself. Over many decades, commodities rallies have exhibited 50% retracements (bear markets) before resuming their long-term upward trends based on the slow, steady devaluation of the fiat currency in which the commodities are priced.
Using the $252 price from August 1999 as a baseline and referencing the September 2011 peak price of $1,900 per ounce, gold gained $1,648 per ounce in the bull market. A 50% retracement of that 12-year rally means a decline of $824 per ounce (i.e., 50% of the $1,648-per-ounce gain), which would put gold at $1,076 per ounce.
Guess where gold bottomed? It bottomed at $1,051 per ounce, within 2% of the 50% retracement target. That decline is an almost perfect technical retracement.”
DIRTY NOT SO LITTLE SECRET – DERIVATIVE RISK
While you don’t hear a lot about it these days, there is a big problem not being talked about very much these days and it’s the big global derivative market, and Rickards says the risks are bigger than ever, “ When 2008 came along none of the lessons of 1998 were learned. In 1998 wall got together and bailed out a hedge fund, In 2008 central banks got together and bailed out wall street, in 2018 or 2019 or sooner than later who is going to bail out the central banks? The concern is that the derivatives market has become so exponential, the government together with the central banks together can’t bail it out, they have to reset the whole system. The derivatives market is something no one is talking about, but they should.”
To help simplify the explanation of what a derivative is, Rickards said in a recent interview, “ Derivative is just a side bet on some ‘underlying’ – the underlying could be corn, wheat, gold, treasury bonds or anything. For example, you and I make a side bet, we don’t own any, but we make a bet we settle in dollars for it. There is no limit on the size of the size bet, they can be multiples of the underlying, So for example, a 10 year note futures could be 10 billion of futures that qualify for delivery on that contract, but there could be 100 billion side bets. So let’s say I have a 10 billion bet with you on treasury notes. I buy it from you and sell it to the guy over here, so on the books I have very little net risk, but if he is solvent and you are going bankrupt…I’m going to loose the whole thing, so I have to go out into the market – all of a sudden my 2 sided position becomes a one sided position because one side went away, I have to cover the whole thing in the market.”
PHYSICAL GOLD FOR INSURANCE
“Gold is real money”, says Rickards, “ Gold grows, but it grows slowly. It is the ideal form of money. Gold is a global commodity. It is a very good form of insurance; I recommend a 10% allocation. It will help protect losses in other parts of your portfolio. On gold I am 100% physical. I don’t like ETFs. I don’t like futures. I don’t like any forms of paper gold. “
ALAN GREENSPAN SEES 2 BUBBLES
Former Federal Reserve chairman Alan Greenspan said recently on Bloomberg Television, “There are two bubbles: We have a stock market bubble, and we have a bond market bubble.”
He went on to say, “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold, the breakout on inflation will be on the upside. We’ve got to confront the deficit, entitlements are eating into gross domestic savings and they have been doing that consistently dollar for dollar since 1965. You knock down gross domestic savings and inevitably domestic debt and every type of debt tends to rise, and we have to get out of this loop.”
INTERNATIONAL THOUGHTS ON WHERE GOLD MAY BE HEADED
International brokerage firm, Sucden Financial says gold will have a sustained rally due to a weakening dollar, overvalued stock market, and heightening geo-political tensions.
The firm said they see a modest retracement of gold to $1320 an ounce before moving higher to test resistance at $1400/ oz. And Sucden Financial doesn’t see growth in the stock markets lasting forever, and a reversal in trends could be a great boon for precious metals. “As stocks continue to achieve record highs, apprehension amongst investors could increase and we may see inflows into gold. Interest in safe-haven assets like gold could rise as valuations in stocks become increasingly overstretched, particularly when interest rates are rising at a time when global net debt is at $233 trillion, introducing risk to the world economy.”
And in talking further about the rising market in gold, I loved what Vince Lanci recently said, “Gold will move forward like the well fed Thanksgiving Turkey who’s alive for a thousand days – very happy, and on day 1001, he’s dead. It will be too late. The market is just going to do what it does at some point.” The wisdom behind this, of course, is to be mindful and wise now, and do your diversifying now, before greater panic, chaos, and higher prices roll in.
For information on protecting and diversifying your portfolio with physical gold and silver, please call us today for your complimentary precious metal consultation.
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