Larry Edelson: Thank you very much, and welcome for attending today. What I would like to do today is really give you an overview of what is happening in the gold market, take a look at the main forces that will be impacting it, and really get into some trading psychology that I think is very important for this timeframe in the gold market, and then spend a lot of time answering your questions. So having said that, Mike, do you want to kick it off here?
Mike Burnick: Absolutely. Let’s look at the slide we have here which is the primary fundamental forces that are impacting the precious metals markets right now. Why don’t you explain those for us?
Larry: My views are very different. They are based on solid research and historical research and my economic models and I think this is very important because the next leg up in the gold market and the precious metals market in general is not going to be primarily driven by inflation. It is not going to be primarily driven by the dollar, nor even central bank money printing.
The primary force is going to be what I call the war cycle, something I have studied in detail since the 1980s, and I want to stress that point today because everybody is looking for inflation. They are looking for money printing to drive gold higher. But we are not seeing that, and there is a reason we are not seeing it and if you are looking for inflation and inflation only to drive gold higher and money printing and a collapsing dollar then you are going to miss the boat entirely. So I want to make sure that you are really focusing as traders and investors on the primary force that is going to drive the precious metals higher in the next leg because it is not going to be the same as it was before, and let’s go on to the next slide there.
Mike: So what are the war cycles showing you right now, Larry?
Larry: Let me just briefly describe what the war cycles are. As an anthropologist and a macroeconomist, I have looked at the cycles and social and geopolitical discord over thousands of years of history and they can actually be quantified, and that is what I call the war cycles and the war cycles really relate to geopolitical concerns and social concerns. And what those war cycles are showing is that we are going to be facing massive geopolitical and financial risks in the months and years ahead.
Now bear in mind that these war cycles do not peak until the year 2020. So we have got seven years of mounting chaos around the world. That is where we are at and we are only in the very beginning stages of it and part and parcel of what these war cycles are is why you are seeing rising taxation and confiscation of assets in Europe and the United States by western governments that are essentially insolvent. It does not take a rocket scientist to understand that when western governments are broke as they were in the ’30s and at subsequent times they get very, very aggressive with each other and they get actually very aggressive with their own citizens by raising taxes to pay for war or raising taxes for this, for that, to close budget deficits, national debt, etc. So that is a trend that is solidly in motion right now. And it is not going to stop for quite some time.
Mike: Yes. in the next slide actually, you talk about some of the unrest you expect to see in the banking sector and perhaps bank failures similar to what we have seen in Cypress.
Larry: Yes, we are going to see western style socialism. And this is a very interesting point that I want to make. A lot of people around the world think we are seeing the death of capitalism. That is entirely wrong. On the surface that is what it looks like. But what we are really seeing is the end of western style socialism and by that I mean the massive safety nets that the United States and Europe have put in place through Social Security, Medicare, entitlement programs, food stamps, you name it, whatever it is. We are seeing the end of western style socialism, the entitlement programs, and we are even beginning to see confiscation of retirement accounts and other retirement programs. That is being discussed in Europe. It is being discussed behind closed doors in Washington, and it is not pretty at all.
We are also seeing rising wealth taxes. The IMF just last month put out a major proposal. They want Europe, they recommend that Europe and the United States implement a one-time 10% tax levy on everyone’s assets. That is not on income. That is on your assets. So if you make $50,000 a year but you have a net worth of $250,000 because you have worked all your life and you have scrimped and saved all your life they want to take 10% of your $250,000 not the 10% of your $50,000 income and this is a very, very dangerous proposal. It is being taken very seriously in Europe and Brussels. I know this for a fact from sources high up in Brussels and high up in Washington. This IMF proposal is being taken very seriously in both the United States and Europe to reduce their deficits, to reduce their national debts, and this is bad, bad news. So it begins even before the banks.
And all of this is really going to be a primary force and that will be a factor much later but it is not going to be inflation as the primary force. It is not going to be money printing. It is going to be massive geopolitical turmoil and the collapse of western governments.
Now these forces also take time to develop momentum. But they are already starting. They started this year and the key for gold will be the bottoming action which is really occurring now. And I will get to that in a minute. I want to go on to a couple of other things, mainly some trading psychology issues. 
Gold investors and traders need to keep in mind that important bottoms, not just in gold but I mean any market, take time to develop. They are very different from important tops. Important tops occur very suddenly, while important bottoms are really very tricky and time consuming and if you just think back over the last 10, 12, 13 years you will see what I mean.
The top in the Dow and the NASDAQ, it’s a tech bubble in 2000. It did not give you many chances to get out near the highs. You had a spike high, that was it. It was all over and a crash occurred. Same thing in 2008 and 2009. You had a high in 2008 and then a crash unfolded. But bottoms, on the other hand, are distinctly different. They do not give you a chance to get out. They trap you at the top. Bottoms do everything in their power to keep you from getting back on board. So please keep that in mind.
And the next slide here, important bottoms, whether it is gold or silver or oil, it does not matter, are characterized by increasing volatility. Moves up, moves back down, false break outs, strong rallies to the upside that turn out to just fizzle out and die, then a sharp move lower that does the same thing. It starts to move lower and then it fakes you out and takes off to the upside again, and very, very wild swings overall and that causes traders and investors to become very impatient, frustrated, hopeless, and often abandon the ship and take their eye off the prize. And you do not want to be one of those people, okay? Very, very, very important that you not get deceived by the market action.
Mike: Yes, the market actually wants to distract you and kind of try to whipsaw you out, but it is important to be disciplined and not let that happen at this phase.
Larry: Absolutely, absolutely. It is why the rich get richer and the poor get poorer. The rich have the discipline to stay and find and hunt for that bottom. They take small losses, often frequent small losses along the way. But they know it is going to pay off, and they have the confidence and the emotional discipline to see it through. Now for Gold and Silver Trader this is one of the reasons I have been very conservative of late. I have not been aggressive at all. Because this bottoming action in gold is really the kind of time period where you can expect small losses on many trades as you get positions for the really big moves that are coming. But do not, please, do not let that impatience or frustration cause you to take your eye off the prize again, and let me give you an example.
Suppose you do 10 trades, and 9 of the 10 trades are losers. And let’s say you lose an average of $500 on every one of those 9 trades, 9 times 500 is 4,500. You have lost $4,500. You have had nine losing trades in a row. It feels horrible. It is about the worst track record you can think of and all hope is gone. But then on that tenth trade you make $15,000. Now you have done 10 trades, only 1 was a winner. You made $15,000 on that one and you lost $4,500 on nine of them. You are still up $10,500 and only 10% of your trades, 1 out of 10 trades was a winner. Nobody likes that. But that happens in the game of trading. That happens especially so when you are trying to nail down an important low. So the key there is to keep your losses very, very low so that when you get positioned properly you let your profits run and you wipe out all those losses many, many times over. So you have to keep that in mind.
Mike: That is a great point, Larry. Something that every disciplined investor has to keep in mind always as markets change. Why don’t we talk about some of the new trading vehicles that you added here recently to Gold and Silver Trader?
Larry: Okay. Well as everybody on this call knows recently I added the ability to trade options in the Gold and Silver Trader. Now the only reason I did that is because of what I just told you. The volatility in this bottoming process is very, very high. On the other hand, I am 100% confident that we are going substantially higher over the next three years. We are close enough to a bottom. We may not be there yet and we may go lower, but we are close enough in the bottom to start nibbling on some long term positions. So I recommended some January 2015 call options, basically 155 call options on GLD because I want to have leverage to the upside but with minimal risk on the downside.
And buying call options gives you that strictly limited risk.
Now I am not going to be using options frequently in the service, probably less than 10% of the time. So if you are concerned about options trading I am here to tell you, you have no concerns at all. It is still going to be primarily an ETF trading service and a mining share trading service. And for every option recommendation I do give, I will always give you an alternative ETF investment to hold for that options trade.
Mike: That makes sense. That way each individual subscriber can more or less choose the instrument that they feel most comfortable with in order to execute the trade.
Larry: That is correct. And I doubt very much I will be doing any writing of options. I want to leave that possibility open. That is why in my email where I announce the options alternative that I may on occasion write some options but if I recommend two or three writing options to write over the next three years I would be surprised. It is only going to be exceptionally rare. I just want everybody who is interested to have their account ready and have that ability.
Mike: Makes perfect sense. Now let’s move on to the technical picture in gold itself. You put together a great presentation of some short and longer term charts that show us how gold is positioned right now.
Larry: Yes. I have put up the two main charts because these are the two main cyclical voices that are impacting gold right now. The first chart here shows the daily cycles are in a continued downtrend into late January. The red line on that chart, as you can see, it is sloping lower. Gold is trading lower with it. It continues to forecast lower prices right into about January 31 on the right side of that chart. And these are the daily cycles based on all the way back to 1792. So this is a very accurate depiction of what the daily cyclical trend forces are showing for gold on a daily trading basis.
At the same time, the weekly cycles, again some date all the way back to 1792, are showing exactly the opposite. The weekly cycles are showing the potential for a very strong rally into January and then a pullback into probably July, mid-year 2014 and then not shown on this chart an explosive rally going into 2016. Now, the daily cycles are pointing down, the weekly cycles are pointing up. That is why you are seeing the volatility in the market right now. That is exactly why you are seeing gold up $20 to $30 one day, down $20 to $30 the next day. It is a tug of war between the cyclical forces on a daily level and on a weekly level.
And something else about this type of formation, I have seen this before where the daily cycles are bearish and the weekly are bullish, tend to appear around very, very important turning points. Again it is what causes these wild swings. It is what causes confusion in the marketplace. It is what causes investors and traders to give up hope, and yet it is part and parcel of the bottoming process. So as long as you have awareness of this it will help you to keep your eye on the prize, so to speak and that is why I put those two charts up there.
It is also why I added options to the service to reduce and limit some downside risk. If the weekly cycles prove to be dominant then we are going to see a very strong rally very soon. It does not look like it. Gold fell down at 1284. We are trading 1282 to 1284 this morning. It looks weak, but the weekly cycles are still active and pointing higher and major technical support is around 1262. So if we hold 1262 it is not unrealistic that you could see gold move up to 1400 or 1450 in the next few weeks. But the daily cycles are still very bearish. So anything I do in here on the long side I want to limit risk, and that is why I recently introduced the call options.
Mike: Indeed. It does appear we are at a very key turning point when you see those kinds of cycles moving in opposite directions. Let’s take a look now at the cyclical picture for silver, platinum, and palladium.
Larry: Sure. I just have one slide on the screen for that. In a nutshell what I am seeing for silver, platinum, and palladium all look the same. Conflicting cyclical forces on a daily and weekly level and again it is all part and parcel of how important bottoms are made. Important bottoms in any market, whether it is stocks, corn, soybean, oil, gold, silver, platinum, the market does not want you on board, plain and simple. It does not want you on board. It wants to throw everybody off so it can take off to the upside driven largely by savvy money, and very few participate other than the big money and the savvy money. So again, I cannot overemphasize how important that is. We are not the big money like George Soros or John Paulson. But if we want to be like them or profit like them we have got to have their type of iron emotional discipline and psychology.
I do not know what John Paulson or George Soros are doing now. Everybody knows they got beat up in gold last year, probably because they did not listen to me. But I suspect they are getting ready to buy. They have probably put some call options on. They are probably going to be scaled down buyers if gold falls lower. Because they have conviction, they have emotional discipline, and they know the psychology of bottoming formations and if you want to be the winners going forward you have got to have that emotional discipline. You have got to have that ability to take losses, sometimes several in a row, as long as you are containing your risk and you have got to be tough, and you have got to be tough as nails. Because if you are thrown off, thrown out of the market by what the market is trying to do, you will not be there to participate on the upside.
Mike: And we have seen this kind of volatility in sort of crossed cycles before, haven’t we, Larry? Back in the ’70s and even more recently.
Larry: Yes. Some people have accused me of talking out of both sides of my mouth or hedging my forecast. But when important bottoms come, this is what you have to go through. There is no gain unless you can take the pain of positioning yourself properly, taking a few occasional small losses in order to get that big winner down the line and I have seen this before.
I have seen the same kind of actions at the major bottoms in the late ’70s. At the major bottom in 1999 it was wicked. Everybody on the planet was saying gold was going lower and I looked at my work and I did all my due diligence and we had the same exact setup we have today. Daily cycles pointing lower, weekly cycles pointing higher, volatility, negative sentiment, wild swings. But gold bottomed at 255 and took off like a bat out of hell.
I saw the same thing in 2008 when the market was in meltdown mode. People came to me when gold fell from just over 1100 down to 685. They said, “What is going on? What is going on? This is the end of the bull market.” and I said, “No, it is not. It is an interim crash bottom that is occurring. As long as gold holds 615 we are going back over 1200 and higher over the next three years.” And there we go, exactly what happened. But you have got to have guts. You just have got to have guts.
Mike: And also a couple of points to keep in mind from a trading perspective, the need to be, as you pointed out before, nimble.
Larry: You need to be nimble in your trading and again I cannot overemphasize the importance of accepting small losses. It is part and parcel of getting properly positioned so you can make big money.
And the critical importance of being patient and disciplined, and here I would like to give everyone a little tip. If you are watching the gold market minute by minute, hour by hour, or three or four times a day, do not do that. It is going to drive you absolutely crazy. Let me do that for you. Do not monitor the market like crazy because you are going to become that much more emotionally vulnerable to every tick up and down.
Mike: Larry, we have talked a lot about gold and silver, kind of the big picture cycles for the price of the precious metals. How about mining shares? What is your take there?
Larry: Mining shares are interesting. As we all know they have been clobbered over the last three years, absolutely clobbered and fortunately I was able to get my Real Wealth Report subscribers out very near the top back in September and October of 2011. Many have lost 60%, 70%, 80%, 90%. They had a chance to bottom in August. I had shown everyone an important low was due August 6. Mining shares bottomed on August 7. They rallied about 20% to 30% immediately but then they weakened, rolled over to the down side, and they broke that important cyclical low in the August cyclical low.
Chances are mining shares are now headed lower into January even if gold rallies here and now and one of the reasons for that is going to be probably some tax-loss selling but also the broad markets. Broad markets, everybody knows, I am bullish long term on the Dow, the S&P 500, for a lot of reasons having to do with the war cycles as well. However, it is still very toppy. The stock market is overbought right now and if we get that sell off, which has been elusive, if we get that correction in the stock market then mining shares are going to get pummeled again.
Mike: Another question we hear a lot, Larry, is the relationship of the dollar and gold. Does it always have to move in the opposite direction?
Larry: No. It does not. And that is an extremely important point because everybody says for gold to go up the dollar has got to go down and vice versa. That is not always true. Most of the time it is. But in extreme financial crises and difficult financial situations in terms of the global financial market it is not always true. In the 1930s the dollar exploded higher as Europe defaulted. Hundreds of billions of dollars came out of Europe and came into the United States for safety. The dollar went through the roof, so did gold prices on the black market. Gold and the dollar went up together. So much so that the dollar became so strong that President Roosevelt was worried that that would cause deflation to be imported into the United States via a strong dollar and that is ultimately what motivated him to devalue the dollar by raising the price of gold in 1932 to 1933, and of course gold was linked to the dollar and the dollar was linked to gold back then. Today we do not have that linkage but the dollar can rally along with gold.
So do not get caught in this straight jacket that if the dollar goes down gold has got to go up and if the dollar goes up gold has got to go down. That is still most of the time but what I am anticipating actually in the months ahead is that the euro is going to collapse, sending the dollar higher, and we just started to see that unfold over the last week or so. We saw a big, big rally in the dollar and a decline in the euro and eventually you are going to see gold bottom and go up with the dollar and that is another way of the markets saying, “Hey, this is not normal.” But it is going to fool a lot of traders and investors. They are going to say, “Oh, man. I cannot get into the gold market now. The dollar is surging.” And they are going to be left behind. So be open minded.
Mike: Above all, be flexible and open minded. That definitely pays dividends at important market turning points, doesn’t it, Larry?
Larry: Absolutely. People that are very, very inflexible in their views for whatever reason do not make a lot of money in the markets, that is a fact.
Mike: Okay, so let’s go straight to some live questions and answers from our members who have been listening.
Here is a good one from Clay representative of several. He says he joined in late June as many subscribers did and has pretty much broken even on a lot of different trades. You stated in the presentation that we are kind of in no man’s land right now. So do you think it is better to speculate very little or perhaps none until the situation is more clear and predictable?
Larry: Well as I said earlier in the presentation it is time to be conservative, flexible, and open. It is time to be very strict about limiting your risk, and yes, I would have to say, yes, we do not want to be too aggressive here. We want to get our toes wet. We want to experiment a little bit, to be honest with you, and test the waters all with limited risk. To sit on the sidelines right now completely, I do not think so. I do not think that is the right thing to do because it is amazing how quickly these markets can move and turn around.
Mike: Here is another good question from Steven. He says he is still holding ZSL which is the inverse silver ETF. Should he drop it right now or is silver going lower from here?
Larry: Gold and Silver Trader has no position in ZSL right now. So I cannot give you personalized advice. I would love to, but I cannot.
Mike: Here is another question from Jeff. He says, “The Oxford Club recently said that gold will continue its bear market and should move even lower. Harry Dent is on record saying that deflationary forces could cause gold to move as low as $700 to $900 an ounce. Are you still confident, Larry, in your three-year forecast for gold moving much higher from here?”
Larry: Yes. I am very confident in it; however, it is still possible that we get a January low. It is possible that gold can fall below the June 2013 low at 1178 and we could fall to about 1035 to 1045. That possibility still exists.. Do I think gold is going to fall to $600 or $700? No, I do not. I think Mr. Dent is missing, in my opinion, the international capital close and what is happening in Europe. He is perhaps a little bit too deflationary because he is stuck in a 1930 scenario and he thinks that that kind of deflation will take hold in the United States. It will not. As far as the other publisher you mentioned, I have seen stuff out of them that says gold is going to $20,000. So you got me a little confused on that one.
Mike: Here is a question from Brian, Larry. “Of my total gold investment I have 75% in Gold Eagle coins, Maples, and 25% in your strategy. My basis is bullion is approximately $1,000 an ounce. What should I do to balance this out?”
Larry: Well, again, I cannot give personalized advice. I do and I will recommend holdings of physical coins and bars and ingots when I get the signal that the bottom is in. Overall I think that is too heavily weighted toward the physical side. But again I cannot give personalized advice.
Mike: Okay, fair enough.
Here is a question from Bob, kind of a housekeeping matter. He asks, “Will this webinar be available online?”
And Bob, Yes. A recording should be available very soon, and we will send out a link to the recording so you can catch all the details once again very shortly. Expect an email from us on that.
Larry: Yes. And hopefully a transcript. Is that correct, Mike?
Mike: That is correct, yes. A full transcript along with the slides will be available as well.
Here is a good question from Dean. He says, “Hi, Larry. Thank you for all your hard work and great recommendations. I had a question about the overall market. Do you see a correction coming anytime soon or will the S&P 500 remain bullish for the rest of this year? I know you have some thoughts on the markets.”
Larry: The U.S. equity market is extremely bullish long term. It is a very, very, very strong market. It has nothing to do with corporate earnings. It has nothing to do with the U.S. economy, which is improving. The main reason the U.S. equity market is strong is again related to the war cycles. It is related to what is happening in Europe. If you are in Europe and you have money in a bank you have to be absolutely nuts to keep that money in the bank. They will confiscate it. We saw it in Cypress. It is now becoming, behind closed doors, the mandate for all of Europe if the crisis continues and it is going to continue. So European money is getting out of the banking system there. Some of it is going into European blue-chip stocks. The bulk of it is getting out of Dodge, out of Europe, and going into U.S. equities.
Why is it going into U.S. equities? U.S. equities are not confiscatable for Europeans. And the U.S. banking system here, although it has improved dramatically, is not in that good of shape. The derivatives are larger than ever that the banks are trading in. However, Washington is going around telling the banks, “We are not going to bail you out next time.” And behind closed doors Washington is discussing very seriously the European solution that if a bank fails in the United States depositors above FDIC insurance limits will be considered shareholders and creditors to the bank meaning you will lose that money. So you are seeing big money coming out of the U.S. banking system as well, coming out of U.S. sovereign bonds because they are going down the crapper, and going into equities. Equities can be a hedge just like gold against government failure, against deflation and everything else.
Now that said, the Dow and the S&P 500 have not had a decent correction in three years or four years since the March 2009 low when it bottomed. So it is very overbought. I firmly believe, and I have been wrong three or four times this year on it, but I still firmly believe we are going to get about a 10% correction coming out of the blue in the stock market. And that is why I am not all in on the stock market yet, because I know that thing is coming. And on the other hand over the next three years you are going to see the Dow and gold rise together. They are both going to become safe havens.
Mike: We have another question here from Gill. And actually there are several questions kind of along the same lines. We will start with Gill. He says, “How long do you anticipate the bottoming process to take place here, Larry?”
Larry: Well the major bottoming process runs this past October through the end of January, and that is based on weekly, monthly, and yearly models that I run. We are right in the middle of that time window now. All indications are it should be over by January. There is a possibility that gold already bottomed back in June at 1178. That possibility I rate at about a 25% probability, and it would only be confirmed if we got gold to rally up to 1400 then close above 1445. And that possibility exists. On the other hand, since we are now trading below the 1338 level and have tried to get above it I think three or four times but failed, the January time frame for a major low still exists. So I would love to give you a day and a week and a price at which gold will bottom. It is just simply impossible to do that. Nobody can do that. All I can give you are probabilities and I would say right now it is about a 50/50 probability overall that gold has already bottomed. So that means we could — like I showed earlier the weekly cycles are reporting higher and the daily cycles are reporting lower — that means we could take off then drop back into January or we could just slide into January and the final bottom would occur. For that final bottom to occur we need to see a break of 1178 in January. It is not as clear as we would all love it to be, but I am telling you the truth.
Mike: Yes. Well, those are some important technical levels to keep an eye on.
Along the same line, here is a question from Wolfgang, Larry. He says, “Both times when you last recommended to go long gold, right after the recommendation gold dropped resulting in a small loss. As you pointed out in your presentation those will happen. So the question really is how much faith or trust do you have in your system?”
Larry: I have a tremendous amount of confidence in my system. It has served me extremely well over the last 30 years. Now again, back to what I said earlier, when you are into a major bottoming process I do not care whose system it is, you are going to have losses, and sometimes you are going to have a streak of losses. But the key is to keep those losses minimal so that you can stay on board and profit and let your winners run maximum to the upside, and I just would like to say something else here. Suppose somebody comes to me and says, “Oh, I win on 90% of my trades.” I would not invest with that person. Because I will tell you what, he is just showing you the winning streaks. He is going to have a losing streak. So, on the flip side, someone who has a losing streak, the winning streak is coming that much closer. So that aside, trading is a game of chess. You are going to lose some pawns. You have got to protect your bishops, your knights, your castles, your queen, your king by minimizing your risk, but you are going to lose some pawns. That is the way it goes.
Mike: Indeed it is. It is always tricky.
Let’s see, we have another question here, actually a good one along the same lines from Jack. He asks, “Larry, if you really think gold will run up in the next few years to over $2,000 or even as high as $5,000 an ounce then why not back up the truck right now? Why are we trying to squeeze out an extra $100 or so at the risk of missing a potentially huge move?”
Larry: Gold and Silver Trader is a short-term trading service. We are going to have some long-term positions that will take advantage of the big move higher. But the strategy for Gold and Silver Trader is to maximize the swings, so it is going to be an active trading service. That said, if you are a long-term investor I do recommend scaled down buying of physical gold, not leveraged positions per se, but scaled down buying of physical gold with the idea of holding it for the next three years.
In my Real Wealth Report I am still holding positions bought a long time ago. Some of it I hedged, some of it I did not hedge. The reason was this is a long-term buy and hold. I do not want to try to time the market on those things. I have big profits on them from buying much lower. So there is nothing wrong with it, buying now small amounts. It is not the time to back up the truck.
Mike: Here is a question, we have gotten several like these, and I would like you to address it, Larry. Kind of wondering about the safety or security of how much gold really backs some of these ETFs and futures contracts. This question from Rich is emblematic of some of the others. He says he has been reading a number of reports that believe U.S. gold reserves are a lot less than advertised and that gold held for other countries, like Germany for example, may have been lent out and is not readily available. These sources think that the price of gold is perhaps manipulated and that that may also extend to gold-backed securities, for example ETFs or even futures contracts. How would this affect options and ETFs?
Larry: That is a great question and actually has several facets to it. The rumors, the conspiracy theories, that the Federal Reserve does not have as much gold as it has claimed or that it has lent it all out, that Fort Knox is empty are bull. It is just pure bull. It is promulgated and propagated primarily by gold dealers who want you to buy gold no matter what happens to it. And it is simply not true. On the forward lending of the Federal Reserve’s gold, yes they did substantial amounts of that in years past over the last 20 years at much, much, much, much higher interest rates. Why would the Federal Reserve loan its gold out today at 1% interest rates? It makes no sense.
That said, when they did loan their gold and do forward sales out and leasing in the ’90s and early into 2004 and 2005 at much higher rates, they have already covered those short sales and those leases. That is one of the reasons gold went to $1,921. They were in there reducing their short positions and I know that for a fact. It is all bunkery.
Mike: Okay. Here is a question from Paul, shifting back to maybe more short-term trading. “On Tuesday, November 5 you stated that you were short-term bearish on gold and yet the next day you recommended that we go double long gold with an ETF. What changed your mind in such a short period of time?
Larry: Well, again, I was looking at the daily action and the contrast with the daily cycles being bearish and the weekly being bullish, and right now those kinds of signals can happen. For instance today — let me call up my screen — we are still holding $1281 to $1282. There is a possibility that I may add additional long positions right now if we hold in this general area. On the other hand if we do not get back with a — let me take a look at the model right now — the model says if we do not get back above $1289 by today’s close we are still bearish. If we get back above $1289, which is only $8 higher, then we are bullish. So I am trying to, again, take small positions to try and scalp the market and get positioned and you are going to see some flipping back and forth. That is part and parcel of it.
Mike: Here is a question from Alberto. “Larry, thanks for all your hard work. I would like to get your opinion specifically on the use of Good Till Cancelled stops. I have some other newsletters and in them you do use stops. They always recommend never enter your stop into the market itself. Keep such information private. Otherwise, some of the big firms, the options traders, might see the stops and trade against you. What is your overall opinion of that and the use of stops in general?”
Larry: We have had to take some steps in Gold and Silver Trader to disguise our stops. There are a lot of members in Gold and Silver Trader. There are even a lot of other traders out there who see the orders bunched up at certain levels and they target them or they jump in ahead of them. That has happened, and I have had to take certain measures to help disguise our stops and use more limit orders. So yes, that goes on. But that said, in almost all cases you have got to have a stop in. If you do not have a stop then you are open to much more greater risk than you should be and if something — I have been doing this for 35 years — if something is going to get stopped out, whether it is targeted by other traders or not, it is going to get stopped out. And it still also means that you should have gotten out because the trade was not right. If it is a good trade you will not get stopped out, period. I do not care whether they are targeting it or not. You have got to use stops.
Mental stops, useless. Because you have to have ironclad… you have to be Attila the Hun to stick to a mental stop. Nobody has the emotional stamina to stick with mental stops. Mental stops are dangerous to your health because the price gets to your mental stop and then you say, “Oh, I am going to give it one more dollar to see if it works. I am going to give it another half hour to see if it works.” And then you end up losing more money.
Mike: It is too easy to be undisciplined when it is a mental stop, right?
Larry: Everybody is different. Some people and some advisors are okay with mental stops. In my experience, a stop is not a stop unless it is entered in to the market.
Mike: Right, good point.
Here is another question from Louis on the same vein on stops. “Larry, when a recommendation does get stopped out, if it hits the stop price, you sometimes recommend a repurchase of the same stock or ETF just a few weeks later within 30 days, and this could create what is known as a tax wash sale.” So Larry asks, “When this is the case should you substitute a different stock or ETF recommendation to eliminate the wash sale problem?”
Larry: No. We are not trading for tax purposes. We are trading to make money. So the wash sale rule is inconsequential, totally inconsequential. Are you working for the IRS or are you working for yourself? If you are working for yourself you want to make as much money in the market as possible. Tax consequences are not a concern in your strategies, okay? They should not motivate any of your decisions.
Mike: Okay. That is pretty straight forward.
Here is another question on the subject of trading from Stan. He says, “I am approved for all actions of option trading except my account is through an IRA so I am not approved for the occasional naked writing you mentioned. I have no problem placing my option trade per your direction, but I am wondering what the implication will be farther down the road if the direction is to sell calls or to sell puts short.”
Larry: The options that I bought along with the recent recommendation in GFP was done in my IRA as well. Again, do not worry about it. As I mentioned earlier, if I recommend let’s say two or three option writing trades over the next three years I would be surprised. It is going to be exceptionally rare.
Mike: Okay. Another trading question here. First of all, a comment. “Hello, Larry. First let me say I have been an avid reader of yours, The Real Wealth Report for over two years, and now Gold and Silver Trader. It is like having a beacon in the mist,” he says, “Thank you very much. Now a quick question. From a recent trade alert update you were referring to currently having very light positions.” But he notes that it looks like about 80% invested, $20,000 roughly out of a $25,000 model portfolio. Do you mean that is relatively light in your viewpoint or since most of it is not leveraged?
Larry: Well, I am not sure what trade he is referring to, but when I do say conservative it can mean one of two things. Either we have a small position on or we have a larger position but tightly managed risk.
Mike: Okay. Here is a question kind of switching gears to more macroeconomic issues. “Do you foresee a recession in the U.S. or Europe, and if so what impact would that have on gold and silver? Also, how does China’s purchase of physical gold impact the market?”
Larry: I do not see another recession in the United States until after 2016. I think the U.S. is on the upswing until then largely because of what is going on in Europe and that benefits the United States here. We are not going to see the kind of growth that we have seen pre-1999 but we are going to have some modest GDP growth into about 2016 then a recession, another recession. How will a recession affect gold prices? It should be very, very positive in the sense that we will probably see more types of money printing come 2016. We will see government have further problems because of their tax receipts fall and so on and so forth. So I do not think a recession per se is negative for gold. The next recession for the U.S. could be very bullish for gold.
Mike: Okay. Let’s shift to gold miners. I know you touched on that during the presentation, Larry. But several questions here along the lines of what James asks, “When are you going to suggest we start buying mining shares to hold longer term?” Also another viewer is asking, “Do you anticipate a lot of tax-loss selling in some of these beaten down gold and silver mining stocks before year end?”
Larry: Yes. I expect some tax-loss selling in the miners now that we are getting very close to year end and they broke those August lows and that the Dow could also experience, not tax-loss, well maybe tax-gain selling going into year end. There is always that fear that President Obama and Congress might raise taxes come 2014. In fact, that is on the table as part of the negotiations for the debt ceiling debate again in January and February. So I do not think mining shares have bottomed yet. Some of them are incredible deals but it does not pay to buy them just yet. They are all pretty much headed lower.
Mike: Another member asks about mining companies, even if they continue to be hit harder. You had said previously that you think the mining companies will eventually lead the expected rally in precious metals. Has your outlook changed on that?
Larry: Yes, because they broke the August lows. That said, when we do get the confirmation of a bottom, whether that comes in the next few weeks or not until January, I expect mining shares will probably lead to the upside. But they are going to alternate with gold. They will have their runs and they will go sideways to a little bit lower. Gold will play catch up and vice versa. That is just the way the market goes. They do not always move one for one.
Mike: And one final question about gold miners. Another member asks about the small cap gold miners, the so-called juniors. Do you think those would be a preferable investment when the time is right versus the more senior larger cap gold miners?
Larry: The right ones. Leverage and the upside potential in junior miners is going to be absolutely fantastic but you have to be very, very selective because a lot of them have gone bankrupt and a lot more will go bankrupt over the next several months. So you have got to be really careful with those.
Mike: Okay let’s shift gears again and talk about currencies. There have been several questions about the dollar here. One very similar to several of the others from John says, “If gold and the U.S. dollar do rise together, is it the same do you think with oil and the U.S. dollar? Will oil rise along with the dollar?”
Larry: That is really hard to say right now. I suspect so because the timing arrays that I am monitoring are lining up with each other pretty closely in the entire commodity complex. But oil is a different animal these days because the United States is nearing, amazingly, energy independence. The main driver behind oil over the next few years will be the war cycles again and what China does, because China is going to shortly displace the United States in terms of energy oil usage. It has already displaced us in terms of oil imports. And a lot of it depends on how China deals with oil in light of what the war cycles are saying which means that there is going to be crimping of oil supplies going forward, of OPEC oil going forward.
Mike: Okay. Here is another currency question from the U.S. dollar to the euro. “Are you still thinking the euro is heading south and what is your timing on that?”
Larry: The euro is heading to Antarctica. How is that? Does that answer the question?
Mike: No love for the euro.
Larry: Well, the euro has been defying gravity all year long. We got a nice, wicked, sharp break in the euro last week when the ECB cut rates to a quarter of a point. News that inflation, annual inflation, was running at only 0.7%. Europe is a nightmare. I cannot overemphasize that. Europe is in totally, totally bad shape. They are doing things over there that are ridiculous. Most of the peripheral European countries are in a depression. France is a mess, is an absolute mess.
The only country in the entire European union that is relatively healthy is Germany, and they have their problems too. But you are seeing social political unrest rise up all over Europe. The euro is going to die as a currency. Its first opportunity to really do that was in 2012. They amazingly kicked the can down the road successfully. So the next opportunity to see the euro completely fail to the currency and by that I mean break up and disappear is 2016. The euro, over the last week, has given me some sell signals. I would not touch the euro with a 10-foot pole.
Mike: Okay. That is crystal clear there.
Let’s see, here is a question actually about Asia in general. “Due to the gold prices being up in Asia and the markets are tighter there, do you see the price of gold having any impact one way or the other on Southeast Asia and emerging markets? Are they vulnerable?”
Larry: I am not sure what the question is. Are they vulnerable to the rising gold prices?
Mike: Correct. Or following gold prices, for that matter.
Larry: No. The Asian economies are very, very healthy. China is starting to grow more robustly. Just in the last few weeks we have seen some very positive data. We are seeing very positive data in most of Southeast Asia. Asian gold demand is still very, very vibrant. It is off a little bit from the levels of a couple years ago but it is still very, very vibrant. I do not think the next leg up in gold is going to hurt the Asian economies or further decline in the interim is going to hurt them.
Where it has become a problem is in India; it has outlawed gold imports. Because they developed such a huge current account deficit and they are blaming it on gold that they have outlawed imports of gold.
Now I think that is simply India. You are not going to see that in other Southeast Asian countries. You might see additional taxes on gold worldwide because governments… they see a trend. They see something popular. They want their share. Beanie Babies could be exploding higher in value and government wants their share. That is where we are at these days with the exception of Asia. Asia is really not… it is in very healthy shape. So we are not seeing much rise in taxation there with the exception of India.
Mike: Turning from Southeast Asia to Europe here we have a question Mark asks, actually, about the Fed and QE. He is convinced, basically, that the QE will never end, that the Fed will never be able to taper or withdrawal the stimulus they have gotten themselves into. And he is wondering whether you agree or not, number one, and how a decision to continue QE would affect the gold market, long- and short-term.
Larry: The Fed and the ECB will probably not completely curtail or taper 100% of their money printing and bond buying. That probably will not happen until the system self destructs and we need an entirely new monetary system and new global reserve currency. So I agree. And Janet Yellen will take over in January and is allegedly more of a money-printer than Mr. Bernanke.
Now, the other part of the question, how much will that money printing affect gold? That is over. It is done. In the beginning phases of gold’s rally from $2255 up to $1900 in September 2011, money printing was a very, very big factor because the world had never seen central banks print that kind of money before and gold reacted immediately to it. The Fed printed money after the tech wreck. It printed money after 9/11 and then ramped it up after the real estate crisis, Europe got into the fray after the real estate crisis, so on and so forth. Gold had never seen that before. So it was a major factor.
But right after September 2011, gold ignored the money printing and it dropped $600, almost $700, even though the Fed was printing more money than ever and so was the European Central Bank. Why? A couple of reasons.
One is gold had gone up for 11 years and it needed, basically, a technical pullback in support. It needed that pause. It needed that correction in order to regroup, rebuild the energy for the next leg up. That is normal market behavior, and number two, participants around the world, big gold traders around the world, realized that you need something more than money printing to get gold substantially higher and that the money printing was really only symptomatic of a deeper problem which is the western governments of Europe and the United States going bankrupt.
So they are not focusing on money printing per se now. They are focusing on the other things that the western governments of Washington and Brussels are doing which is confiscating money, making bank depositors, creditors of the bank, talking about the IMF 10% wealth confiscation, NSA spying, all this stuff. That is why I am saying it is the war cycles and the geopolitical strife over the next several years that is going to be driving gold higher, not money printing.
Mike: Here is a good one, from Jeff. Larry, he asks, “Maybe you have the macro picture correct, but finding the bottom of this market and knowing when to go long is obviously extremely difficult. It is always the devil in the details of the timing.”
Larry: Yes. Major bottoms are much, much harder to nail down than tops in my opinion, in my experience. So that is the difficulty and the hurdle that we face. But again, you have got to be open minded. You have got to be flexible. You have got to be nimble in your trading. You have got to be willing to take small losses, and if you do not do those four things, you are either going to get knocked out of the game because you are not following my recommendations and you are overtrading or you are going to get upset at me and you are going to want to cancel.
I am just simply telling the truth. If you want to be there to make the money when the time comes you have to be emotionally disciplined, you have to almost have ice in your veins as we go through this bottoming process and not look at the market 10 times a day and be willing to take those losses. If you are willing to take losses as part of the game you are going to make a lot of money. If you are not willing to take the small losses you are going to get knocked out. You are going to get knocked out not by the small losses, you are going to get knocked out by your emotional reaction to it. So be tough. Be disciplined. Keep your eye on the prize.
Mike: Okay. And with those thoughts it is actually a perfect place to end things for today and if we for any reason were not able to get to a question that you had asked online today, rest assured that we will take those questions. We have recorded them here, and I am sure, Larry, you can comment in a future editorial issue and answer some of those one on one or, of course, we can always get back together and do it the next time, for we have a Gold and Silver Trader online webcast scheduled for next quarter.
Larry: Yes. I’ll ramp up my answers to the emails. I have a busy schedule over the next couple of weeks, but I will try to do as many as I can, and I would like to schedule an event for January since it is shaping up to be such an important month for the gold market. So we will get to work on that as well, and thank you, Mike, for hosting today, and thank you all members for attending today. I really, really appreciate it, and I will continue to do my best for you.
