Mike Burnick: Hello everyone and welcome to this special online strategy briefing for Gold and Silver Trader. I’m Mike Burnick and let me introduce Mr. Larry Edelson, the editor of Gold and Silver Trader.
Larry Edelson: Hi, Mike. Thanks for helping out today and hello members. Thank you for joining me today.
Mike: Well, we have a lot of material to cover as usual. You have a wealth of slides and information including some long-term and short-term views of the precious metals market so let’s get started.
Larry: I want to focus today’s event on two major goals. First, I want to bring everybody up to date on the gold and silver markets: what’s happening, why, what I am seeing, where they are headed. Second, I want to spend a lot of time answering as many of your questions as possible. So those are my two major goals for today and let’s get right into it.
I get a lot of constant feedback from all of you and I will answer a lot of questions today but everyone wants to know: what are the primary fundamental forces that are impacting the precious metals right now and have they changed? They have not changed. One of the primary forces is inflation. It’s not rearing its head. It’s not doing that because all the money printing that we’ve seen by the Federal Reserve over the last several years is really not out in the economy yet. Most of it is actually sitting at the Federal Reserve in the form of what are called excess reserves. That’s money that has been printed but the banks are not lending it for whatever reason and they are putting it back with the Federal Reserve, parking it there because the Fed is paying the banks 0.25% interest on those excess reserves.
The other primary force that is impacting the precious metals and really has the upper hand still is that disinflation is still ruling in the U.S. economy and in Europe. The reasons for that are we are seeing increased fears of rising taxation, uncertainty, and the increased taxation, which is really what it is, of Obamacare. And in Europe we are seeing an exaggeration of this many times over. Just over a week ago Europe approved the Cypress confiscation model for all of Europe. That is a major event. That means that if another bank fails in Europe, they are going to do what they did in Cypress and confiscate depositor money over 100,000 euros.
These fears are disinflationary. They are sending more and more money into cash, out of assets, into hiding and they are boosting the dollar against many currencies and they are really having an impact in Europe. We are not seeing the euro fall yet. We are seeing it rather strong but that is because disinflation rules in Europe right now and the movement out of risky assets and out of all kinds of assets into cash in Europe is boosting the euro. The euro is going to take a major fall next year. I have no doubt about it. It is on the cusp of a major decline. The euro already has fallen from second place to third place in terms of the percentage of international trade that is conducted in the euro while the Chinese yuan amazingly has risen to second place behind the dollar. Now this tells you about the shifting that is going on in geopolitics as well.
So what you really need to keep in mind is this: We are approaching the end of these trends. By that I mean disinflation. The Fed is actually preparing. I have this from “behind the curtain” sources in Washington that the Fed is actually preparing to switch from paying banks on their excess reserves parked with the Fed to actually charging the banks for leaving those reserves, that printed money, with the Fed. That is going to force the banks to put the money to work in the economy and that is going to bring about an end to disinflation.
But disinflation still rules right now and as far as the other items I talked about, rising taxation and fears of wealth confiscation, they are increasing and this is what I am afraid of for the future for both Europe and the United States. According to my war cycles, those fears of rising taxation and wealth confiscation are something that could be with us for years. I want to point out to you that ultimately that will be very bullish for gold. Right now what we are seeing is the very savvy, smart money moving en masse into the collectible markets. Historically, when we see that happen, it is a precursor to a new bull leg higher in gold. We are seeing savvy money move into diamonds, art work, rare books, watches, jewelry and so forth. In fact, Bob Dylan’s guitar was just sold from his Newport Beach show in 1965 for $965,000. This is amazing stuff.
This is eventually going to spill in and make gold the collectible again. So you have got to be really astute and aware of what is happening geopolitically in capital flows. It’s all a precursor to a soon-to-arrive move back into gold and silver. But we are not there yet at the bottom.
Mike: Not quite there yet. You have a couple of charts for us today illustrating where we are in the cycles starting first with gold.
Larry: Yes, we are not there yet. We are getting very, very close which is very, very exciting. I have up here on this slide a chart of the daily cycles which are really dictating the action in gold right now. Many of you know I originally forecasted a June low. We got close but no cigar. I said we would rally and then we pulled back in October. We rallied a little bit again. The cyclical target was January and as you can see the latest rally last week and a rally just yesterday is now failing. Gold is down $14 today. The red line on this slide here is the projected cyclical forces for gold. The pathway for gold. It is pointing to a low right at the end of January so we are still right on target in that downtrend. We should see the final low provided we break major support at $1,178, the June low from this year, going into January. Then we will have the final lows in place. That is what all my work is telling me.
Here is another updated cycle chart, this is run off a different model, that shows the cycles point lower again into January and then we start to lift off in February. We pull back into March and then the rest of the year, not shown on this chart points almost completely higher into the end of the year. You can see this latest rally last week. You know it turned everybody bullish all of a sudden and I put out an issue and it said this is nothing but a short covering rally. It is going to give gold the energy to head back lower. The markets — all markets, not just gold — always do their best to fake out the majority of investors and that is what we saw last week. I said stand your ground. Gold is going to head back down and sure enough it headed back down and we are down another $14 today. 
This slide is not a cyclical chart but simply a bar chart on a monthly basis for gold. You don’t need to be an experienced chartist to see what is going on here. Gold is clearly still in a monthly bear trend and headed lower. At the bottom you see my annotation there: long-term support (in blue). It stands just below $1,000 so there is a chance that we could get a collapse heading into January to below $1,000. I’d like to see that to be honest with you because that would turn everybody bearish and that would be providing the fuel for a turnaround. So let’s hope we get a nice sell off going into January. It will end this bear market.
Here’s another weekly bar chart and the trend in gold as you can see here too is clearly lower. There has been nothing going on to reverse that trend. We are heading lower. It lines up with the monthly chart. You can see that the bottom line there sloping downward to the right shows major support just below $1,000. We don’t need to get below $1,000. We could get to $1,150. We could get to $1,049 which is major support or we could get just below $1,000. There is no way of telling. Personally, I would like to see it. The best scenario would be to see gold fall below $1,000. That would provide the seeds for a turnaround.
Mike: That would certainly bring out the bearish trend wouldn’t it?
Larry: Yes. And you know markets move in strange ways. They tend to suck everybody in and then spit them out and that’s the market’s way of getting enough energy to make a trend change. It takes investors and traders a long time to understand that. But once you understand that, you can see through a lot of the noise in the markets and that is really what a lot of the action is on a day-to-day basis, it’s nothing but noise. Trends don’t change that frequently. They really don’t.
Silver. Same thing here. This is a cycle chart like the previous one I showed you for gold and the silver cycles point lower — the red line, into mid-February, a little bit later than gold and that is not surprising because they have their own unique personalities. But the bottom line is this: Silver is in a downtrend. The cycles point lower. We are probably going to see $16 or $15 silver come February, and that will be the time to really load up the truck on silver.
I want to show you some technical charts on silver in addition to that cycle chart just like I did for gold. Here is a monthly chart of silver. Again, you don’t need to be a rocket scientist or have 30 years experience reading charts. You can clearly see here that silver on a monthly basis is still looking lower. It looks a little bit closer to support than gold does, that third dashed line, but that is really insignificant support. You are going to find support a little bit lower than that. I have technical systems support at the $15 to $16 level and I believe that we will see the final bottom in silver.
The weekly chart for silver; again here you can see very simple. Since the $50 high in April 2011, we’ve just been trending lower. Yeah there have been rallies but each rally has failed. We have a succession of lower highs and lower lows. Again, it looks like we are closer to support than gold but I would ignore that top line. The support is going to come in right around $16 or $15 which is where I have system support. It does not show on the charts. It’s based on a mathematical computerized projection model. So I am pretty confident we will see silver down around $16 to $15.
Now here’s a chart of the GDX or the Market Vectors Gold Miners ETF. Everyone is very, very interested in miners. I am too. They are shaping up to be literally a better buy than they were back in the year 2000 because they have gotten beaten up so badly. I don’t have a cycle chart here. I do have a technical chart but the cycles and the technicals for the mining shares show a continued sell off right into late January, early February. Major system support for this particular ETF, the GDX, comes in around $15.88 which is about 30% more downside in mining shares. That is going to be devastating for people who own and have not gotten out. They didn’t listen to me. And those people are going to be just whipped to death in there and that’s when the blood will be pouring on the streets and that is when we are going to be major buyers.
Mike: Definitely interesting charts on all those markets. A little bit more pain ahead before we get the long-term gain in gold and silver markets in your view?
Larry: The pain is to the investors who refuse to believe that the metals can go down, who are stuck in the mentality that hyperinflation is coming. That said, money printing is going to work its way back into the system. We are beyond that right now. If money printing was the main force driving the precious metals, then they never would have gone into a three-year bear market. There are other things going on here and we have to be in tune with what the market is telling us. So let’s go right now to live questions and answers. I think it is really critical that as many subscribers as possible get a chance to have their questions addressed in this live format.
Mike: Here’s a great one to lead off from Tom. Tom says, “Great stuff Larry. You are my top analyst. Through the summer of 2013, you forecast gold low for the beginning of October and of course when that didn’t pan out, you explained that the next most likely scenario was for the low to hit in January of 2014 which you just showed us on the charts. But what if gold does not make the bottom we are expecting in January? When would the next most likely time horizon be?
Larry: That is a very, very good question. I am very confident we are going to see the lows in January/February. There is always that outside chance that this thing could drag out a little bit longer. On an annual basis, corrections tend to occur in units of two or three years. We are entering into the third year now. January is the mostly likely target. If we don’t get down to major support in January, it could push it off into March or April of next year. But either way, I’m 99.99% confident that the final bottom will come in that first half of 2014.
Mike: Here’s a question on the same vein from Dick. Another good one: “When you give the signal to finally buy gold and silver probably in January 2014, hopefully, what vehicles will you recommend? That is gold and silver coins, bullion, gold and silver stocks, futures? What do you think the best asset class will be to own?”
Larry: All of the above. But I am going to be recommending a nice combination of physicals, ETFs, mining shares, coins, and in my other portfolio where we are active in the futures, I will be more aggressive in the futures. That is nothing for Gold and Silver Trader (GST). In GST we will be doing a lot of action in physicals and ETFs and mining shares.
Mike: Mining shares. That will probably be the last best hope is when we finally get that buy signal as some of these mining shares are just “ridiculously” undervalued today.
Larry: Yes, but they are going to get a little bit more undervalued.
Mike: Here is another great question for you. Actually on a bearish ETN which is more of a technical question. “My brokerage account disallowed your DGLD trade, that’s the inverse gold ETF because they deem it too risky. So can you recommend any alternatives for online brokers that won’t interfere with what I decide to do with my own money?”
Larry: Well, I don’t know all the brokers and what their policies are. But I would definitely recommend that you get a different broker and one that does not have a problem with those ETNs. They are not any more risky in my opinion than some of the other inverse ETFs. Interactive Brokers is a very healthy brokerage firm and I’ve never had any problems with inverse ETFs or ETNs with them.
Mike: Okay. Another question here about some of the leveraged inverse ETFs. “How come we haven’t had a new recommendation to buy GLL or ZSL?”
Larry: That is coming. They are right on my radar screen. I am about to buy them. The only reason I’ve held off right now is I want to see if there are any curve balls thrown at us by the Federal Reserve meeting that is taking place today and tomorrow. They can cause some volatility in the markets and I don’t really often like to trade into those things. Sometimes it’s an okay situation but the Fed’s been full of surprises lately so I’ve opted to wait and let the dust settle and see what happens with today’s and tomorrow’s meeting.
Mike: Always a good idea to wait and see what the Fed does and usually a lot of volatility accompanies those Fed meetings.
Larry: I think this one is going to be particularly volatile when the announcement comes out tomorrow.
Mike: Interesting. Here’s a question from Jonathan about ETFs again. “When recommending exchange-traded funds, do you take into consideration the Weiss Rating on the fund?”
Larry: No I do not. There are several reasons for that but the main reason is they are still a good trading vehicle. The rating addresses certain fundamental issues which with gold being down so much, mining shares being down so much, and such severe downtrends, the ratings are not going to be good. That doesn’t mean that they are not a good trading vehicle. We are trading mostly short-term so the ratings really do not apply.
Mike: That’s good insight. Here are a few technical questions about placing trades. Erin notes that it seems that some of the time when you send out a trade alert, the maximum price you quote to pay is lower than the market price. Wonder if you could explain that?
Larry: I like to buy cheaper than the market. I like the market to come to us. That’s number one. I don’t like going to the market and bidding up. That’s number two. You know when you go to market, you often pay the price. More often than not, when you stand your ground with your limit, you get filled. You have to be a little bit patient. The other day I raised the bid and I didn’t go to market on shares in DUST. We had to pay a little bit more to get in. That happens too from time to time. It’s better to feel out the market and let it come to you.
Mike: Okay good advice. We have another technical question on how to kind of shadow your trades from Ralph. He asks, “Larry, I know you base your trades on a $25,000 account size for Gold and Silver Trader and I am sure when you liquidated the GLD call options you wanted smaller accounts to have some dry powder for when the tide finally turns in January. If you have a sizeable account however and have the staying power, is it okay to keep your long position in GLD call options and then when the time is right perhaps just cost average into a larger position?”
Larry: For every subscriber, it’s their prerogative to do whatever they want. I didn’t get out of the call options for any other reason than I had several sell signals. We are heading into that January low and why hold onto them? Odds are I will be able to buy them back a lot cheaper. That was the primary reason. It wasn’t motivated by the $25,000 account figure. It was just time to get out and get back in at a lower price.
Mike: Here’s another good question about gold in general. More big picture. Why is gold so hated right now and what do you think is the fair price for gold right now?
Larry: I would beg to differ. I don’t think gold is hated enough yet. It will be hated come the end of January when it drops below $1,178 and it drops even perhaps below $1,000. You need that real anti-gold sentiment. When you start hearing or seeing articles that gold is going back to $800 and gold going back to $600 or gold is going back to $500, then you will know the bottom is in. You are not seeing that yet. You are starting to see some negative sentiment but it’s not negative enough. So if you are really bullish long-term on gold which everyone on this call probably is, you need to be rooting for negative sentiment right now. You want to hate gold with a passion. When you see that, that’s when you want to come in and start buying.
Mike: Once everyone has thrown in the towel that will be the time to strike.
Larry: That’s how all major trend changes occur.
Mike: Okay let’s get off the subject of gold and silver for just a second. Here’s an interesting question: What would a nationalization of IRA accounts represent? Would it be out and out confiscation or requiring one to purchase government-approved securities such as bonds? I know you talked a lot about that lately.
Larry: That is something that we all need to monitor. I do believe it’s going on behind the curtain so to speak. There is discussion in Europe about that. Poland earlier this year confiscated all retirement programs. The IMF is proposing a wealth tax which includes taking 10% of the top of your retirement fund. What would it look like in the United States? It is probably going to take one of two paths. Either outright nationalization of all 401ks and IRAs and/or forcing retirement accounts to own a certain amount of U.S. Treasuries. That would backstop the government and allow them to continue to borrow and probably in their mind fund the national debt. I sure hope it does not come to that but unfortunately the powers that be are turning against their citizens. In Europe that is happening. I read just the other day that the finance minister in Spain is proposing a 10% confiscation of all retirement accounts in Spain to fund the government’s debt. This stuff is going on and we all need to be aware of it because what happens is when government is struggling to survive like a caged animal, they strike back at the people that feed them and that’s how great civilizations fall. Not by hyperinflation and not even by hyperdeflation. If you look at Rome and the Byzantine civilization, Great Britain, France has done this a few times. They die by their own hands. Government in its desperate attempts to stay alive strikes at its citizens and that is something we need to be very, very careful about over the next several years. Ironically, it will also send gold through the roof. It will be very bullish for gold even if deflation rules. It will be very bullish for gold. But we need to be very concerned about what’s happening in Washington and in Brussels because they are starting to show signs of turning against their populace.
Mike: Here’s another question; a bit off topic on the latest phenomenon in markets: bitcoin. We have a question here. It says, “How will the rise of a new currency such as bitcoin impact the price of gold and silver?” Several questions in fact about your views on bitcoin.
Larry: There are now some 31 additional cryptocurrencies out there like litecoin and peercoin and a bunch of others. And let me state emphatically for the record, none of them will survive. The government will make certain of it. We are starting to see that happen. Even China has knocked bitcoin for a loop and has basically outlawed it. They are not going to let it survive because it’s a total threat to their monetary system. That said, there is something interesting going on with these cryptocurrencies. They are a preview of what is going to happen with the monetary system. Governments of the world eventually want a cashless society. They want an electronic currency. Why? Because they can track every move you make with an electronic currency. So they are starting to become alternative currencies but you can bet that Washington, Brussels, and even Beijing and other major power houses are going to kill those things.
Mike: Big brother wants to build and track your transactions that is for sure.
Larry: They are going to learn from it. They are going to copy it. They are going to implement the digital monetary system down the road. One day we will not have cash in our pockets, or our wallets, or our pocketbooks, or our purses. It will all be entirely electronic. That is coming. But it’s not going to be bitcoin.
Mike: Here’s a question shifting gears to European markets. “You have been stating Larry that the euro is declining. Do you expect a bigger drop than what was forecast? Also, what are your thoughts on the economies and the currencies of the European countries that are not part of the euro zone, for example Scandinavia, the U.K., and Switzerland?”
Larry: Okay that is a two-part question. The first part, the euro, is a currency that is going to fail. It has been defying gravity and my timing has been off on the euro. It has continued to hold surprisingly firm and even rallied against the dollar recently. The reason for that though is not what you think it is. It is not a strong currency. It is merely going up as I eluded to earlier because deflation is so severe in Europe now that people are coming out of asset classes and sectors and they are going back into their cash which is the euro. That is like we saw in Japan. Whenever there was a crisis in Japan, the yen went through the roof. The economy was cracking and falling apart and debt was going through the ceiling but yet the yen was going up. Why? Because everyone was moving back into cash. Same thing in Europe. It’s a sign of how bad the economy is. It’s ironic. Again another way the markets fool you. It’s ironic but the stronger the euro gets, the more severe the crisis is in Europe. The euro is going to collapse in 2014. I have no doubt about it. I don’t know if it will be from current levels or maybe 10% higher but the higher the euro goes, the worst the European economy is and the harder the euro is going to fall.
Mike: Any thoughts on some of the other European countries that don’t share the euro currency such as Sweden for example or the U.K.?
Larry: The U.K, I would kind of steer clear of right now. I think it’s a better bet than some other currencies but you want to be in the dollar right now. The only other currency I am recommending in my Real Wealth Report is the Chinese yuan. It is continuing to appreciate. It’s at one record high after another against the dollar. Right now you want to be in the dollar because there is so much deflation going on in the rest of the world and the dollar is still the world’s reserve currency. So as this deflation comes to a climax over the next few months, we are going to see the dollar rally. So after that, it would be time to move back into the Aussie dollar, the New Zealand dollar, and even the Swiss franc, but right now, I recommend everybody stay in the dollar with the exception of a very small position in perhaps the Chinese yuan.
Mike: We have several questions about physical gold and how to store it. Here is a good one from Michael. He says is it wise and safe to store physical gold in Switzerland instead of storage or some alternative to storage I guess here in the USA? Is it wise to invest most of your capital in physical gold and silver rather than other investments?
Larry: Yes. I would store any precious metals that we start buying or that we currently own or anyone currently owns offshore. Switzerland still remains a great place to store precious metals. Singapore is also great. Bear in mind you cannot hide it from the U.S. government. You have to report it. You can store it anywhere in the world you want but you have to report it. The reason I recommend you store it offshore is it just makes it a little more difficult if they want to come get it. Very simple. The second part of the question, would I put most of my capital into physical gold? No. Not at this point. You want to stress physical gold once gold exceeds its inflation adjusted high of about $2,300 an ounce. That is when the real bull market will kick in. Once we see gold exceed $2,300, then it is going to go vertical. It’s going to go vertical to over $5,000 and then you are going to have some problems with ETFs and some other derivative instruments on gold and silver. So then you will want to be more in physical than in derivative instruments. Right now physical is fine. I just wouldn’t own anything right now more than 10% or 15% of your total investable assets in gold. If you don’t have it, don’t buy now. Wait until the upcoming lows come.
Mike: Here is another question and in fact several of them along the same lines. Tom asks, “What do you think the effect of tapering if it occurs will be on gold and silver?”
Larry: Whatever impact there is, it is going to be very short term. If the Fed tapers tomorrow for instance, it will be negative for gold and it will push gold right into that January cycle low. If they don’t taper, you might get a rally tomorrow on the news but the trend is the trend. It is still heading down. If money printing was such a big factor, gold would never have peaked in September 2011 and gone into a two to three year bear market. It might cause some volatility but it is not that big of a factor. Something else is going on and inflation and money printing is not going to drive the next leg up in gold. It will be a part of it later on but the big motivating force driving gold and silver higher on its next leg up is going to be fears of government bankruptcy, fears of government coming after your money to fund itself, and it’s going to be the cycles war which I have been writing about, geopolitical strains all over the globe basically.
Mike: We have several questions here about gold stocks; some general and some specific. Here’s a good one from Mike. He says he heard that gold stocks tend to turn up before the actual bottom in physical gold. Does that make the timing for gold stocks imminent in your view?
Larry: Well there have been times when mining shares lead gold on the upside. There have been times when they lagged the precious metals on the upside. There have been times when they led them on the downside. And times when they have lagged on them on the downside. There is no real rule of thumb there. We are lining up for January/early February low in the metals and the mining shares so they are contemplating this right now. The mining shares had a chance to bottom last August and they did for a short period of time, But then they caved in as gold went into that October low. The nice thing and one of the pieces of evidence that leads me to believe we are getting close to a final low in the entire sector is that the cyclical models I maintain for the mining shares in gold and silver all are synchronized. That’s a beautiful thing. That’s additional evidence that we are coming into a major low. They are starting to really sync up.
Mike: Another question from Phil, “Any particular gold or silver mining symbols that you are looking at right now or is that too premature to say?”
Larry: Premature. I am going to have to assess the situation when we get down to the lows because there are going to be a lot of mining shares that you just don’t want to touch with a 10-foot pole. There is going to be more bankruptcies in the sector. There is going to be companies like Barrick Gold, which is one of the biggest on the planet, that just announced a week ago that it is going to reimplement its hedging policies. And what a dumb move. They took their hedges off near the top and they are putting them back on near the bottom. I was never a fan of Barrick. It’s a great name but I wouldn’t touch that mining company with a 10-foot pole. They are going to get clocked when gold turns around to the upside.
Mike: I know that you comment a lot, Larry, on gold and silver and mining stocks. But what are your views on platinum and palladium?
Larry: Platinum and palladium are synching up with gold and silver. They are going to make major buy opportunities early next year. I like both of them. I am especially looking at palladium right now because I think it offers more upside potential than platinum over the years ahead. The reason for that is geopolitical concerns. Russia is home to a lot of palladium, as well as platinum, but more so palladium supplies and there are some things going on in Russia that we all should be aware of. Mr. Putin is becoming more and more authoritarian and fascist and he is trying to resurrect the old Soviet empire in many ways. He will use any and all of his natural resources to achieve his ends and Russia has had a tendency to play chess with palladium many times in the past. From a geopolitical point of view, palladium may be in the sweet spot very soon for a terrific buy.
Mike: Here is another question on physical gold. Irene asks, “I know that you’ve answered this or addressed this in the past perhaps in an issue but where is the best option for buying physical gold?”
Larry: Well the best in my opinion is the Hard Assets Alliance. A new product that was developed by some former Goldman Sachs guys a couple of years ago. It’s an online vehicle to purchase gold and silver at competitive rates, very competitive rates, that is put out to 13 different dealers and they bid on your business. It’s competitive bidding. You get the best price possible amongst those 13 dealers and it’s all done online. It’s insured by Lloyds of London. It’s all .999 or .9999 fine gold. It is 99.99% pure by major refiner and you have the option with the click of a mouse to store it in several U.S. or offshore locations. So I am not even myself recommending local dealers anymore. I am planning on doing everything through the Hard Assets Alliance. They also offer fractional gold buying where you can say allocate $50 a month towards buying gold and you will buy fractional gold with them. Or if you want to buy gold for a few children or grandchildren and store it in Switzerland or Singapore, you can buy fractional gold for them as well as silver. It’s really the best thing since sliced bread to come along in the precious metals market in years. I mean it’s wonderful. So that is what I am recommending and that is what I am doing for myself or plan on doing for myself. That’s my best recommendation. I would not go to a local dealer anymore. There is no need to.
Mike: Switching gears again from gold to the stock market. We have several questions kind of like this one here: “What are your views on U.S. stocks and Japanese stocks heading into the new year? Do you believe there is a correction coming and if so, by when?”
Larry: As everyone knows, I am long-term bullish on the stock market and the U.S. stock market is acting exceptionally strong. It is massively overdue for a correction. I have called for one on five or six different occasions throughout the year. I have been wrong plain and simple. I believe I have underestimated the strength in the stock market. The stock market is becoming an alternative asset. After all, the government may move to confiscate gold some day, or silver, or nationalize your IRAs and your 401Ks, but it cannot and will not ever think of confiscating shares in IBM, General Electric, Apple, Microsoft or whatever. Most American companies are in far better financial shape than the U.S. government. They will outlast the U.S. government. In Europe, people are leaving the banks like crazy because of the confiscation rules that have been set in place there and they are putting their money in U.S. equities. They are getting out of Europe. There is a huge amount of capital coming out of Europe and into the United States equity markets.
Of course there is also capital coming out of the sovereign U.S. and European bond markets and going into equities as well. That said, I believe we are on the verge of a correction that may have already started. It won’t be a biggy. Worst case, it can get down to about 14,200 or 14,500 in the Dow and then we are going to head back up and we are going to see the Dow at 31,000 or 32,000 by 2016. It will be just like what happened between 1932 and 1937 when all of Europe went bankrupt and we were in a depression yet our Dow Jones Industrials rallied 387%. It will have nothing to do with earnings. It will be capital flight that will drive it higher. So the bottom line is if we get the correction in the Dow and the equity markets, we could see a major pull back, major low in the equity markets as well sometime in the first quarter of 2014, which will represent an outstanding buy opportunity. That market is exceptionally strong.
Mike: Here is a question. Chris notes, “The Volker rule, named after Paul Volker, will take effect on April 1, 2014. How do you expect this could impact gold and silver and will it create an opportunity that we can capitalize on?”
Larry: I don’t see any impact at all. I really don’t. I mean it has to do with the banks separating out some of their speculative trading which is a good thing, but I don’t see it having any bearing at all on gold or silver.
Mike: If gold drops below $1,000, Murray wants to know, “How quickly is it likely to continue even lower as investors become disenchanted and want to throw in the towel, that hated gold scenario you talked about earlier?”
Larry: Well I think that the hated gold scenario could lead to a spike down to just below $1,000. We have major support at $929, $949, $953. I don’t see it getting below $900. In theory, not in theory, but if you look at it, gold when it exceeded its 1980 high of $850 and zoomed up to $1,100, $1,400, $1,500, all the way up to $1,900 it never looked back. It’s normal for a market to come back to its break out point. So if gold were to fall to $850, the bull market would not be over. The long-term bull market wouldn’t be over. It would be a normal test of the prior break out point. But I don’t believe we will get down to $850. In the worst case scenario, somewhere in the mid $900 range.
Mike: Okay. Here is a question: “In light of our current short-term expectations for the precious metals to slide even lower into January, are you considering out-of-the-money put options on gold and silver or ETFs perhaps?”
Larry: Yes I am. I just don’t want to do anything until this Fed meeting is out of the way tomorrow.
Mike: Makes sense. Earl wants to know about manipulation in the gold and silver markets by the bullion banks or central banks. Many people have written about it. We would like to know your views, Larry. Is there manipulation going on? If so, who is doing it? What is their endgame?
Larry: There is no manipulation going on. Those are widely spread rumors put out by perennial gold bulls that don’t want to admit they’re wrong and have to come up with one excuse after another to explain what’s happening. There is no manipulation going on. They are not capable. A manipulation by definition means you would have to move a market against its trend. Gold is going down because it’s in a bear trend because we have disinflation and deflation in Europe. It’s as simple as that. If gold were going down and silver were going up, then I’d say yes, somebody is trying to corner the silver market or manipulate the silver market. But believe me, there is no manipulation.
As far as the central banks go, when Germany last year moved its reserves out of New York to Germany, all these gold promoters said, “Oh my God, you see nobody trusts the U.S. anymore. Germany is taking home its gold. Gold is going to go to $2,500.” I said no, no way. Germany’s bringing home its gold to sell it because they need the money. And guess what? Over the last two months Germany started selling its gold. You know these guys are not smart enough. Central banks and big money traders are not smart enough to pull off a manipulation and they are not powerful enough to beat the free market forces so it’s all a bunch of hogwash. Now are there occasional attempts like the Bunker Hunt brothers who in 1980 tried to corner the silver market and Warren Buffett who tried to do something in silver in the mid-1990s. Yes, there are occasional things like that but they don’t ever change the trend. So it’s just an excuse in my opinion to get you to buy gold because there is some kind of conspiracy out there as to why gold is going down and that conspiracy is going to blow up some day. Wrong! It’s a bunch of B.S.
Mike: You noted before in the presentation and as you have several times that disinflation right now still has the upper hand and one of the reasons why gold is still under pressure to the downside. One member wants to know: “How can we say that inflation is low? The official rate is low but the real rate is two to three times the official rate. I know that my personal cost of living for the last two years has been north of 5% per year. How would you explain that?”
Larry: Well that is a very good point, yes. Inflation is higher than what the government tells us. We all know that every time we go to the supermarket, every time we pay health insurance, every time we pay our kids’ tuition, every time we go out and buy clothes. But it’s a matter of psychological perception, 5%, 6%, 7% or whatever the real rate is, some say it is as high as 9%. And in certain sectors of the economy, it is that high. We’ve learned to live with that. It will become a problem when inflation gets up to 10%, 12%, 14%, 20%. Then everybody will wake up. But right now, we are seeing deflation in financial assets. We’ve seen a massive deflation in real estate prices. They are on the comeback now. But overall we are seeing deflation due to the uncertainty that exists in the world. Liquidity and volume levels in all financial markets around the world are down about 50% from 2008/2009. That is deflation. Commodity prices in general — if you look at oil, it peaked at $148 a barrel in 2008. It is $96 now. Look at grain prices. They have flown 50%, 60%, 70%. That’s deflation. There is always a level and when you don’t have a gold standard, there is always going to be a certain amount of inflation baked into the cake due to the expansion of the population and other reasons. But we really don’t have the type of inflation yet that can take root in all the markets. We don’t have a cost-push inflation in labor. There are a lot of reasons, but yes, we have inflation. We just don’t have the kind of inflation that everybody expects. That will come later towards the peak of the cycle around 2015 or 2016. But right now in this country we have more what I would call stagflation — lower economic growth, rising prices, and we have deflation in the financial markets because of liquidity and volume levels and prices being off so far from the 2008 peak and 2011 peaks. In Europe you have outright deflation.
Mike: Looking back at stocks again, “Since you are long-term bullish on the U.S. stock market and the war cycles are heating up according to your research, would you consider recommending stocks in the military defense area? For instance Boeing, Lockheed Martin, or some other diversified military companies?”
Larry: Not in this particular service. Gold and Silver Trader is dedicated towards gold and silver trading. But I would in my Real Wealth Report, absolutely.
Mike: Okay. And the last question from Christian, this is a good one: “I have been following you for many years Larry and thank you for your service, you’re a great guide. In a nutshell my question is why for so many years it was said that money printing would be a determining factor for gold to rise and now with all the money printing going on, gold is falling?”
Larry: Well it’s a very good question. The first reason is that never in the history of mankind and the history of civilization had anyone seen central bank money printing like we saw starting in 2008 and 2009 here and in Europe. So it was the fuel that helped shoot gold from $1,100 to $1,900. We did not have massive money printing from 2000 to 2009. We had some around Y2K, but yet gold went up from the years 2000 to 2009 without a lot of money printing. Why was that? Because of the war on terror and geopolitical concerns. Money printing is not doing that much to stimulate economic growth. There are other things going on now that are coming to the forefront.
The confiscation of assets in Europe. The deflation in Europe. Europe is a basket case. The leaders there are totally inept. And you know there are some policies that have been implemented in this country. The NSA spying, Obama’s class warfare issues, rising taxation, Obamacare which is really a tax that hits all of us. There is uncertainty in the government bond markets. Those things are all shaping up and the cycles of war are all shaping up to provide a whole new set of forces that are going to drive the metals higher and not money printing. So you have to listen to what the markets are telling you. They give you the clues. It’s up to us to do the research and you know that is what I do.
I listen intently to markets. I ask as objectively as possible what is it saying? What are the markets saying? Then I look around the world and I try to find out from sources, from contacts, and from my own research. What is going on and what’s going on behind the scenes right now with our leaders in Europe and the United States is not pretty. That is ultimately going to lead to a major new bull market in gold. But right now, gold needs that sell off from a purely technical and cyclical point of view to get the energy to move back into a bull market. You only get that by a severe bear market move. When gold is hated again, then you know the time is right to go in and buy.
Mike: Well with that, that’s about all the time we have for today. If we were not able to get to any of your questions, or if you have any additional questions or comments for Larry, please remember you can always submit them to the Gold and Silver Trader editor’s mailbag, which you will find right on our website at Weiss Research. Larry will either answer your question directly, perhaps in a future issue of Gold and Silver Trader, or we can address it the next time we get together online for this strategy briefing. So thank you again for joining us today one and all. And Larry, of course, thanks for your time as well.
Larry: Thank you Mike and thank you everyone for joining today. And thank you for being loyal. I am very confident we are going to see a turnaround in the service and some nice profits as we head into 2014. I am very, very excited about 2014. Although I know it’s been a little tough going here, we have not made any money yet and we have had some losses. I am unfazed. It is part of the game. We are going to be very profitable in 2014, I can assure you that.
Mike: Alright with that, we will talk to you again on the next scheduled briefing for Gold and Silver Trader.
