Mike Burnick: Hello, I’m Mike Burnick. And let me introduce Larry Edelson, editor of the Gold and Silver Trader. Larry, it is good to speak with you again.
Larry Edelson: Hi, Mike, and welcome, everybody. I see we have a great attendance again today so that is just wonderful.
Mike: Exactly, and we do have a lot of ground to cover including a lot of questions and answers already in the queue so keep sending them our way. So I know you have a special update for us on your trading model so let’s go ahead and jump right in.
Larry: Okay, well, as I mentioned in last month’s special strategy session, I am working on a new model for ETFs that covers a diverse range of sectors and it is showing some very good initial results but it is not yet ready for prime time. Before I unveil it and put it into action, further testing is needed. The results are holding up pretty well but I want to give it some more real live experience, live in the sense that it is working on current data as opposed to back tested data to make sure that it is on track before, again, I introduce it to the service. We are probably about a month away so I just wanted to give everybody an update on that.
Today I also want to give you an update on what I am seeing in a few key markets. We are only going to cover the major markets because not much that has changed in the last four weeks or so since we last spoke and I would rather devote more time to answering your most important questions today. Again, I find that the most valuable type of session that we can have. So let’s get started.
Gold and silver, as we all know, have been rallying and we did close above that signal that I talked about in several issues. That was a Friday closing above $1,320. We got that last week and we moved up, about $1,348 I think was the high. But all the evidence continues to suggest, everything I look at, that this is a bear market rally. Now the signal that we got with the close above $1,320 last Friday was a minor weekly buy signal. It was not a major weekly buy signal. It did indicate that gold could go as high as $1,400 but in the last few days we have seen gold roll over to the downside and that is why I have gotten a bit more bearish. I think this rally is already fizzling out and we have to also keep in mind that in bear market rallies, the surprises don’t come on the upside. They typically come on the downside. So taking a long position to catch gold maybe moving from $1,330 to $1,400 or $1,360 where there is major resistance may sound like a good trade but everything I have looked at tells me at this moment in time not to do that and to stay bearish.
And we got a pretty nice pullback yesterday. We are up about four or five bucks today. So far it is looking corrective. I think we are going to get another leg down to about $1,300 and if we break $1,300, then probably the full-blown bear market is back on track.
So a few key things here on a technical chart basis. We got right up to the $1,350 level and gold turned back down. We have resistance at $1,360 so I think gold is very close to ending this bear market rally and I want to point out to everybody that there has been declining volume during this higher rally. You can see the dashed green line rising upwards with the recent rally and on the bottom of the screen you can see the red histogram of the volume bars. That green dashed line is declining. That is not a good sign. If this were a real good rally, volume would be spiking higher and climbing right along with the price of gold. We are not seeing that.
I also want to point out that the June 2013 and December 2013 double low is not likely to hold. It is a fake out. Double bottoms almost always are taken out with a big steep slide at some point in the future and that is what is going to happen next in my opinion in gold. So I do not think anyone should get overly bullish on gold just yet.
In fact, the previous slide showed the June/December 2013 double bottom. This is the previous double bottom that occurred around $1,540 to $1,550 back in 2012 where everybody said gold was going to $2,500 next and I kept telling everyone, nope, that double bottom is going to get taken out and sure enough, later in 2012 that double bottom got taken out and gold fell over $400.
So you can see the pattern is very similar. I am not saying gold is going to fall $400 this time around but I do want to show you that double bottoms are not something to get all that excited about unless you are a very short-term trader.
Silver looks the same. In the last part of the rally we saw a little bit of an increase in volume in the initial part of silver’s recent rally but then all of a sudden volume tailed off and we have another double bottom here, basically the same June/December double bottom that we see in gold and that is not going to hold. So new lows lie ahead for gold and silver.
Now, to the U.S. dollar. I wanted to bring this chart up today because the U.S. dollar, although it is trading in a very sloppy fashion, is starting to show signs of a good bottom and this chart was made up two days ago. We got a pretty decent rally over the last few days in the dollar. We are back above the 80.50 level. It looks like the dollar is about to skyrocket higher. I suspect — now this is very important — that is going to coincide with the development that we are seeing in the war cycles and what happened in Ukraine. Although the president of Ukraine is out, there are some cold war elements coming back between Russia and the United States and that is going to drive the dollar higher. The dollar has always historically been the king when it comes to international global tensions. And if we get that rally in the dollar, which I believe we will, then that is going to push gold and silver back down.
Interestingly enough if we take a look at the euro just on a technical chart basis, the next slide right here, you can see that it is up against the downward sloping channel and like gold you can see that the latest rally in the euro has been accompanied by declining volume as well. So the euro in my opinion is about to turn down very, very sharply and indeed — this chart was through Friday of last week — so far this week we have seen the euro start to turn lower.
So we are on the cusp of some major trend changes here in the dollar, the euro, and gold and silver and I think patience is the key and we have to see how it unfolds here but caution needs to be taken.
As to the Dow, we had a big leg down as everyone knows. We have a big rally back up. The S&P 500 has made a new high. The Nasdaq has made a new recovery high but the Dow Industrials have not, neither has the Dow Transports so that is not confirming. I still believe we are in a corrective mode now in the broad stock market indices and as far as the long-term bull market that I keep reminding everyone about, that is not really going to take off until we get a monthly close above Dow 16,650. And when we see that then you climb on board because that thing is going way, way, way, way higher. But we are not there yet.
So this corrective mode in the stock markets with the exception of a few key tech stocks like Facebook and things like that, is… We are still in a corrective mode.
Natural gas as you all know, we played that pretty nicely, not as nicely as I would have liked to, but given how violently natural gas has moved over the last few weeks, we were able to get in and get out with a modest profit. I believe natural gas has popped temporarily. Natural gas is going a lot higher over the next few months, probably up near $7.50 to $8.00 but it is in a pullback mode now. It is correcting its prior advance from roughly $2.50 all the way up to $5.78 and… it may happen sooner than I expected. We will probably be looking to get back in the leveraged natural gas ETF as soon as early next week because you can see that last bar there on that chart, natural gas got a huge move up and then had one of its worst single day declines in seven years. A lot of it was weather–related, but technically and cyclically on a long-term basis, natural gas has bottomed so there is going to be a lot of wonderful opportunities in natural gas going forward.
Mike: Yes, it looks like there are certainly some important trend changes in the works and markets have grown a lot more volatile in recent weeks to start off this year.
Larry: Yes, what is interesting, Mike, is the last two days I have been really buried in the charts and I have been talking with a colleague over here and you know this, Mike, and I will mention it for the benefit of our members as well. I am seeing triangular formations on charts in all kinds of markets and triangular types of formations where you get a wedging type of action on the bar charts, as you know, Mike, are usually the prelude to some very massive turning points in the markets and I am seeing triangles in just about every market I look at.
Larry: So something is right there on the horizon and there is going to be a fundamental trigger. I don’t know exactly what it is going to be but I believe we are going to see huge trending moves in a lot of markets within a very short period of time.
Mike: Indeed it does seem like markets are kind of on edge right now as you said with big moves potentially in the offing.
Well, let’s get right to some live questions and answers now for our members.
The first one is from Phillip, “Larry, are events unfolding in Ukraine going to send gold higher before the metals have a chance to make a proper bottom? If not, what constitutes the war cycles with a stature that would send the metals higher? Thanks.”
Larry: Very good question. It is symptomatic of the next phase of gold’s long-term bull market which, as I have said all along, is not really going to be related to inflation or hyperinflation. It is going to be related to geopolitical conflict. We are at the early stages of that. I do believe that Ukraine had a role in the recent rally in gold and interestingly enough it started selling off as soon as the very corrupt Yanukovych left town the other day.
So, yes, it is symptomatic of the war cycles kicking in but it does not preclude gold and silver from moving to new lows before they really take off. We are in a transition phase now and we can still get new lows in the metals. I do not believe they have bottomed but you are right on the money. It is the geopolitical conflict that is ramping up that will be the main force driving gold and silver higher in the months and years ahead.
Mike: Okay, here is another question from Gord referring back to your nice natural gas trade. Gord says, “Larry, good call on UGAZ, the VelocityShares Long Natural Gas ETF. We exited with a very nice profit; however, you have gone silent on SPXU — that is the inverse S&P 500 bond — after we were stopped out. In Real Wealth you stated that you expect the S&P 500 to drop to 1683 or even 1595 or lower. So what is your belief now as to when to perhaps put this position back on again to capitalize on the drop in the S&P?”
Larry: Well, that is a very good question. I am stalking that position each and every day. As I just mentioned a little bit earlier about the triangular types of formations, we are seeing a triangular type of formation in the S&P 500 and the Dow and that could be the prelude to one more slight pop higher and then a collapse. So I am waiting to see how that triangular type of formation on the charts unfolds. But the bottom line is I still believe we are headed into a very massive correction in the stock market. Cycles point lower into May and I will be taking out inverse positions on the broad indices, probably SPXU, on the S&P 500 in the near future. But I do not want to strike until it is exactly the right time.
Mike: Okay, here is a question from Rex, shifting from stock markets to currencies. He would like your opinion on the Aussie/U.S. dollar pair, where that may be headed by the summer of 2014 and the end of this year.
Larry: Well, the Aussie rallied with gold, not surprisingly, over the last few weeks. So as gold does well, the Aussie does well because it is a natural resource based currency. Long term I am very bullish on the Aussie dollar. Short term, however, I feel that the Aussie dollar could fall a little bit with gold as gold heads back down.
Mike: Okay, here is another question from Steven. “Will palladium and platinum outstrip gold in its next climb to profitability when that move does happen?”
Larry: Yes, I mentioned this in a previous call. Palladium and platinum will do very well over the next few years. As to whether they’ll outperform gold and silver, hard to say. But the interesting thing about platinum and palladium is that they are really geopolitical metals. Russia controls the world’s supply of palladium and almost the entire world’s supply of platinum as well. They are a major force in both, and Russia is going to be a major factor in the war cycles going forward. You can see it over this Ukraine situation. Half of Ukraine wants to go back to Russia. The other half wants to go to Europe. The United States sent tanks back into Germany over the last few weeks just to be on guard. Putin has moved troops into Ukraine. There is a little bit of the old cold-war-era friction developing between the United States and Russia right now. So platinum and palladium can be very strategic geopolitical metals but they have not yet bottomed either.
Mike: Okay, here is another question from Les. He asks, “Last week you had mentioned, I believe for the first time, the possibility of gold and silver bottoming next month instead of having to wait maybe until May. Do your models still suggest that possibility?”
Larry: Yes, they do. The reason for that is because this current rally went a little bit too far on the upside too quickly. And if you equate it to bouncing a ball on the pavement, if you slam a ball on the pavement, it bounces higher but it comes down with more force as well. So the possibility exists to really crumble heading into the end of March. That possibility exists and of course we all would love to see that.
Mike: Exactly, so we will watch for that.
I know you like to take the tough questions and here are a few. Actually we have several by kind of the same theme. Ira, in fact, asks, “Aren’t we missing a big move in the mining shares if gold does head back to the $1,250 level short term?” And another here from Richard, “While we are seeing increases in gold and silver and mining shares, why are you reluctant, Larry, to advise short-term trading positions to take advantage of the upswing. I only ask because everyone around me is trading short-term trades in the metals and mining shares. Even if it is a sucker’s rally, can we make some upside potential in the short term?” He would like your guidance.
Larry: There are two sides to that story. Yes, the metals and miners have had a decent rally. On the other hand, the rally has not been as good as gold in the sense that the volume on a lot of metal shares were not as good as they should have been. There was some declining volume going on. The miners also turned down last week when gold was still rallying which was another telltale sign that gold was topping. There was some divergence going on there. I am looking for the bigger moves, and positioning for the bigger moves. I do not think mining shares have bottomed yet either. And I was just looking at an inverse ETF, DUST, on the mining shares. We may be going into that because there is another big down move coming in the mining shares right along with gold.
As far as the short term goes, there is money to be made in short-term trading if you want to get in and out in one day or two days. It is very difficult to do in a very choppy market. You can incur a lot of commission costs. It is very easy for a lot of other editors and publishers to cherry pick their track records and put it out there. I see a lot of that going on, especially in gold and silver and mining shares right now because they take advantage of people’s desire to see these things bottom and take off. So you have got to be careful what you are hearing and seeing out there and you have got to be conservative. Mining shares are going to go up 400% to 500% over the next few years. I do not care if we miss a 10% or 15% or 20% move to get in there with the right risk to reward ratio. I do not want to trade just for the sake of trading.
Mike: Okay, good answer.
Kind of a follow-up question to that from Frank, “Will gold be on the upswing do you think by the end of this year and if so, would it be a good option to load up on call options?” Specifically he asks about the January 2015 long-term LEAPS on gold.
Larry: Yes, but I would not do it now. I would wait until when it happens with this pullback that we are getting now. It is either a failure and we are going right into new lows going into March or it is a pullback and we are going to get another leg higher and once we see what happens on this decline that is currently underway, we will have a much better feel for how to play going forward. I do not think you should be buying LEAPS or long-term options on miners or gold just yet.
Mike: Okay, another follow-up question to that because, of course, this is a popular topic with gold up here at $1,335. “At what price levels, Larry, of gold and silver would make you change your current bearish view to bullish? In other words if it breaks out above a certain level, would you then perhaps consider going long short term and if so, what levels?”
Larry: Well the major buy signal on my system is a monthly close above $1,449. Now that is way up there.
Mike: Indeed it is.
Larry: Yes, indeed it is. And if gold were to rally and close at the end of a month above $1,449, then the bottom is definitely in and we are heading straight for $5,000+.
Mike: Interesting.
Larry: The right way to play that is not really to get on board until you get that signal. Now, everybody would say you are crazy. You gave up $300 to $400 of price movement before you got on board. Well, okay, but there is $3,600 plus on the upside.
Mike: Good point.
Larry: And you are getting in at a much safer area. Okay, now, could gold rally to $1,449, still fail, and go down to new lows? Yes, it could. But I do not believe that is the situation that we have. I believe gold is failing right now. I have been around this market a very, very long time. I was the biggest gold trader in the world in the mid 1980s. I know how this market operates and it is unlike any other market, except for silver. I will take that back. Silver is worse. It sucks investors in and spits them out left and right and if you want to get caught up in that, be my guest. You are not going to get caught up in it if you are following me. I will not let that happen.
Mike: Let’s shift gears from gold to gold miners. Mark asks, “Larry, can you give us a list of the junior miners that you are watching for future investments? Also can you teach us what to look for in terms of the mining stocks that you would buy in the future, in other words cash burn rates, free cash flow, what are the key metrics that you judge some of these junior stocks by?”
Larry: I think I put a piece out on that in the past. I will probably update it and get it out to everyone over the next week or so. I look to do that for everybody. But basically, you are going to be wanting to buy the few surviving junior miners that are in a good cash position with good properties and little or no debt. Those are the ones that are going to take off and fly and you are going to want a mix of seniors and solid juniors. You are not going to want the highly speculative miners that are still in an exploratory phase, have a high burn rate on cash, and need to keep going back to the well with secondary offerings and tertiary offerings and debt raises in order to survive. You are not going to want those penny mining stocks. I would not touch them with a ten-foot pole.
Mike: So look for the fundamentally sound ones that can survive even a short-term pullback in gold.
Larry: Yes.
Mike: Okay, here is another question from Mickey. She asks, “I am a Canadian investor and can you please recommend your best Canadian gold equities or funds?” Now, of course, without getting into too many specifics, do you have any general recommendations for investors in Canada?
Larry: Well, Central Gold Fund is a good one — I think its symbol is CEF — for the future. But, yes, when the time is right I will put those recommendations out there.
Mike: Okay, here is a question from Scott on currencies. “How do you feel about the various currency ETFs if the dollar makes a big move higher, specifically EUO which is the euro inverse fund and CROC which is the inverse Australian dollar ETF?”
Larry: Well, I just want to bring up a chart because it is starting to break down. I think we reached a turning point yesterday in the euro. We are climbing back up a little bit today but the euro is on the cusp of a major decline finally and the dollar is on the cusp of a major rally. So, as far as the inverse euro ETF, I have no problem recommending that. I am looking at it already. As far as an inverse ETF on the Aussie, I do not think the liquidity is there, nor do I think the downside on the Aussie is great enough to play that right now.
Mike: Okay, here is another question from Greg. He notes, “What should we be doing now with our IRAs because the government is talking now about taxing them and will there ever come a time when the government comes to the point of confiscating IRAs or restricting them at least?”
Larry: Yes. It is a tough situation. Behind closed doors in Washington according to sources that I have, there is talk about taxing IRAs, confiscating portions of it or nationalizing portions of it or requiring you to buy U.S. government debt. There is a lot of talk circulating both in Europe and in the United States about it. I believe that someday down the road — I do not know if it is six months away or a year away or two years away — probably something will happen.
I think the myRA account that President Obama unveiled during his State of the Union speech, I would call it My Ripped Off Assets, not My Retirement Account because basically he is reaching into the pockets of everyone with what sounds like a nice rosy program where you can voluntarily sign up and fork over as little as $25 to the government out of every pay check. But come on. You are never going to get that money back in the same purchasing power as when you gave it in. Social Security will not buy you what it was going to buy you when you were contributing to it. You are not going to get a yield on it. It is a step towards nationalizing the retirement system. That is what myRA is all about and that is why I call it My Ripped Off Assets.
Mike: You have got to be careful out there. Keep your money close to the vest. That is for sure.
Larry: That is right.
Mike: Here is another comment and question from Steve. He notes that the silver trade ratio — I am not sure if he means the silver to gold ratio — favors silver right now. “For this reason, does it not make more sense to focus on silver stocks or ETFs currently rather than gold?”
Larry: Well, I am not sure why you say it favors silver. The ratio is about, I think it is about 65:1, something like that. It is widening. It is widening because gold is a monetary metal and silver is an industrial metal. Silver is underperforming gold by miles, by miles. I mean, just look at it. Gold is still 50% above its 1980 high and silver is 40% below its 1980 high. Does silver have more profit potential on a long-term basis? Yes and no. Once the bull market gets going, silver, because it is so low priced and can go to $100, can multiply five times over which gold can multiply three to four times over, so silver I guess has some more profit potential but it is going to come at a cost. The cost is the volatility in silver. It swings wildly. It is called the devil’s metal for a reason. You can make a fortune in it and you can lose a fortune in it. The same with silver miners. Does that mean that I am not going to get into silver? No. I am going to get into silver when the time is right.
Mike: Interesting. Indeed silver is very volatile. Gold is volatile. Silver is even worse.
Here is a question from J.P. “What is your view on the demand of the Bundesbank to retrieve 300 tons of gold and the fact that they have to wait seven years before getting their hands on it?”
Larry: Well, that gets back to a lot of conspiracy theories. There is talk the U.S. does not have the gold, cannot deliver the gold, all this conspiracy rigamarole. I do not give much credence to any of that. It is just talk. It is just rumors. It is put out there by conspiracy propaganda. It really does not matter one bit at all in what the price of gold is going to do. What matters are the free market forces and not whether or not it takes one day to ship the gold to Germany or seven years.
Mike: All right. Here is another question from Doug. “Can you elaborate on the Short Oil, SCO, reco recently from a few days ago? What are your expectations there?”
Larry: Let me call up the crude chart. We have a nice move down developing today so it looks like we are about to begin a third wave lower in oil. Oil, I believe, has topped. We are headed back down to at least $90, eventually $74. That is over the next few months and then the bottom will be in for oil. I am very optimistic about that position. I like it. I do not think we will have it for weeks or months so do not worry about that. I think we have got another leg coming down in oil very shortly. That should bring it under 100 and that position would, in that situation, spin off some very nice profits.
Mike: Okay, we have a couple of questions about your technical analysis here in terms of triangles which you mentioned before. “The triangles you are seeing, Larry,” Paula asks, “do they imply up or down movements in some of these key markets?” And another question from Thomas says, “What do you think the triangles you are seeing right now mean for gold?”
Larry: On a 5-minute and 15-minute chart of gold I am seeing all kinds of triangles form. I am seeing that in the Dow and seeing it in all kinds of markets. In some situations it means we are going to get a thrust higher in a fake out move and then a collapse. In other situations we are going to get a move down, a sharp thrust down, and then an equally sharp thrust back up. It depends on the market but the point is when so many triangular type formations are popping up on hourly charts and half-hour charts and 15-minute charts, which I watch very closely, and the hourly charts, it usually is the prelude to some big trends unfolding and also volatility. So on the one hand it makes it very difficult to trade in the interim until you get a breakout of that triangular formation but it is good news because when you do get a breakout of that triangular formation, you know what the heck is going on and you can position yourself accordingly.
Mike: Okay. That is a good explanation.
Here is another question from Jan, more geopolitical in nature but certainly would affect the markets. “Larry, do you believe Russia will roll into the eastern Ukraine and take over and what would that trigger for the stock market and gold?”
Larry: Well, they already have rolled in there. Troops have been sent into eastern Ukraine. Putin is old school. He is trying to rebuild the Soviet Empire as a major military force and as a major economic power. I do not think in the short term it is going to have much of an impact on any of the markets. But it is an underlying theme that we all have to be aware of because it will be the driving force over the long term behind the metals and commodities rally that is going to unfold. And behind the U.S. stock markets, once they correct, exploding much higher as well.
You can pretty much forget about the central banks now. That part of the financial crisis is over. I do not care what other tricks they have got up their sleeve and they do have other tricks up their sleeve. They can print more money. They can penalize the banks for holding excess reserves at the Federal Reserve. There are other tricks in their bag. But they are not working anymore. What is the driving force now is the geopolitics that is occurring because Europe is bankrupt, Washington is bankrupt, Russia is trying to take advantage of the situation and so is China and this is all about geopolitics.
Mike: Okay, let’s stay with the geopolitical theme here with another question we have here from Doug. He asks, “Can you offer any insight into the serious troubles in Venezuela and how would it affect the markets?”
Larry: Well, I do not think it will affect the markets much at all because Venezuela is not a major player. It is a major player in terms of oil but I think Ukraine is a bigger factor there. It is, again, part and parcel of the war cycles ramping up. It is amazing how accurate these war cycles are and we are seeing it in Ukraine, we are seeing it all over the world, we have seen it in the Middle East, we are seeing it in Venezuela, we are seeing it right here in Thailand where I live. There are ongoing protests in Bangkok that have shut down half the city. Fortunately it has been much more peaceful than what we have seen in Ukraine and in Venezuela but there is even talk right now in Thailand of splitting the country into two, a northern part and a southern part. So, this is all part and parcel of the war cycles ramping up. You are going to see domestic conflict, civil strife, and you are going to see international conflict as well. And believe me, this is just beginning.
Mike: Fasten your seatbelts, right?
Larry: Yes.
Mike: Here is a question from Chuck. He mentions that he had missed your current explanation as to what the low for the Dow would be. You want to go over that again? What are your expectations for the Dow pullback?
Larry: Well, I do not think we are going to get below 14. That is the bottom line basically and we could get to 14.3 or 14.5. That is about it. There is no end to the world crash out there.
Mike: Right, just kind of a temporary pullback before higher highs is what you are looking for, right?
Larry: Yes.
Mike: Okay, here is a question back to currencies from Sadhir. He asks for your view on the pound/U.S. dollar exchange rate, the British pound.
Larry: The pound is popping. That is another interesting play. I am looking at it personally myself to go short the futures on the pound. That is how much I believe the pound is ready for another leg down. Again, same with the euro. Although the pound is not a part of the euro, it is having its own issues. Great Britain has its own issues and it is having some conflict with the European Union whether or not it should be part of the European Union but right now the dollar is on center stage for a major rally.
Mike: Okay, shifting back to gold, Wayne asks, “What is your opinion with Jim Sinclair saying gold could hit $50,000 an ounce? Do you agree with his opinion longer term?”
Larry: No, I do not.
Mike: Quite a move, that would be quite a move indeed.
Larry: Yes. It could get to $10,000. If it were ever to get to $50,000 an ounce, do you have any idea what kind of world we would be in? You are talking the Dark Ages. You are talking like the fourteenth and fifteenth century. You have got to have a pretty dismal outlook on the world and on humanity to expect that kind of price for gold or you have to believe that the powers of the world will reform the monetary system and back everything with gold. Now, if that were to happen, you would go right back to the Dark Ages because there is not enough gold in the world to back the world’s supply of money and credit. It is just not feasible and it would be extremely deflationary.
Mike: Indeed. So either way we end up back in a dark age. I do not like the sound of that.
Larry: Yes, well, I hate to say it because I am a gold bug. I love gold and I believe gold plays a very important role in everyone’s portfolio but gold is not money. It is a store of value. It is a long-term store of value but it is not money. The day will never come when you can walk around with gold coins in your pocket and go buy a pack of cigarettes or Life Savers or get a hair cut. It is just not going to happen. The world is shifting towards an electronic currency. That is why Bitcoin is dying and it is dying pretty quickly.
Mike: That is right. You called that.
Larry: Yes. There is not a government in the world that is going to allow digital currencies to survive and I find it very ironic that so many gold bugs who complain about fiat money all the time embrace digital currencies which are backed by absolutely nothing, even less so than the other fiat currencies, the dollar, the euro, and so on and so forth. At least they have taxing authorities and governments behind them. Look what happened to Mt. Gox in Tokyo yesterday and the day before.
They shut down. $300 million is missing. Nobody knows where it went. If you want to play with digital currencies, go ahead. But it is pretty ironic that all the gold bugs embrace digital currencies. The ones who want something tangible are embracing something that is totally intangible.
Mike: So much for alternative currencies that exist only on a computer chip, right?
Larry: That is right.
Mike: So instead of $50,000 gold as Paula asked, perhaps $5,000 would be a better bet which you have mentioned in the past as a potential target.
Larry: Well, $5,000 is my conservative target. We could probably get to $7,500, maybe even $10,000. But $50,000? No.
Mike: Here is a question from Tom about the timing of that. “You said a while back that if May was not the low in gold, it might stretch out another year or two. More recently you said that it will probably be in May for sure. Can you clarify that point?”
Larry: I do not think I ever said that it would stretch out for another year or two. I think I have been pretty adamant that in May gold will bottom, unquestionably this year … and the ideal target is May.
Mike: Okay, regarding the recent GLD option trade you just put out a few days ago, we have got a couple of questions like this one from Charles. “Do you have a stop in mind for the GLD puts and what is your rationale on that trade, your expectation?”
Larry: Well, I have a stop in mind. It is based on the futures contract rather than the pricing on the options contract because if you base it on a chart of the options contract, no, you will inevitably get stopped right out. It is based on the patterns and action unfolding in the nearby gold futures contract. My expectations for that option, right now they are very good. Gold is about to start another leg down so I am very comfortable with that position. Will I hold it if gold does not do what I expect it to? Will I hold it until option expiration and let it dwindle away? No.
Mike: Okay, here is another question from Curt on an alternative metal or resource. “What is your opinion on uranium stocks, particularly Uranium Energy Corp.?”
Larry: I am bullish long term but like everything else, I really want to wait until the lows are in in the commodities sector. That will tell us that disinflation is over and then everything is going to be moving nicely to the upside.
Mike: Okay, here is another question from Scott. “With your comments on oil heading lower, how will this impact the drillers such as Diamond Offshore or Transocean?”
Larry: Well, they are headed lower with the stock market and with oil so I am bearish on the energy companies in the short term.
Mike: Okay. With stocks as well.
What is your view on Japanese and Chinese stocks right now?
Larry: China is bottoming. I am probably the only one in the world that says that but the Shanghai market it bottoming. It is in a bottoming formation. Its next big move over the next three years is going to be to over 6000 and it is going to move to record new highs. I am very bullish on Asia in general.
Mike: How about Japan? What is your take on Japanese stocks?
Larry: The NIKKEI is going to pull back to about 11.5 to 12. The NIKKEI has also bottomed finally, out of the woods there. The Japanese economy is going to grow but it is not going to be what it was in the ’80s. The NIKKEI will probably make new highs going out about five years, 2019. Bottom line is I am bullish on the NIKKEI when the correction is over.
Mike: Okay. Staying on China and Asia for a minute, Thomas asks, “What do you think of China’s big accumulation and appetite for gold and how will this affect the value of the dollar?”
Larry: Again, I was probably the first analyst to expose this way back in 2003 to 2004. China is buying gold. China’s buying gold is a hedge against their dollar holdings. Are they buying massive amounts of gold? Yes, they are buying pretty healthy amounts of gold but it has not precluded gold from falling 37% over the last three years. They have been buying the whole time. Are they looking to back the yuan with gold? They are looking to give the perception that it is backed by gold. Do they want to back it by gold? Absolutely not. That would be the worst thing they could do. If they backed their currency by gold, which is a closed currency and then they went and backed it by gold, their economy would implode. It would be highly deflationary. All they want to do is accumulate some gold to hedge against the U.S. dollar in the long term and to give the world the perception that the yuan is the next pseudo Swiss franc, so to speak. When the Swiss franc used to be backed by gold it was considered a great safe haven in currency. That is all they are doing. Are they looking to corner gold and drive it up and drive the dollar down? No.
Mike: Okay, a couple of follow-up questions to your comments on being bullish on Asia in general. What are your thoughts on Singapore, Thailand, and are there any strategies or timing in the works for recommending perhaps a China ETF such as FXI?
Larry: Well, we are holding FXI in the Real Wealth Report.
We added to it last month or two months ago. I am very bullish long term on all of Asia. In the short term there is some turbulence that Asia is going through. We could see one more leg down in Singapore. Thailand’s stock market is holding up extremely well given the political situation here. So there is going to be great opportunities but the U.S. market is going to head down and that is going to drag most markets around the world down with it. So we are in that phase from now until May where we are going to see corrections in stocks, final lows come into play in the commodities and after May you are going to see more talk about inflation. You are going to see more geopolitical things happen and it is a whole new ball game. So the turning point or the tipping point for the entire global economy and almost all markets is between March and May of this year.
Mike: Interesting. We will have to keep an eye out for that window of opportunity.
Here is a question from Jeffrey and actually a comment to set it up. He mentions what happened in Cyprus and now the EU plans to recapitalize failed banks in the region by giving derivatives a priority over bank depositors. He wonders about the same thing happening here in the U.S. and his question, “What are the best ways to get off the grid to protect your money? What are the least risky ways of protecting your money from such a situation with the banks?”
Larry: Well, yes, Europe has already legally adopted the plan, the Cyprus model, to bail in depositors if another bank goes under. That is done. It has been legalized across the entire European Union. There is talk behind closed doors of doing the same thing in Washington. They know there is going to be another big bank that is going to fail down the road here in the United States, another systemic crisis. They also know they cannot go back to the taxpayer and ask for $787 billion with hat in hand like Hank Paulson did.
So they are looking at all kinds of alternative measures including bailing in bank depositors, meaning you will lose your money above a certain amount. There will be no FDIC bailout, okay? They are looking at nationalizing the retirement system or parts of it to add additional revenue and safety foundations and capital to the system. They are looking at the IMF 10% one-time wealth tax on everybody to recapitalize the government.
The problem here is that Europe and the United States were bankrupt before the real estate crisis unfolded. Now they are even more bankrupt and there is nobody to bail them out except their own people, okay? Their own citizens, okay? So Europe and Washington are turning against their citizens. And this is also a part of the geopolitical war cycles that you are seeing. What you are seeing in Ukraine and Thailand and Venezuela is protests against governments. They are class warfares and you are going to see the same thing happen in the United States unfortunately in the years ahead. You are going to see them. Mark my words. It is going to get ugly.
Now, how do you get your money off the grid? Unfortunately I am not an expert in that area. There are not many legal ways to do it. I would suggest contacting a tax attorney and experts in the area. There are things that can be done but make no mistake about it, you have got to report everything you do to the U.S. government or they will find you and you will get in trouble. And I am not saying do not seek out solutions. There are solutions out there. You have just go to be careful. Unless you can buy tons of gold jewelry, artwork, rare coins and squirrel it away somehow, there is very little you can do to get off the grid.
Mike: On that note, based on the last question, Michael asks, “Where is the best source to buy physical gold and store it?” Would that be in Europe, here in the U.S.? What would be your preference?
Larry: Well, I think the best way to buy physical gold is through the Hard Asset Alliance online. They are audited. They are insured by Lloyd’s of London. You have the competitive bidding process so you are getting pretty darn good pricing when you buy and when you sell and you have the ability with the click of a mouse to specify where you want it stored, either here at New York or in Salt Lake City or in Switzerland or Singapore. So the Hard Asset Alliance, I fully back and I think that is the way to go these days rather than your local dealer.
Mike: Okay, good answer. Well, that is about all the time we have for today but if we were not able to get to any of your questions or if you have any additional comments for Larry, please remember that you can always submit your questions or your comments to the Gold and Silver Trader editor’s mailbag which you will find directly on our website and of course Larry can always answer those questions directly, perhaps in a future issue of Gold and Silver Trader or we could certainly address those in our next scheduled online strategy briefing. So with that said, thanks again, one and all, for joining us today and, Larry, of course thank you for joining us all the way from Thailand as well.
Larry: Thank you to all the members. Thank you for your loyalty. Thank you for joining today. Mike, thanks as always for hosting. Great talking to everyone.
Mike: Until next time, good investing.
