Mike Burnick: Hello, everyone, and welcome to this special online strategy briefing for Gold and Silver Trader. I am Mike Burnick and let me introduce Larry Edelson, editor of Gold and Silver Trader. Larry, it is good to speak to you again.
Larry Edelson: Yes, yes, thank you, Mike. Thank you for hosting again today and thank you to all the members of Gold and Silver Trader. We have a nice showing today, a good crowd joining us today and I really enjoy that. So let’s get right into things.
I am going to cover today the same basic markets that we are all interested in and I am going to compare the charts from the last webinar that we did just a couple of months ago to today so that you can see really where things are.
A couple of notes I want to mention before we go into the charts. I know it has been very frustrating lately. The markets have been literally like watching paint dry. Quite honestly I cannot remember dog days of summer like this month of August has been for the gold and silver markets in many, many moons. It has really been a very quiet market and it has been frustrating on all of us. We all want action in the markets. We all want to trade. But there are times to sit on the sidelines and there are times to get aggressive and this summer really the markets did not unfold in a way that allowed us to be that aggressive. That said, with the Labor Day holiday coming up this weekend, I am looking at the markets really starting to turn in our favor both direction-wise and opportunity-wise heading into right after the Labor Day.
So let’s go to the first chart up on the board today.
Mike: There we go, gold chart from the last time that we got together.
Larry: Yes, I just wanted to put this chart up there for everyone so they could have a perspective on really what has been going on here. This is the chart of gold that I showed everyone in the last webinar and you can see it was in a triangular type of formation, coiling up a bit as time marched on towards the right there and I had identified at the time $1285 as being a very key support level with the cycles and my reversal system pointing to a rally up to about the $1400 level. That is still in the cards. However, things are taking a little bit more time to unfold than I had expected.
So let’s take a look at the next chart which is really the same chart. It is a little bit different coloring for you, but it is really the same chart and you can see that the triangular formation is still very much intact. We have been, if you look at that last cluster of bars right at the end of August here as we go into September, you can see we have been holding the 1285 level, bouncing right around there, so I did correctly identify that a few months ago as an important support level and the good news is so far it is holding.
The indicators that I follow all continue to suggest that gold is about to rally again up to the $1400 level. Now, we are seeing gold up today about $7. It is starting to make some progress to the upside but it is not quite enough yet so we still need to keep our eyes on the 1285 level. It is holding. I have also put up there for you just because so many people ask me what my major line in the sand is for gold right now. What level would turn me outright bearish again and that level is that second line which is $1240.70.
Now, I do not think we are going to get down there. I think we are going to hold in this general neighborhood of 1285 to 1295 for the next several days until after the Labor Day holiday and then I think the fireworks will really begin. Our first move will see gold up to that blue line there, up to about 1340 and once that level is broken, then we should have a pretty clear path up to about the $1400 level. Naturally, mining shares will rally at that time with gold.
Let’s go ahead to the next chart which is the last webinar’s chart on silver. This is the chart I showed you in the last webinar, a similar triangular formation converging. Silver did pop out above it in early July but failed and fell back below it. It has held the $20 critical support level, give or take, that I identified since the last seminar.
And now let’s move ahead to the next slide which is silver today. Okay, I am sorry, we did get back below the $20 level but we are still within the confines of major support which is at the 18.50 level. Silver is weaker than gold.
Now, that is something I want to point out to everyone because silver is an industrial metal and I think that is cluing us in that the global economy is not as robust as some may believe and that even the U.S. economy may not be as robust as some might believe.
The gold/silver ratio is actually widening which is silver is weaker relative to gold and that is another indicator that I follow, the gold to silver ratio, and when it widens it is usually an indication that there is some kind of financial stress going on the world and, quite frankly, we all know where that is. It is in Europe. We have seen in the last couple of months even Germany, really the only leg of the European continent that was holding the chair up, starting to weaken and naturally the euro currency has been falling quite sharply over the last couple of months. There are a lot of problems in Europe. I believe they are going to be hitting the fan in early September.
There are two forces at work in Europe. One is the dismal state of Europe’s economy on its own right, just by itself, and the second force at work in Europe is of course Russia invading Ukraine. That is happening as we speak. Russian soldiers and troops are moving into Ukraine and it is going to turn very hot and very ugly probably very soon. All of this is very, very bearish for Europe, very positive for gold and silver and mining shares.
Let’s go on to the next chart. This is the junior mining ETF, leveraged mining ETF, the chart I showed you in the last webinar, pretty much the same formation. I have not drawn the converging triangle on the chart for you here but I had identified in the last webinar the critical support level is $20.70. We did get stopped out on another JNUG trade a little while ago, very modest loss there and I have elected to stay on the side largely because the cycles told me that the rest of the summer, that is back in August and late July, the rest of the summer was going to be pretty much a dud and that is what we have.
There have been some trading opportunities there for short-term futures traders, for day trading, but for the kind of position trading that we are doing where we are going to take on positions and look for substantial gains, the market just has not been right for it and had I force-fed trades upon you all in the middle of these summer doldrums, it just would have ended up with compounding losses and even racking up some commissions and that really is not the way to trade. So I have been holding our ammo nice and dry and nice and tight because, as I said earlier, the fireworks are really about to begin I think right after we get back from the Labor Day holiday weekend.
Let’s take a look now at JNUG, the chart today, still holding 20.70. You can see at the beginning of August we spiked right down there, almost hit $20.70 square on. We have just been meandering between 20 and 23, got up to 25, came back down to 23. I will be looking right after the holiday to get back into JNUG as long as $20.70 holds between now and then.
So be alert. This is a very nice trade. I believe it is going to more than double over the next few months and it offers actually much more potential on the upside than any individual miner does and more upside potential than gold or silver do. So I am really focusing on JNUG. It is a great vehicle to position trade and swing trade for substantial profits but we have got to exercise just another week or so of patience before we get in there.
Next chart…
Mike: Here we have the stock market, S&P 500.
Larry: Yes. This is the stock market, the S&P 500 that I showed in my last webinar. It was also in an upwardly biased triangle which is called an ending triangle in Elliott wave terms which is a sign that the rally is coming to an end and as I showed you in the last webinar via this chart, the S&P did have a little bit more upside to it. We pulled back and then we rallied again to new highs just yesterday and the day before. Initial support still lies at the 1850 level.
So let’s now take a look at the stock market, same chart, today. Okay, I have actually zeroed in, zoomed in here for you to show how it is wedging towards that high. You cannot see the triangle form 10 lines here on this chart because I wanted to take it in on a few more zoom levels, if you will, to show you where the resistance is.
We just hit resistance on Tuesday and yesterday. There is a chance we will move a little bit higher to about 2020 on the S&P but this thing is topping and I believe we are going to see a final top right after Labor Day that is probably going to surprise everyone and a pretty sharp swoon down to that major support level at the 1850 level. That will not be a bear market. It will merely be a major correction that is way, way, way, way overdue in the stock market and it will actually clear the air and clear the way for the next leg up which will be even bigger than the one from March 2009 to today, the last five years.
So do not feel like you have missed out on anything in the stock market, okay? The big, big boom in the stock market is not yet here. I know that is hard to believe but it is not here yet. It will come after this correction finally sets in and scares a lot of the bulls out of the market and clears the way for higher prices. We are talking about a move from roughly, say, 1450 where the correction might come down to, up to 31,000, 32,000 going into 2016, okay? So you have not missed as much as you think you have or as many people think they have in the bull market that has occurred over the last few years. That is just the baby, the precursor to the big one.
That said, I would like to move on to Q&A because, again, that is always the most enjoyable part for me because I learn, I hear from you and all your questions and you get to hear my opinions and my answers.
Mike: Absolutely, it is indeed the best part for me as well, Larry, and we have a lot of questions already in the queue.
First one up is from Cecil. He says, “In our last quarterly members session, you mentioned the Dow was headed for a short-term pull back of 10% to 20% this fall and indicated this pull back would be much deeper than most people would imagine. Then in a recent email dated August 21 you were talking about Dow 31,000 being dead ahead. Are both statements correct and could you explain the different reasons why or the different timeframes you are looking at?”
Larry: Yes, yes, the U.S. equity markets are in a long-term bull market, okay, and my forecast is for Dow 31,000 by the mid or late 2016 period. That has not changed. I am merely mentioning and I have been identifying and trying to catch a correction because a correction is way overdue and I do not want anyone to really get caught too aggressively in that correction and I do not want to load up on stocks until we see a correction. So, and that is stocks apart from mining stocks, all right? I am not speaking out of both sides of my mouth. We do need a correction in the market. It is not a bear market. It is just going to be a correction that clears the way for much higher prices.
Mike: Okay, a question from Harold, “I keep hearing that leveraged ETFs should be held for only short periods of time, Larry, as their relative value tends to go out of sync over time due to daily revaluations.” So his question, “How significant is this problem with regard to precious metal ETFs if we only hold them periodically?”
Larry: Well, that is true. There is a revaluation issue with leveraged ETFs. That said, I do not recommend that you buy a leveraged ETF and hold it for six months, nine months, a year, two years, three years. That is just not something you want to do with a leveraged ETF. Leveraged ETFs are best held for one to three months if you have got a good trend in place.
Now, we were premature in buying JNUG a couple of times. We were probably a little bit premature in buying UGLD, the leveraged gold ETF. I did not expect the summer to be as quiet as it turned out to be. But, that said, UGLD is holding important support levels and we should soon see a rally. So I am okay with holding that for a longer period of time than I typically would like to do, meaning if it traded and we are catching a good trade and the wind is in our sails holding it from one to two weeks, three weeks. So, you are right. Leveraged ETFs are not something you want to buy and hold.
Mike: Okay, here is a question from Donald. He asks, “Will coal also rise in value with the next leg up in commodities in your opinion?”
Larry: Yes, I do think so largely because China, which is still about 65% to 75% dependent upon coal for energy, their economy is doing fine.
Mike: And here is another related question actually on energy in general. “Larry, what do you see in store for the energy sector in the coming weeks or months? I have several positions in oil and gas drilling companies domestically in the Bakken, Eagle Ford, Pennsylvania area as well as some oil service stocks in MLPs.” What is your take on that, Larry?
Larry: Well, I am very bullish on oil and energy going forward. There is no question about that. Oil is very close to bottoming. We got down to about 93. We will probably push a little bit lower to 89 over the next couple of weeks. But the war cycles and the ramping up of the war cycles are turning oil back into a bull market more rapidly than I had expected a couple of years ago.
The war cycles are really the main geopolitical force that is impacting the markets. It is not about Federal Reserve policy. It is not about how well an economy is doing per se. It is geopolitics that are driving everything higher and we all know what a terrible sad state of affairs the Middle East is in and Eastern Europe with Russia invading Ukraine and, of course, that is just a pressure cooker for energy prices.
Natural gas has bottomed on a long-term basis. That is another thing you should expect to hear a lot from me about soon, a natural gas recommendation. I believe natural gas prices are headed sharply higher and a lot of this is going to be tied in to news in the Middle East and Eastern Europe.
The energy companies are looking very, very good. I have no problems with those. Definitely it is something you want to invest in both short and long term.
Mike: Okay, here is a questions from Kenny. “Any news regarding how the Fed might increase interest rates sooner rather than later as expected and then cause gold prices to go down as a result?”
Larry: Well, two things there; all the talk about the Fed raising interest rates, I do not buy it. I do not believe the Fed is going to raise interest rates for the simple reason that if they do, they will cause Europe to completely implode which would send tidal waves of foreign capital which is already coming to our shores. It would just be the tipping point and 10 times more capital would be leaving and exiting Europe and coming into the United States which would cause the U.S. dollar to go through the roof and it would set the U.S. economy into a deflationary spiral.
This is exactly what happened in the 1930s. The Federal Reserve is acutely aware of the mistakes they made in the 1930s. They raised interest rates too soon when Europe was on its deathbed and that set off a round of deflation in this country and made our depression so bad that President Roosevelt had to come in, confiscate gold, and devalue the dollar.
Now, the Fed, in my opinion is not going to raise rates for a very, very long time. That said, let’s distinguish between the Fed’s official short-term interest rates and free market rates. Free market rates are really dictated by free markets, specifically the 10-year Treasury and there we have seen prices also fall, yields also fall lately, again, much like silver declining, an indication that there is some financial stress out there probably related to Europe.
How will this affect gold? Rising interest rates when they do begin to rise will not impact gold negatively. Rising interest rates, when they do begin to truly rise for free market, because of free market forces, will be very bullish for gold just like they were between 1978 and 1980 when interest rates exploded and so did gold. So I am not worried about any rise in interest rates hurting gold.
Mike: Okay, here is question from Dean. “Larry, a few weeks ago you mentioned that 1285 was a critical support level for gold which you mentioned again in today’s presentation. Gold is sitting at 1277.50 as I write this.” This was probably a week or so ago. “Does this mean that gold has yet to reach bottom and will likely go even lower from here? Are you revising your predictions?”
Larry: No, we did get below that 1285 level. We popped back above it, we fell back below, we popped back above it. It was seesawing right around that pivot point at 1285 and it held on a weekly closing basis. We are now back up at 1291. We got as high 1298 this morning. In my opinion, this is typical bottoming action.
Keep in mind that bottoms are a lot more difficult to identify, in my opinion and in my experience, than tops. Tops occur very, very suddenly whereas bottoms grind away kind of slowly with lots of fake out moves up, fake out moves down, fake out moves up, followed by another fake out move down and this is exactly what gold and silver are doing. They are seesawing around important support pivot points really trying to fake out the majority of investors.
Keep in mind that the market likes to keep the majority of investors always off guard and one of the ways it does it is by sometimes just going sideways and sometimes just zigzagging around a pivot point like gold has done. It is very frustrating and for the inexperienced, it can be like pulling your hair out at times watching it. That is why I recommend that you do not watch it every day. That is my job. Let me do it. I have got the experience at it. You will just drive yourself crazy. It is tough, it is tough when you have got money on the line or you want to put money on the line and you are watching something and it is up one day, it is down the next day, up one day, down the next day. It drives you freaking crazy.
So let me do that. That is my job and all I can say right now is all signs point to an imminent rally. I will be wrong if gold closes on a Friday basis below 1285 and then moves below roughly 1264. Then we are going to probably shoot down to 1240 and if 1240 breaks, then I am completely wrong and the bear market is back on and gold will fall below 1180 down to about $1000. But I rate that possibility as less than 10% at this point.
Mike: Okay, we will certainly watch those key levels.
Another question from Tim, “Hi, Larry. One of your predictions was that we would see a rise in stock values and a rise in commodity prices at the same time going forward. Are we seeing the early stages of this situation already at this time?”
Larry: Yes. You may not see it on a day-to-day basis but if you look back over time, you are seeing it in certain sectors and in certain situations. For example, gold is $110 off its major low of December 31, 2013. It is up $100 from then. Stock market is up since then. They have risen together. The dollar has risen right along with stocks and gold for the past year, slowly, but they all are higher than they were a year ago.
Now, you are going to see more of this in the future and it is going to become more glaring and more obvious. But, again, important bottoms and turns and major trends take time to unfold. So the answer to your question is yes. Commodities in general will rally with stocks, quite explosively actually once the correction in stocks is over and you will probably see gold rally right along with a stronger dollar which is something that has been happening very subtly over the past 12 months.
Mike: Okay, here is another question and a comment from Barbara. “Hi, Larry. I know we are all more than anxious to get out of the gate with maximum upside potential ahead, but do you have some specific scenarios or indicators in mind for September and October to signal where the broad markets, natural gas, and gold and silver miners will go?” What are the indicators you are looking for or you are watching for?
Larry: Well, the short term is the hardest of all to forecast. It is a lot easier to forecast the intermediate term and the long term. I have close to a 100% accuracy rate — and I am not bragging — on the long-term forecast. The short term is inherently very, very difficult to say.
That said, and I cannot give you really any etched in stone targets for September and October but I can tell you this, that if things continue to progress the way they are which is constructively for gold and silver, we should see a rally up to 1340 late September, heading into October, maybe up to the $1390, $1400 level in conjunction with a decline in the stock market that is a temporary correction on that side of things in the equity sector and we will see most commodities start to lift their heads again at the same time.
You have got a split going on in the commodity sector right now I should also highlight. The grain markets are still falling, still very weak, still on target to bottom in October so that is going to sync up with the cyclical period that I am talking about with gold rallying and we have other commodities like crude oil and natural gas already getting ready to explode higher.
So they all do not bottom and top at the same time. Each has its own cyclical rhythms that have to be monitored and each has their own profile when it comes to timing. So I do monitor all of them. As an entire sector I can say, yes, we are getting very, very close to a major bottom in commodities in general, a temporary correction in the stock market, and then a move substantially higher for both of them.
Mike: Let’s see, here is a question from Mark. Mark asks, “What are your thoughts on the big bank gold price manipulation?”
Larry: There is no manipulation. I have gone through this a hundred times and I do not mean… Please do not take that the wrong way, but there is no manipulation, period. Do they trade gold and silver and try to skim $0.10 off the bid and ask now and then? Yes, of course they do. But they are buying and selling at the same time. They are not manipulating gold and silver. Do they try to push it around a little bit to make an extra dollar? Yes. But can they change the trend? Absolutely 100%, 1,000,000% no.
Mike: Okay, here is a question from Lee who agrees with your assessment about how gold can drive you crazy. Lee says, “Waiting for gold to break out has been very frustrating. It is clear that is where the money is to be made eventually. What is going to be needed to finally trip the breakout in your opinion?”
Larry: In gold and silver?
Mike: Correct.
Larry: Well, if you are looking for one particular fundamental event, it is always hard to say. I go by technicals. I read technicals. I never listen to the news, only as an afterthought when I am climbing into bed at night or I am having my breakfast cereal in the morning because more often than not, the markets will tell you what the news is going to be. The markets make the news. News does not make the markets, believe it or not.
That said, it is probably going to be related to the collapse of Europe and war. I am very frightened about how the war cycles are ramping up. I think everybody on this call is pretty familiar with my research there. I started warning about rising geopolitical tensions just about two years ago. They have ramped up much quicker than I ever expected.
Russia is moving into Ukraine as we speak. ISIS is rampaging all over the Middle East. We have a very, very ugly situation on our hands and unfortunately we are going to see war, many different wars. Hopefully not World War III but that is a possibility between now and 2020 because we are still in the very, very beginning phases of this geopolitical cycle and it is occurring on multiple fronts. It is occurring in Europe and Eastern Europe. It is occurring in the Middle East. It is occurring in Asia between China, Japan, and many Southeast Asian nations over the Spratly and Senkaku Islands.
And it is occurring in the realm of government versus you as citizens in the sense that the governments of the West, that being Europe and the United States, are bankrupt and they need to accomplish two things. They need to deflect your attention and consolidate the national spirit and historically leaders look to war to do that and at the same time they need to raise revenue to replenish their coffers. So they continue to spy on you. They continue to work on various policies that are really tax hikes in disguise.
There is a lot going on here and this is what is going to drive gold and silver through the roof. It is not going to be inflation per se. Inflation will come but it is, in my opinion, quite a ways away. It is going to be geopolitical turmoil on multiple fronts.
Now, what particular single event is going to spark the lift off in gold? Hard to say, hard to say. I just looked at it technically. The tipping point is 1405.40 in gold. Once we see a close above 1405.40 in gold, the lid to the new bull market comes off and gold is going to be roaring through the roof.
Mike: Okay, here is another question from William. “What impact will QE by the European Central Bank have on gold in your view?”
Larry: Well, it is going to be bullish in my opinion for the simple reason that as they devalue the euro, Europeans are going to want to flock to the safety of gold and Europe is a very, very wealthy economic region and there is a lot of wealth there that has to get out of the way of a falling euro. That is why our stock market is so strong and once that money starts to pour into gold as a safe haven from a declining euro, then that could be the one that sets it off.
Mike: Indeed, the euro has been in a headlong retreat over the last few weeks. So maybe we are seeing that get started already.
Here is a question from Tony. “Have you ever seen a correlation between Freeport-McMoRan versus gold and silver?”
Larry: Yes. In a real solid bull market for gold and mining shares which we are about to really see take off very soon and in the base metals such as copper, iron, nickle, and many other things that Freeport is involved in, especially copper, yes, they tend to move in sync with each other.
Mike: Okay, another question staying on the subject of gold miners, Ken would like to know, “What are your thoughts on Newmont? Is it likely to lead or lag a resurgence in precious metal stocks?”
Larry: Well, Newmont used to be one of my favorites. It has become a giant that is very slow to move. I am perturbed that they are still considering merging with Barrick. That would not be a good thing for Newmont in my opinion because Barrick has a tendency to hedge their gold reserves. So I am watching Newmont carefully but it is not what it used to be.
Mike: Okay, here is a question from James. James comments, “Larry, at different times when you report resistance and support levels, you are using weekly spot prices and sometimes weekly near-term futures. Also sometimes,” he points out, “there is no clear indication which price you are referring to. Why the difference between spot and futures prices?”
Larry: I always use nearest futures prices. I do not use spot. I always use nearest futures prices because that is the most liquid price.
Mike: Okay, question from Rob. “Will there come a time when we should be only investing in bullion rather than stocks or ETFs?”
Larry: There will come a time when you want to hold… Well, you want to hold some bullion now but as opposed to not trading ETFs or mining shares? No. Mining shares from a trading point of view, ETFs from a trading point of view, even futures from a trading point of view will all be fine. There will be a time when holding paper gold such as GLD, an unleveraged ETF that gives you the right to the underlying gold, may become problematical but I do not expect that to happen until gold exceeds $2300, $2500 an ounce.
Mike: Okay, sticking with miners, John would like to know, “Can you tell us, Larry, exactly how you go about evaluating mining companies for investment recommendations? What are the key factors you look at?”
Larry: Well, I look at their balance sheet, but most importantly I look at their reserves and resources, their cost of production, their cash cost of production, their all-in sustaining costs. I look at the management. I look at whether or not they are hedging if they are a producer and the most important part for me is the charts and what my cycles and technical indicators are telling me. So if I had to rate it, I would say I probably put 40% into the fundamentals of the company itself and 60% into technicals and cyclicals.
Mike: Okay, Robert notes that “Palladium has outperformed gold and silver in recent weeks. Do you think palladium will continue to outperform?”
Larry: On a day-to-day basis it is going to trade on and off. No, I do not think it will outperform on a longer-term basis but palladium is outperforming because of the situation in Russia and because of in Africa where we have an ongoing strike. Platinum and palladium are politically very, very sensitive metals because the supplies of both come from either Russia or Africa.
Mike: Okay, a question from Rex on the Australian dollar. “Will it move up with gold or will the Aussie be more dependent on China’s economy?”
Larry: It is going to be dependent on both and it is going to move up with both.
Mike: “What is your price target for gold, silver, platinum, and palladium by the end of this year?” Christopher wants to know.
Larry: Let’s take it one step at a time. If we can get above 1340 and then 1405 and we get a little bit closer, maybe October, November, I will be able to give you more information. But it is really hard to say.
Mike: Any general thoughts on palladium or platinum?
Larry: Bullish. Everybody should own some in bullion form or in jewelry form, small amounts, for the long term.
Mike: Okay, here is a question more conceptual in nature from Bradley about gold. Bradley notes, “Why do some believe gold is headed for $800 an ounce rather than up as you like to say?”
Larry: That is what makes markets. That is my answer. There would be no market for anything if everybody thought the same thing.
Mike: Yes, I think the more people that are calling for $800 gold, the more confident we can be in our higher price projections…
Larry: Yes.
Mike: …from a contrarian point of view.
Here is a question from Steven. Steven asks, “Have you changed your mind about any of the junior miners that you liked?”
Larry: No.
Mike: And Raj would like to know, “What are your thoughts on commodities other than the metals, for instance agriculture — corn, wheat, etc.?”
Larry: Well, as I said earlier, they are still caught in bear markets that should come to an end within the next four to six weeks. Beans are looking lower. Corn is looking lower. Wheat is looking lower. Bean oil is looking lower. They are all looking lower. But, that said, they are pretty, pretty close within 10% to 12% of what should prove to be their final bottoms.
Mike: Okay, question from Dan. Dan wants to know, “What is your outlook for the U.S. dollar and gold?”
Larry: The U.S. dollar has broken out recently as I expected. It is appreciating against largely the euro, also against the Swiss franc, to a degree against the pound. The dollar is going to remain firm and head higher for the simple reason, not because the U.S. government is in such great shape. It is not. We all know that. And not because the U.S. economy is firing on 12 cylinders. It is firing on turbo charged four cylinders at the moment, not even eight cylinders.
The U.S. dollar is strengthening because there is capital pouring out of the Middle East and capital pouring out of Eastern Europe and it is going to safe shores and the U.S. is still the safest continent with the deepest, most liquid financial markets on the planet. So the capital flows like a river are coming to the United States.
Mike: Okay, another question from Neil. He wants to know, “What is your position on wash sales? JNUG,” he points out, “is a good example. Are you willing to take the tax hit on the wash sales for rapid purchases on those trades as long as you are waiting for future larger profits? Your opinion on that?”
Larry: Yes. Nobody should be concerned about tax issues when you are trading the markets. When you are trading the ETFs such as we are or mining shares, your chief objective is profits, period. So do not let a wash sale rule prevent you from getting back into a good position if you have had a previous loser there. It just does not make sense to have tax laws motivate your investing when you are trading. It is okay to have tax laws obviously motivate your long-term portfolio investing such as decisions whether or not to buy municipals versus Treasuries, real estate investments versus certain other investments. But for a trading service, wash sales should be washed out of the equation.
Mike: Okay, here is a question from Christopher. “When do you expect to jump back into energy-based leveraged ETFs such as natural gas or oil? Do you expect a rally to happen right around the same time as it does for gold and silver?”
Larry: Yes, we are very close to a recommendation in natural gas. Natural gas has had its first leg up from about $3.72 to $4. That has confirmed that 3.72 should hold as a final low. I am waiting for a little bit of a pullback there which is starting today. We started to see a little pullback today and probably right after Labor Day.
Mike: Okay, here is a question from Simian. He says, “I understand the Shanghai gold market is coming into play in October. Any comments or thoughts on this?”
Larry: No, I do not think it has a bearing one way or the other, other than increased liquidity which is a good thing.
Mike: Okay, Raj has another question. “What are your thought on emerging markets, for example China, India, etc. for upcoming correction or will they keep rising as they have lately?”
Larry: They will continue to rise. They are all in new long-term bull markets.
Mike: Okay, here is a technical analysis question from Ralph. “Larry, does the S&P look to you like it is forming a head and shoulders pattern?”
Larry: Well yes, from a certain perspective, it does look like it is forming a head and shoulders pattern. You can look at the charts and say it is a triple top as well. It depends on what kind of technical chart analysis you have been trained in or steeped in. I do not really use those terms too often. It looks to me like it is an ending diagonal in Elliott terms. That is how I choose to look at it. But I look, most importantly, at timing cycles for the stock market. The timing cycles show a major drop starting in September.
Mike: Joe has kind of a followup question on that. “Do you expect energy stocks to take a substantial hit during any overall stock market correction or will they do a better job of holding their value?”
Larry: They should hold their value pretty darn well.
Mike: Okay, a question from Shirad. “If there is a steeper stock market correction coming, as you pointed out, what happens to metals during this correction?”
Larry: Well, I think they are going to rally. Everything tells me that as stocks correct, gold should rally. So, that is not a guarantee but it is something that I think is pretty probable at this point.
Mike: All right, going back to natural gas, Scott would like to know, “How low do you believe natural gas may fall in the near term? Could it get down to 3.50 again?”
Larry: No. I think it bottomed at 3.72. We are trading at… let me call it up right now. I have been watching it like a hawk. We are trading now at 3.98. We got as high as almost 4.12 this morning. I am looking for it to pull back to about 3.84, 3.80 to 3.84, and then begin a new leg up and that should happen in the next few days.
Mike: Okay, a question and a comment from Sharon. “Hi, Larry. Thank you so much for this update. Would you share your outlook for platinum and palladium, near term and longer term?”
Larry: Bullish on both, short, intermediate, and long term. Same as gold and silver.
Mike: Okay, Gerald would like to know, “How do you go about determining a stop loss price level?”
Larry: Well, I use one main method. I actually have three methods but my main method is based on volatility in a nutshell. But the way I calculate volatility is based on a few different factors. It includes the average true range over the last 39 days. 39 days is a number that I have tested and I frequently retest those numbers. It just tends to give a good average true range of the past 39 days and I usually double that and use that as a stop. Then I raise it accordingly or lower it accordingly for a short position.
The second method I use not as frequently is based on a combination of time adjusted volatility which is basically a cyclical method for measuring future volatility based on past volatility. I know that sounds like a mouthful and it is a mouthful but it is based on a very elaborate mathematical model. But by and large I simply use the 39 day average to range.
Mike: Okay, here is a question from Janice. “Larry, you keep saying to stay out of the stock market because of your prediction for a correction near term but stocks just keep moving higher. When might this happen or do you think that all of this outside money that is flowing back into the U.S. and into our markets from other countries as you pointed out, will that cause us never to get the hoped-for 20% correction?”
Larry: Well yes, I have been looking for a correction in the stock market for a while. It has continued to go up but not really that much, and as we saw just a few weeks ago and a month before that, when the stock market pulls back you can lose an entire year’s worth of gains in a matter of days and that is why I did not want to be fully invested in the stock market because in my opinion it is not on firm ground yet. When you can give back a year’s worth of gains in a matter of a few days, that is not the kind of market that you want to be loaded up in.
So until that correction comes which builds footings, concrete footings under the current price structure of the market, I do not want to go all in and it is just not a good bet to go all in even though it looks like it keeps going up day after day.
Now, the second side of that question is … suppose the market just continues to go straight up and never corrects? Well, to be honest with you, I would not want to touch that market as tempting as it might be because that is a bubble. We are not in a bubble now but if the stock market were to accelerate higher now and let’s say the S&P were to go from 2000 to 2050 to 2075 to 2100 to 2150 and go parabolic as some commodities do, I would not personally want to be in that market because we all know how it ends, in a disaster and you cannot get out quick enough.
So if you are really bullish and you really want to make long-term money in the stock market or any other market, gold for example, you want the market to correct — go two steps forward, one step back, two steps forward, one step back. That is a much healthier market than a market that goes straight up. It is simple. Take a look at oil when it went from $30 to $148. It crashed from $148 back down to $60 in three weeks and it wiped out millions of investors. That is not the kind of market you want to be in, that goes straight up like a rocket. You just do not want to be in that.
So yes, I missed some but I was willing to miss it because I am actually at heart a very conservative investor and a very conservative trader and I will only go all in when the coast is clear.
Mike: Makes sense.
We have some followup questions on your comments of getting out of paper gold. Sandra, Mal, and a few others asked, “You mentioned getting out of paper gold when it gets to the 2500 or so level and into physical metals. Could you clarify if that also includes getting out of quality mining stocks like Royal Gold, Silver Wheaton, Seabridge, some of the others?”
Larry: No, no, by getting out of paper gold I meant something like GLD, SPDR Gold Trust, because at some point when gold starts to go above its inflation adjusted price, that is when the real, real bull market will begin to take effect. There is probably going to be some calls for bullion out of some of these ETFs, a rush to take possession or take delivery of the bullion and some of them may come up short and may not be able to procure the metal quickly enough to deliver it to the customers who want to take delivery.
In that case, a paper derivative ETF might have some problems but I do not see that happening until at least 2100, 2200, 2300 on gold. So you have got time and I will warn you well ahead of time when to get out and before the crowd stampedes to take delivery, you will have yours nice and safe at home or overseas in a secure storage facility.
Mike: Okay, here is a question from Tom. “Larry, you correctly predicted the decline in gold back two to three years ago from its high point and you also correctly told everyone to wait to invest while gold was in an indecisive period, preparing for the next move up.” His question is, “It seems that gold has fallen back into one of these up and down cycles. Have conditions fundamentally changed in your view where we are back in the previous lackluster indecisive period waiting for gold’s next big move?”
Larry: No, overall I do not think the fundamental conditions have changed. I do think you are right, it has taken a little bit longer for gold to get off the mat than I originally expected. There is no doubt there and there are times when it looks like oh my gosh, this thing just cannot get out of its own way. But I look every day at my indicators. I test my models weekly. I look at every chart I can and I do not see gold or silver falling out of bed and I do not see any fundamental reasons to be bearish either.
I think what is happening now and what has been holding them back is not central bank manipulation or big bank manipulation. I think you have got a split going on. You have got in the United States an economy that is looking like it is recovering and a dollar that is strengthening. By and large, most U.S. citizens, U.S. investors are not looking at gold right now. In Europe they are starting to aggressively look at gold because Europe is going down the tube and the euro currency is finally starting to slide as it should. In Asia, Asian economies are doing well. Asian governments’ balance sheets are fine. So a little bit of the heat is off in Asia to buy gold. Still Asia represents the largest demand source for gold and that will heat up as they see the West really start to crumble. But you have got mixed forces here.
The average U.S. investor does not need gold right now. That is how he feels. So you have got to give time for all these things to come together but the average U.S. investor will jump back on the gold market when they start to see it moving again no matter what the U.S. economy is doing, no matter what the U.S. dollar is doing. So these are giant forces and they take time. Sometimes they happen very quickly and sometimes they take time to mold together.
Mike: Indeed.
A question from Clay about Chinese stocks again. He asks, “Will Asian equities purchased domestically, some of the Chinese companies that are listed here in the U.S. such as Huaneng Power,” he points out, “HNP, will these stocks be harmed during a domestic market correction?”
Larry: They might pull back a little bit but China is looking so good and Asia is looking so good. Their markets were in already a three-year correction. They have been wrung out. All the excesses of the bull market from 2000 up until 2008, 2009 it is already wrung out of there. So I do not think so. I think they are in very, very good shape.
Mike: Okay, here is a question from Mac and a comment. “Larry, thank you so much for your efforts and the services provided; however, I am concerned and need some reassurance here that we are on the right track. I know you cannot provide specific personal investment advice but please address in general. Do you really think we are on track still to double our investment value by year end? It seems that even with all these geopolitical issues, they keep getting worse, yet the gold and silver prices are not rallying. Please help us understand so we could continue profiting from your service.”
Larry: Well, it is going to be tough to double our money by year end. This summer did not pan out the way I thought it would and we have not had the good opportunities to do so. However, anything goes and I really think we are going to see a lot of fireworks between mid September, right after Labor Day, heading all the way in to year end and then after the Christmas holidays into next year.
So, I am glad the summer is over and I am really looking forward to getting back to some markets that are going to start to make some moves and where a lot investors can come back into these markets because the volume has just been terrible in all markets the entire summer. Liquidity has been a problem. Volume has been a problem and I think it is mostly a combination of the traditional summer doldrums in the markets as investors take vacations with their children, grandchildren, what have you.
But I think what is going on from a financial investor’s point of view is a lot of participants do not know what to make out of all these forces that are out there. They have never seen quite a rise in geopolitical tensions like we have seen in the past few months. It is really stunning and they are weighing that and saying well is this bullish for stocks or bearish? Is this bullish for gold or bearish for gold? Meanwhile the Federal Reserve is thinking about raising interest rates. I do not think they will. I am pretty sure they will not. But a lot of investors are saying oh, let’s wait and see what is going to happen. Do we have inflation? Do we have deflation?
So there is a lot of confusion out there about all the forces that are out there. I am not confused about those forces. My models are not confused about those forces. I know the consequences of those forces. The problem is we have been dealing with the majority of investors who are really trying to make wind out of all this stuff and combined with the summer it has just made a really, really hollow patch for trading. So I am, for one, and all of you on this call should be very excited that summer is over even though we will not have our vacations, we will have a lot of opportunity to make money.
Mike: Well, profit opportunities are better than any old summer vacation, right, Larry?
Larry: That is right.
Mike: All right, 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 questions or comments for Larry, please remember you can always submit them directly to the Gold and Silver Trader editor’s mailbag which you will find right on our website and Larry could either answer those questions directly or perhaps in a future issue of Gold and Silver Trader or we can always address them in our next online strategy briefing a month or so from now.
So thank you again, one and all, for joining us today and, Larry, thanks for your time and your great insights as well.
Larry: Thank you all, members, for joining us today. Have a great holiday weekend. Mike, thank you very much for hosting.
Mike: You are welcome.
