Sometimes, cycles, even the strongest more reliable of them, stretch and distort – but usually when there is something BIG brewing behind the scenes.
That does not reduce the validity of cycles, mind you. In fact, in my mind, it increases their validity. For when something changes in the AI models on my cycle work, you know that not only must it be a strong force, but also that the models are picking it up. After all, artificial intelligence itself, does not know the future.
It can only identify periods where important turning points may arrive, give probabilities on the trend leading into – and immediately after – that running point has transpired.
Right now, it is clear the cycles are stretching in many financial markets, most notably gold and silver. As you can see from my two latest charts here on gold and silver.
Let’s take a look at gold first. The June 27 target date remains in place, followed by a bounce, and then another decline.
That decline will likely continue into late July, even August, perhaps as a sideways trend – based on what I am seeing on the silver chart.
You can see it here on the second chart, where silver’s major low doesn’t show up on the AI models until Tuesday, August 30.
Does this mean the metals will remain bearish into late August?
It’s too soon to say. But it should put us on notice that something big is brewing, since the disparity between gold and silver – which normally top and bottom together – are now showing vastly different behavior.
There are only two reasons I can think of that could be affecting the models at this time. The next Fed rate hike and the Brexit vote due June 23.
The next Fed hike is the lesser important of the two. The Fed will raise rates, either next week, in July, or the latest in my opinion, in September. As I noted last week, even though I may be a lone wolf on this, I would not be surprised to see the Fed raise rates this week. That would surely send gold crashing into a late June low.
The more important event is Britain’s vote on whether or not to stay in the European Union. Recent polls put the people at 55% wanting to leave the European Union. If that turns out to be the final vote on June 23, it would likely be bullish for gold, helping gold climb out of the hole, or whatever low it makes on or about June 27.
On the other hand, if Britain votes to stay in the EU, then I would take that as a bearish sign for gold, helping gold push down into a final low on or about June 27.
As to silver, we must bear in mind that silver is more of an industrial metal than a precious metal. Therefore, what I believe the AI model for silver is telling us is that – regardless of the Fed or Brexit results – the global economy is going to weaken heading into late summer.
There is a third conclusion I am even more certain of: If, for whatever reason, gold is able to close above $1,307 – yes, we will see a further rally that I will have you take advantage of …
But, it would be just about the worst thing that could happen to gold for it would then mean that most of the second half of 2016 and even into early 2017 would see the precious metals falling sharply, working off what would prove to be a vastly premature first leg rally up that had no choice to decently correct itself.
I don’t believe that will happen. But it’s a possibility we must keep in the back of our minds.
Right now, hold all open positions and related stops. You should have been able to exit the UNG calls this morning, so you’re now out of that position.
Stay tuned, everything is about to hit the fan so to speak, and I strongly believe you are on the right side of the markets – though it does not appear that way now – and that the profits will come speeding right back to you.
Best wishes,
Larry
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