First things first. Gold has rallied up to its point of maximum resistance at the $1,306 level basis the June futures contract. While it did yield a minor buy signal last Friday, yesterday’s almost perfect test of weekly and monthly overhead resistance at $1,306 so far continues to look like a major failure is being set up.
I know as well as anybody how hard it is to get caught on the wrong side of the market. It comes with the territory. However, based on everything I observed and studied over the weekend … based on my sources in Europe and Asia … and most importantly, my artificial intelligence models …
It appears that gold and other precious metals are still poised to turn violently down. Here is my latest neural net chart of gold. As you can clearly see, the called-for April 29 high, which came exactly on cue, is indicating the model is still calling the shots.
So as of right now, all we have seen is a test of maximum weekly resistance at the $1,306 – $1,307 level.
Therefore, what we are facing is either A) A major collapse heading into late May, or …
B) A soon-to-be revealed “cycle inversion.”
If gold can start trading lower here and generate some intraday sell signals, then it will continue to follow the model into a late May low which could be even lower than I originally expected.
If, on the other hand, gold holds in this region and then closes above the $1,307 level, we will most likely see gold continue higher into late June or even mid-July reaching as high as the $1,450 level.
If you are a long-term bull on gold, you do not want to see that happen. The most bullish pattern for gold to form now is to pull back on time into a late May low and then begin its next rally.
If gold instead inverts and produces a June/July high between $1,400 and $1,450, then – yes, we will play it – but the second half of the year for gold will be absolutely devastating. Ditto for mining shares.
Let’s pause for a moment and think about what is really driving gold. It’s not inflation. There is none to be seen virtually anywhere around the globe. It is not outrageous demand from central banks as so many seem to be touting now as all my sources indicate that central bank purchases of gold are muted at this time.
In my opinion what is driving this rally from a fundamental point of view is what I have been telling you all along, the main force that will be responsible for gold’s new long-term bull market.
That force is the rising tide of the cycles of war and geopolitical instability and discontent rising all over the world. Europe we know is a basket case – its economy is in the gutter. Its leadership is totally lacking.
In the Middle East, the region is in its worst shape, ever, both economically speaking and ethnically speaking. Saudi Arabia is in financial straits. ISIS has rolled over the entire Middle East. Sunnis and Shiites are at each other’s throats. ISIS is expanding into Europe and Western Africa.
Further north, Russia is clearly claiming the Baltic region with its latest maneuvering of the MIG barrel rolls within 25 feet of U.S. aircraft.
And then there’s China clearly taking control of the South China Sea standing squarely against not just Vietnam, Cambodia, Malaysia, Brunei, and the Philippines but also the United States of America.
Right here at home in the U.S., we have perhaps the most divisive, nasty political primary process seen in the history of this country.
This is, as I warned a long time ago, the single major force that is going to drive gold’s new bull market, ultimately taking it to over $5,000 an ounce by 2020. I have no doubt about it.
But that does not mean that gold and other precious metals are going to go straight up. And if you think that way, I guarantee you that you will lose your shirt. Buying the wrong rallies, and selling into the lows.
We must remain focused and disciplined. That means sticking with the neural net models and the two alternatives forecasts that are available at this time. The top alternative is that gold and the other precious metals remain on track for a sharp decline into the end of May.
The second alternative – lower probability – is a cycle inversion as noted previously that could take gold up into the mid-$1,400 level before a much more prolonged and probably steeper correction begins.
I know you feel like you’re missing the market. And indeed we have missed the recent move. But please remember that the types of moves you’re seeing in the gold market now are the types of moves that suck in the majority of weak investors, emotional investors, the followers and not the leaders.
We have some moves to make in our portfolio. Today I recommend you roll the May 2016 SPDR Gold Shares put options with a strike price of 118 forward to the August 2016 series and do the same for your positions in ZSL and its options.
Please follow the instructions below and act on the orders appropriate to your portfolio:
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ALL Members: 1. SELL TO CLOSE, ALL the May 2016 SPDR Gold Shares (GLD) put options, with a strike price of 118.00, symbol GLD160520P00118000, at $0.30 or better. This order is good till cancelled. 2. Using 3 percent of your trading funds, BUY TO OPEN, August 19, 2016 SPDR Gold Shares (GLD) put options, with a strike price 121.00, symbol GLD160819P00121000, at $3.85 or better. This order is good till cancelled. 3. SELL TO CLOSE, ALL the May 2016 ProShares UltraShort Silver (ZSL) call options, with a strike price of 50.00, symbol ZSL160520C00050000, at $0.25 or better. This order is good till cancelled. 4. Using 3 percent of your trading funds, BUY TO OPEN, August 19, 2016 ProShares UltraShort Silver (ZSL) call options, with a strike price of 40.00, symbol ZSL160819C00040000, at $3.50 or better. This order is good till cancelled. |
If you are simply trading the underlying ETFs – and not trading options – you may hold those for now, but if we get a gold close above $1,307, please exit those ETFs at the market.
Continue to hold all positions and related stops. We will make a move in oil today as well, so keep an eye on your inbox.
Stay tuned and best wishes,
Larry
