My dear friend and colleague Larry Edelson made the legendary forecast that gold will reach $5,000 an ounce.
But my latest analysis of interest rates — backed up by my cycle and historical research — tells me that $5K gold could just be the beginning. The yellow metal could ultimately go much higher in price. Here’s why …
Gold is up 11.2% so far in 2017, while silver has gained nearly 15% in value. That leaves the Dow Jones Industrials paltry year-to-date gain of 4% — not to mention most other asset classes — fading in the rearview mirror.
Financial media pundits cite many reasons why precious metals are outperforming other asset classes: Rising geopolitical tensions, growing doubts about Trump administration policies and election year uncertainty in Europe are near the top of the list.
But there’s another — and much more important — factor that’s lighting a fire under precious metals this year: Negative real interest rates!
In case you missed it, inflation has been steadily moving higher since last July. According to the latest data, the U.S. Consumer Price Index (CPI) rose at the fastest pace in five years, up 2.7% year-over-year in February.
Now, nobody is expecting runaway inflation as American consumers witnessed in the 1970s, let alone hyperinflation, as some Third World countries have experienced.
But while nobody’s looking, inflation is slowly but steadily creeping back into the U.S. economy. Normally, an inflation rate of nearly 3% would be nothing to get excited about … unless nominal interest rates are falling at the exact same time.
That means real interest rates — what you get when you subtract CPI from nominal Treasury yields — are turning negative, which in the past, has been rocket fuel for the precious metals not to mention resource stocks.
The previous chart, courtesy of my friends at U.S. Global Investors, perfectly illustrates the inverse — or opposite — relationship between real interest rates and gold prices. When inflation remains low, while Treasury yields rise, gold tends to struggle. That’s because investors are getting paid higher real yields to hold other assets, including stocks and bonds, while gold offers zero yield.
But whenever inflation creeps higher, while Treasury yields are flat-to-lower, that means lower real yields.
For example, if you invest in the 10-Year U.S. Treasury note today, you’re getting paid 2.3% annually. BUT inflation is already rising at a 2.7% rate. This means your effective, or real yield, is minus four-tenths of one percent (2.3% – 2.7% = -0.4%)!
In other words, investors in Treasury bonds today are getting robbed by inflation, with negative real yields.
And negative real interest rates make gold and silver a lot more attractive, not to mention other commodities, as well as commodity-producing stocks.
So, for all the hand-wringing going on today about the Federal Reserve and about how fast they intend to raise short-term interest rates, the reality is that real interest rates are what you should really be watching like a hawk right now.
That’s because real rates are not only negative now, but falling further below zero with each passing day — and that’s a powerful catalyst for gold.
In mid-March, the 10-Year Treasury yield was 2.6%, close to breakeven with the CPI inflation rate. But yields have been falling steadily since then, down to just 2.3% today. That means the real-yield-gap is widening — and I expect inflation to keep rising.
That’s especially true when you take into account the Trump administration’s proposals to restrict labor and slap tariffs on trade, including a border adjustment tax on imports. If passed, these policies will only tighten domestic labor markets, push up wage inflation, make imported goods and services more expensive for American consumers, and put more upward pressure on the CPI.
The Fed has been dragging its feet when it comes to normalizing interest rates for years now, using any excuse to keep rates lower for longer. In doing so, the Fed is playing a very dangerous game, falling behind the curve when it comes to inflation expectations.
Look, even the Fed’s favorite inflation measure — personal consumption expenditures — rose above the Fed’s own target level in February for the first time in almost five years.
Consumer spending jumped at a 3.5% annual rate in the fourth quarter of 2016, while the labor market gets tighter, putting upward pressure on wage growth. This is a recipe for accelerating inflation, even while the Fed is turning a blind eye.
Granted, the global economy overall remains in the grip of deflation. And any shock out of the blue could easily turn the uptrend for inflation back down. But we all know the Fed is reactionary, acting after the fact based on what markets are doing.
If inflation keeps accelerating, the Fed will find itself hopelessly behind the curve. And backed into an uncomfortable corner, it will be forced to raise short-term rates much faster than investors now expect.
Of course, that means lights-out for fixed-income investors as bond prices plunge, and it would result in destabilizing volatility in the stock market too. Watch out below. In fact, periods of high volatility in real interest rates in the past have coincided very well with sharp stock market corrections.
In addition to a lifetime devoted to the study of cycles, Larry was also a keen student of history. He constantly applied historical analysis to his cyclical market forecasts, to correctly identify past market periods and patterns, sometimes long forgotten, but destined to repeat.
Here is a historical period that is about to repeat in spades…
During the mid-to-late 1970s the Fed also found itself behind the curve with persistently negative real interest rates as inflation accelerated. Back then, the Fed responded by stepping up the pace of short-term rate hikes in an effort to force real rates to turn positive, but to no avail.
And if history is any guide, stock market investors may want to adopt a cautious stance, because the ‘70s was a very volatile time for the stock market. It was not a good time to own stocks as they went nowhere for half a decade, with several sharp bear market declines in between.
But it was a wonderful time to own gold, silver and select resource stocks!
Not only does the E-Wave cycle point to substantially higher gold prices, but this is being perfectly confirmed by the historical-period analysis of what happened in the late 1970s. As far as I can see it’s deja vu all over again today.
Remember, that during 1975 and 1976, the price of gold suffered a brutal correction, falling more than 40% in value. Many investors believed it was the end of the bull market in the yellow metal, but it was simply a head-fake correction that primed gold for even higher highs.
Then from August 1976 to 1980, spot gold prices soared an astonishing 480.4% higher, with most of that move taking place in the last year … a parabolic 188.9% move higher during 1979 and January 1980! Mining stocks, by comparison, performed even better.
And don’t forget: The Barron’s Gold Mining Index surged 554% higher over this same period.
Now, let’s put this historical period in the context of today’s gold market, the parallels are eerie. In fact, it’s almost exactly what investors have experienced in recent years.
After gold peaked above $1,700 an ounce in late 2012, the yellow metal declined more than 40% over the next few years, a devastating correction, just like 1975 and 1976. By late 2015, investors were about to throw in the towel on gold. Even die-hard gold bugs were losing their faith.
Then gold and silver bottomed and began to rise again.
Well guess what: History is repeating itself and the best gains are yet to come for gold, silver and especially for select mining stocks, which are leveraged bets on precious metals prices.
In the first phase of this secular bull market in gold, from 2000 to 2011, gold rose 533.9% and once again mining shares performed even better, with the NYSE Arca Gold Miners Index soaring an incredible 674.5%!
If we continue to follow the historical script, you can expect that the recent rise in gold and mining stocks from the 2015 low is only the beginning of the next big move. In fact, gold, silver and mining stocks are just now getting warmed up for much bigger gains in the years to come.
And the next phase of this secular bull market promises to be the most lucrative of all. During the last secular bull market in gold, from 1970 to 1980, the yellow metal jumped 391% in the first half of the move. Then after a multi-year correction, gold soared another 530% higher.
If we were to line up this historical period with the current bull market that began in 2000, it means gold still has the potential to reach $8,000 an ounce or more! In other words, Larry’s longstanding forecast of $5,000 gold may indeed prove to be a conservative target after all.
Basic Survival Strategies
I am pleased to report that as I pen this issue, Real Wealth Report’s overall performance is up a solid 10.9% year-to-date.
Larry left you in very good hands, and I expect this is going to be one of the best years ever to earn profits as markets turn more volatile and as real assets like gold and silver make the next big move to the upside!
The post-election stock market rally looks to be in jeopardy. Geo-political risks are rising just as the ramping up in the war cycles forecast. Remember, the war cycles aren’t just about conventional armed conflicts. They also predict rising social and political strife, just as we are seeing across the globe today. This is especially true in Europe, with elections in France now underway. We certainly see in the political divisiveness that’s taken hold here at home even before the election of Donald Trump as our 45th president.
That’s why stock markets finally appear to be rolling over amid disappointment over the lack of progress in Washington D.C. The E-Wave cycles clearly show stocks moving a tad higher over the next few weeks, before peaking next month. Then I expect a market correction to soon follow, and it could be a substantial move lower, because a pullback is long overdue.
So continue to remain patient and do not go all-in on stocks just yet. Based on my longer-term forecast, I believe the opportunity to get long stocks for a substantial ride higher … to Dow 25,000 and eventually 31,000 or more … is coming. But wait for my signal after a near-term correction.
Meanwhile, let me update you on your existing positions …
FIRST, continue to hold your physical gold as recommended. As a reminder: You should have bought on our previous recommendation at $1,207 and more recently at $1,250, 10% each time, your average being roughly $1,228.50.
After some back and filling earlier this month, gold has reached new highs for the year, a very bullish sign. The uptrend from the December low is still intact, and now that gold has closed convincingly above the $1,265 level on a weekly basis, the next key objective I’m watching is the $1,308 level. After that, I will be looking for a break above last year’s high at $1,377.50 as confirmation of a longer-term breakout to the upside and the next leg higher in this new bull market for gold.
Silver likewise notched a new weekly closing high for this year, settling at $18.54 an ounce the week ended April 14th. That surpasses the previous weekly closing high made in February and confirms the uptrend. Next levels I’m watching like a hawk are $18.42 to $19.01 … which represents the weekly closing high of October 31st 2016, and range high from November 2016. Ultimately a close above $21.23 an ounce is needed to confirm the longer-term bull market uptrend.
Now that we have broken above some of my key short-term levels, I will soon recommend that you add to your physical gold and silver holdings very soon, so stay tuned, BUT please be patient and wait for my signal.
Near term, gold and silver have expended a lot of energy during the recent rally. For instance, gold has been up 17 weeks from the low made back during the week of December 12th, 2016. It would not be one bit surprising to see gold, silver and the other precious metals pull back near term. And our E-Wave models suggest a short correction may take place beginning as soon as next month. I view this correction as a wonderful buying opportunity, so stay tuned.
Remember, these are long-term core emergency holdings. And if you followed our recommendations on these buys for 20% of 20% of the Basic Survival Strategies section, your total allocation should be no more than 4% of your entire liquid net worth (20% X 20%).
If anything changes, or I decide you should hedge your current holdings, rest assured I will notify you immediately in Real Wealth, or via a Flash Alert if necessary.
Continue to hold your …
- Core Gold Bullion (GOLDS), up 231.7% since originally recommended.
- SPDR Gold Shares (GLD), up 186.3% since our initial recommendation.
- Tocqueville Gold Fund (TGLDX), up 27.6%.
SECOND, hold your Platinum Bullion (XPT) and Palladium Bullion (XPD), which should be very minor in holdings.
THIRD, for spot silver: You should have 5% of your Basic Survival Strategies funds invested in Silver Bullion (XAG) when it hit $16.30 on November 23. You’re up 13.4% on this buy. Hold. I will let you know when to add-to, or hedge the position if need be.
FOURTH, continue to hold Yamana Gold Inc. (AUY), Goldcorp Inc. (GG) and Kinross Gold Corp. (KGC) — with good-till-canceled protective sell-stops at $2.34 … $11.49 … and $2.25, respectively.
Just like with gold, I’ll be looking to add to these positions soon, but we could see some short-term weakness, so be patient, our time to load up on miners is coming soon.
And remember, I’m constantly scanning my watch list of high-quality miners with low production costs for new potential buy recommendations. Stay tuned, because I expect to add substantially to your mining stock holdings this year.
FIFTH, keep holding your shares in Vantiv, Inc. (VNTV) with a good-till-canceled sell-stop at $49.74.
If not on board, for whatever reason, using 3% of your capital allocated to Basic Survival Strategies, buy Vantiv, Inc., symbol VNTV, at the market. Place a good-till-canceled sell-stop at $49.74.
Sixth, keep holding your shares in Textron Inc. (TXT) with a good-till-canceled sell-stop at $42.68.
If not on board, using 3% of your capital allocated to Basic Survival Strategies, buy Textron Inc., symbol TXT, at the market. Place a good-till-canceled sell-stop at $42.68.
Real Wealth Report Q&A
I have noticed a number of questions from members piling up in my email inbox. And while I don’t have the space to answer every one of them in this issue, here’s an urgent question and my straight answer …
Q: I received an email from you saying: “sell all your gold coins,” but Larry sent an email back in January 2016 saying that gold bullion is ready to explode to over $5,000 per ounce. So which is it?
Great question, and I’ve read several just like it. So here’s my direct answer: Please take a few minutes to go back and re-read my earlier email. I take great pains to point out, and I quote: “All of our proprietary cycles research is screaming that the price of gold will reach $5,000 by 2020 … a 289% increase.”
And in this issue of Real Wealth Report, you’ve just read the reasons why I believe $5,000 may in fact be a conservative price target. What’s more, it may NOT take until 2020 for gold to reach its peak, either.
That’s because market trends are moving so much faster these days. Time seems much more compressed, and moves unfold more quickly.
That said, it’s also true that by holding ONLY gold coins or bullion, you could be making a big mistake. Why? It’s simple, and I’ve already given you the answer in the main article above.
History has shown time and again that mining stocks have much more upside potential than the yellow metal itself. Again, here are the facts:
* In the late 1970s, gold gained 480% … but mining shares soared 554%!
* Again from 2000 to 2011, gold rose 534%, but gold and silver stocks soared 674%!
So it’s clear to me that you should diversify your holdings by owning high-quality mining stocks, like the ones in the Real Wealth Report recommended portfolio. And I plan to add more soon, when the time is right. You also hold gold, silver and other bullion positions, and I’m not suggesting you sell.
I’m simply pointing out that, dollar-for-dollar, mining stocks are likely to outperform gold going forward. That’s your best bet for building wealth in the next phase of the bull market in gold.